Insurance Coverage
July 2002
Andrew Weir Announces Accelerated Closure
of Scheme of Arrangement and Bar Date
of September 25, 2002 for All Claims
In March 2002, the Scheme Creditors of Andrew
Weir Insurance Company Limited (“Andrew Weir”),
an insolvent London Market insurer, approved a
Special Resolution that allows the Scheme
Administrator of Andrew Weir to close its Scheme of
Arrangement on an accelerated basis. The Scheme
Administrator is in the process of distributing Claim
Forms to Scheme Creditors, including policyholders,
which identify the established claims of each
policyholder against Andrew Weir. If a policyholder
wishes to challenge information on the Claim Form
or file additional claims, it must return the Claim
Form and provide support for any claims by
September 25, 2002. Policyholders are entitled to
file contingent and IBNR claims, including long-tail
asbestos and environmental claims, which will be
valued pursuant to an actuarial process established in
the Special Resolution. To preserve their rights
against Andrew Weir, policyholders must present
detailed information concerning such claims prior to
the bar date of September 25, 2002. In presenting
contingent or IBNR claims to Andrew Weir,
however, policyholders should exercise caution to
avoid presenting information that may prejudice
other insurance claims or contradict public
statements concerning the company’s potential
liabilities. Once all claims are resolved, the Scheme
Administrators will declare a final payment
percentage and will issue a final scheme payment to
all Scheme Creditors with established claims.
I. BACKGROUND CONCERNING THE SPECIAL
RESOLUTION AND THE ACCELERATED
CLOSURE OF ANDREW WEIR
Andrew Weir underwrote policies from
approximately 1947 until 1991, generally assuming a
share of London Market policies along with other
London-based insurers. In 1991, Andrew Weir was
placed into run-off and subsequently, in 1992, was
placed into provisional liquidation. In 1994, the
creditors of Andrew Weir approved a Scheme of
Arrangement to govern the run-off of the Company.1
A Scheme of Arrangement is essentially a contract
among the creditors of an insolvent insurer that
governs the distribution of the assets of the insolvent
insurer.2 Schemes of Arrangement, which have been
used by numerous insolvent London insurers in the
past decade, differ from American liquidations in
many respects. For example, Schemes typically do
not impose a bar date on claims, and policyholders
generally may file claims at any point during the life
of the Scheme. In contrast, in statutory liquidations,
the liquidator often establishes a bar date for claims
near the outset of the liquidation proceedings. Thus,
policyholders with long-tail claims are often able to
recover a greater amount under Schemes, because
they may file claims when their long-tail claims
mature throughout the extended life of the Scheme.3
In addition, Schemes generally authorize the Scheme
Administrator to make periodic payments to creditors
for a fixed percentage of agreed claims. This
1
Andrew Weir Insurance Company Limited, Actuarial Estimation Methodology and Claims Agreement Process,
prepared by PriceWaterhouseCoopers (Dec. 14, 2001), ¶ 1.3.
2
See Kalis, Reiter, and Segerdahl, Policyholder’s Guide to Insurance Coverage § 22.03.
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Id.
Kirkpatrick & Lockhart LLP
“reserving” process allows policyholders with
liquidated claims to gain some recovery much earlier
in the liquidation process rather than waiting for one
payment after all claims have been resolved.4 For
example, the Scheme Administrators of Andrew Weir
have handled claims on a rolling basis and have
made periodic scheme payments to policyholders
with established claims over the past several years in
the total amount of 26% of the claims.
When Andrew Weir’s Scheme was established, the
Scheme Administrator recognized that many of
Andrew Weir’s liabilities arose from long-tail claims
that would take years to mature. Given the
prevalence of long-tail claims, “[i]t was recognised
[sic] that … at some point in the future, Scheme
Creditors might wish to bring the Scheme to an
earlier conclusion than would be the case if the
natural run-off were to continue.”5 To prepare for
such a contingency, Andrew Weir’s Scheme
contained a provision, known as the Valuation
Option, which would permit Scheme Creditors to
vote in the future to close the Scheme on an
accelerated basis. An Explanatory Memorandum to
the Scheme included the following explanation of the
Valuation Option:
Some of Andrew Weir’s Scheme Liabilities
have a very “long tail”.... It could be up to
15 years or more before some liabilities
mature. In those circumstances it is
considered that it might be in the interests of
Scheme Creditors as a whole to find a way
of bringing the Scheme to an earlier
conclusion. One method by which this
might be achieved is by providing a once
and for all cut-off for all liabilities which
have not finally matured and become
Established Liabilities. Accordingly, the
Scheme contains provisions under which the
Scheme Creditors can meet to consider and
vote on whether to introduce such a cut-off.
The basis of the cut-off would be that all
outstanding claims and IBNR claims would
be valued as at the cut-off date. If the value
cannot be agreed between the creditor and
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the Scheme Administrator, then it will be
referred to adjudication to an independent
adjudicator.6
In December 2001, the Scheme Administrator
circulated a notice and proxy materials to all Scheme
Creditors recommending that the Scheme Creditors
adopt the Valuation Option. In so recommending,
the Scheme Administrator stated that it was unlikely
that, in the Scheme’s present form, Andrew Weir
would increase its payment percentage and issue
supplemental scheme payments “for some time
because of low reinsurance cashflow, low claims
activity, high APH reserves and a high level of
uncertainty.”7 The Scheme Administrator also stated
that, even if the Scheme remained open until all of
the long-tail claims matured, there was no guarantee
that policyholders would receive a larger payment
than if the Scheme was closed on an accelerated
basis.
On March 25, 2002, a requisite majority of Scheme
Creditors approved the Special Resolution, although
the vote was not unanimous. Given uncertainties
with the so-called Valuation process, certain creditors
with contingent and unliquidated long-tail claims
voted against the Special Resolution.
II. THE CLAIMS PROCESS
A. Policyholders Must File Claims by
September 25, 2002
The Scheme Administrators are in the process of
distributing Claim Forms to all Scheme Creditors,
including policyholders. The Claim Forms identify
all known claims by each policyholder against
Andrew Weir, including contingent and IBNR
claims. The Scheme Administrators will ask each
Scheme Creditor to check the information on their
Claim Form, to add any relevant and additional
information, and to return the form by the bar date.8
If a policyholder disputes the amount of any claim
identified on the Claim Form or wishes to file
additional claims, then it must return the Claim
Form and provide details concerning the claim by
Id.
Special Resolution, ¶ B.1.5.
Special Resolution, ¶ B.2.1.
Special Resolution, ¶ B.1.3.
Special Resolution, ¶ B.1.3.
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September 25, 2002. If a policyholder does not
return the Claim Form, the Scheme Administrator
will assume that the policyholder has accepted the
amount of any claim identified on the Claim Form.9
According to the Special Resolution, “[t]he Scheme
Administrator and Scheme Actuary will assess the
Claim Form and supporting documentation returned
by each Scheme Creditor and will determine whether
the Scheme Creditor’s claims can be accepted. In
doing so, the Scheme Administrator and Scheme
Actuary may request additional information or
documentation from Scheme Creditors to support
their claims. The Scheme Actuary will review
Outstanding Losses and IBNR. The Scheme
Administrator will review other claims.”10 All
Liabilities will be valued at the Valuation Date of
December 31, 2001.11 While the Scheme
Administrator has reserved the right to consider
information submitted by Scheme Creditors after the
bar date, he or she is not required to do so.12 The
Scheme Administrator has estimated that it will take
four months after the bar date to evaluate all
claims.13
B. Policyholders Are Entitled to Submit
Contingent and IBNR Claims, Including
Long-Tail Asbestos, Toxic Tort, and
Environmental Claims
Policyholders are entitled to submit contingent
claims and IBNR claims, including claims for longtail liabilities, such as asbestos, toxic tort, and
environmental claims. According to the Scheme
Administrator, as a result of the passage of the
Special Resolution, Andrew Weir will now agree to
many long-tail claims that normally would have been
deferred for several years as the claims matured.14
Policyholders will need to present detailed
information concerning their claims, including
contingent long-tail claims, “in the same or
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substantially the same form as is customary for the
insured/reinsured to send to Andrew Weir or the
broker.”15 Policyholders should direct any questions
concerning what information should be filed to the
Scheme Administrator. The Scheme Administrator,
however, has provided specific guidelines on what
information should be submitted for certain types of
claims. For example, with respect to IBNR claims,
the Scheme Actuary will review the following:
the methodology and assumptions that the
policyholder has used to estimate its total
ultimate claim amount (and hence how it has
estimated IBNR);
the policy information that the policyholder
has used; and
the methodology that the policyholder has
used to allocate the total claim amount to each
policy (where applicable); and the
development of paid and incurred losses to the
treaty.16
With respect to asbestos-related IBNR claims, the
Scheme Administrator has recommended that
policyholders provide detailed information
concerning their claims, including, but not limited
to, the following: information about the asbestos
product involved and the years in which it was
manufactured; information concerning claims made
against and paid by the policyholder; and
information concerning the policyholder’s expenses
related to the settlement of claims.17
With respect to environmental-related IBNR claims,
the Scheme Administrator has recommended that
policyholders provide detailed information
concerning their claims, including, but not limited
to, the following: information concerning the sites at
issue; information concerning the estimated
Notice dated April 8, 2002, available at http://www.andrewweirinsurance.co.uk.
Special Resolution, ¶ C.6.1.4.
Id., ¶¶ 6.1.8, 6.4.1.
Id., ¶ 6.2.5.
Id., ¶ 6.1.9.
Id., ¶ C.4.4.
Claim Form Guidance Notes, available at http://www.andrewweirinsurance.co.uk, ¶ A.9.
Id. at ¶ C.3.
Id. at 8.
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remediation costs at the site; information concerning
the policyholder’s share of responsibility for the total
remediation costs; information concerning the
policyholder’s involvement at the site; and
information concerning remedial activities at the
site.18
C. The Resolution of Disputed Claims
If the Scheme Creditor and Scheme Administrator
fail to agree to a claim within a reasonable period of
time, then the Scheme Administrator will refer the
claim to an “Adjudicator.” Scheme Creditors may
not initiate the Adjudication Process on their own
volition. The Adjudicator may request additional
information from the Scheme Creditor, the Scheme
Administrator, or from Andrew Weir, or may request
that the parties attend a hearing with their authorized
representatives.19 The Adjudicator will attempt to
resolve all disputes within ninety days. The
Adjudicator will not determine the value of disputed
claims, but will determine the data that is relevant to
the claim. The Scheme Actuary will then determine
the value of the claim by applying the Estimation
Methodology set forth in the Special Resolution to
the data as determined by the Adjudicator.20
Policyholders with newly established claims will
receive a payment for a portion of their claim based
on the final payment percentage. For example, if
Andrew Weir agrees to a new claim of $1 million,
and sets a final payment percentage of 40%, it would
issue a final scheme payment of $400,000.
Policyholders that have already received payments
for 26% of their established claims will receive a
supplemental payment to reflect the amount of the
increase of the payment percentage.
III. POLICYHOLDERS SHOULD EXERCISE
CAUTION
A policyholder should consider various business
issues before pursuing claims against Andrew Weir.
First, in many cases, Andrew Weir assumed only a
small portion of the risk insured by the London
Market. Policyholders should exercise caution in
taking positions that may maximize their recovery
against Andrew Weir, but negatively impact a
potential larger recovery against the solvent London
Market or other insurers. In addition, for various
business reasons or to avoid conflicts with reporting
requirements, a policyholder may not want to
estimate its future contingent liabilities or share its
internal projections for such liabilities.
D. Final Scheme Payment
As part of the closure of the Scheme, the Scheme
Administrator will declare a final payment
percentage for all established claims. The Scheme
Administrator has not provided any official public
estimates of the final payment percentage, and has
noted only that the final payment percentage will
depend on a number of factors, including the final
level of set-off, the amount of reinsurance collected
and the value of Andrew Weir’s liabilities.21 As
noted above, the current payment percentage is 26%.
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IV. CONCLUSION
In sum, policyholders should carefully review the
Claim Form provided by Andrew Weir and determine
whether to pursue claims against this insolvent
insurer. If a policyholder decides to pursue such
claims, it must provide detailed information prior to
the bar date of September 25, 2002.
GREGORY S. WRIGHT
202.778.9250
gwright@kl.com
JOHN M. SYLVESTER
412.335.8617
jsylvester@kl.com
Id. at 9.
Special Resolution, ¶ C.6.6.2.
Id., ¶ C.6.6.5.
Special Resolution, ¶ B.5.3.
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The Insurance Coverage practice group at Kirkpatrick & Lockhart LLP is one of the nation’s largest
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Insurance Coverage and edited the Journal of Insurance Coverage.
For additional information concerning this topic or Kirkpatrick & Lockhart LLP’s insurance coverage
practice, please consult the Kirkpatrick & Lockhart LLP office contacts listed below:
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202.778.9250
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This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein
should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2002 KIRKPATRICK & LOCKHART LLP.
ALL RIGHTS RESERVED.
