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Regis Insurance Company v. A.M. Best Company

March 1, 2013

REGIS INSURANCE COMPANY, PLAINTIFF,
v.
A.M. BEST COMPANY, INC.,
DEFENDANT.



The opinion of the court was delivered by: Tucker, J.

MEMORANDUM OPINION

February ___, 2013

Presently before the Court are Defendant A.M. Best Company, Inc.'s Motion for Summary Judgment (Doc. 46), Plaintiff Regis Insurance Company's Response in Opposition thereto (Doc. 47), and Defendant's Reply (Doc. 49). Upon consideration of the parties' motions with briefs and exhibits, and for the reasons set forth below, Defendant's motion will be granted in part and denied in part

I. FACTUAL BACKGROUND *fn1

Regis Insurance Company ("Regis") is a property and casualty insurance company operating out of offices in Wayne, Pennsylvania. Regis is owned by a holding company, Tiber Holding Corporation ("Tiber"). Tiber's lone asset of value is Regis. Tiber is dormant and its only function is to hold Regis and several other shell corporations that are no longer operating companies. Regis underwrites commercial policies of insurance, and has done so for over 30 years. Regis is operated by Richard Di Loreto ("Mr. Di Loreto"), *fn2 who has served as Regis' president for the vast majority of its existence. Tiber is owned by Mr. Di Loreto's wife, daughter, and the Di Loreto Foundation.

A.M. Best Company, Inc. ("A.M. Best" or "Best") is a credit rating agency that develops and publishes financial strength ratings ("FSRs") and issuer credit ratings ("ICRs") of insurance companies for use by the public, including the subscribers to its publications. *fn3 Best determines credit ratings based on its own methodologies (both published and proprietary). Best has been in business since 1899.

Generally speaking, Best's ratings process is as follows. Best first gathers information from public and non-public sources. Meetings and communications between Best personnel and management of the entity being rated provide additional information. In this regard, Best reviews materials such as balance sheets, financial statements, filings with the company's regulating authority, and other written material requested by Best at the meeting. Best's analysts then take the information provided and apply various published and proprietary formulae and methodologies to the information in order to develop a rating for the entity. The rating will include a FSR, ICR, and predictive outlook for the coming year. After a preliminary analysis has been completed by Best's analytical team, the analysis is presented to a Peer Ratings Committee comprised of senior Best executives and the analytic team. A vote is then taken on the appropriate rating to be given to the entity based on the analysis. A.M. Best then disseminates its' ratings, the bases for its ratings, and information concerning its methodologies on its website and in its various publications.

In connection with formulating this rating, Best engages in both a "top-down" and "bottom-up" analysis to assess sources of risk to the rated entity. Best's standard methodology provides:

The top-down analysis includes the exposure to risk generated by activities at the parent/holding company[,] such as the potential strain on the operating entity from debt-service requirements related to the parent's borrowings, as well as the benefits of earnings diversification that may come from being a member of a diversified organization. For the non-rated subsidiaries, A.M. Best performs a detailed internal analysis of their risk profile and resulting effect on the rated entities within the group, including A.M. Best's judgment as to the exposure of that entity to debt or other borrowings at the holding company level.

The bottom-up analysis focuses on an assessment of the risks generated directly by the operations of the rated entity itself, as well as any other rated affiliates. For insurers, this analysis includes an assessment of underwriting, credit, interest rate, market and other risks at the operating company level. The primary objective of this overall approach is to gain a broad understanding of the potential impact on the current and future balance sheet of the rated operating entity -- both from its own operations and those of its parent and affiliates.. (Def.'s Ex. O at 20-21, "Excerpt's from 2010 Best's Credit Rating Methodology.") (emphasis added). Accordingly, Best's analysis of risk explicitly includes, inter alia, consideration of the risk generated by the activities at the parent/holding company, such as the potential strain on the subsidiary from the parent's borrowings and whether a parent's activities could reasonably be expected to place a call on the capital of the subsidiary or limit the insurer's access to capital from investors or lenders.

Regis has been rated by A.M. Best every year since the mid-1980s. Over the decades in which Regis has been rated by Best, Regis has enjoyed positive ratings. In 1999, Regis was rated A- (Excellent). In 2000, Regis was downgraded to B (Very Good). From 2000 to 2009, Regis was never given an FSR of less than a B (Fair), which it was rated in 2004 and 2005. In eight out of ten of those years (2000, 2001, 2002, 2003, 2006, 2007, 2008, and 2009), Regis was rated B (Very Good) by Best. The case at bar concerns A.M. Best's rating of Regis in 2010, at which time Regis was downgraded to from a B to a B- (Fair). This rating was the culmination of Best's annual review of Regis, which started in November 2009 and ended in January 2010.

Regis' 2010 rating analysis began with a meeting on November 12, 2009 at Best's offices. In attendance for Best were Gerald Altonji ("Altonji'), the analysts' team leader, and Marc Liebowitz ("Liebowitz"), a ratings analyst. In attendance for Regis were Jim Moll, Regis' then-president, and Sharon Rinaldo, Regis' comptroller. During this meeting, the representatives from Best requested that Regis produce a financial statement for its parent company, Tiber. Following the meeting, Regis promptly provided a copy of Tiber's Consolidated Financial Statements for 2008 and 2007. The statement was received by Regis on November 16, 2009, although due to a clerical error at Best the statement did not reach the property and casualty analytic team until approximately December 3, 2009.

According to the financial statement, there are two judgments against Tiber. (Def.'s Ex. Z at Note P, "Tiber Holding Corporation and Subsidiaries Consolidated Financial Statements Years Ending December 31, 2008 and 2007.") Mr. Di Loreto formerly operated a now-defunct insurance company, Nassau Insurance Company ("Nassau") that was the subject of litigation in New York. Tiber was the parent company of Nassau as well. As a result of the litigation, the Superintendent of Insurance of the State of New York (the "NY Liquidator") obtained judgments against Tiber in August 2000 and May 2002. These judgments totaled almost $43 million as of December 31, 2008, including interest. Thus, Tiber's financial statement reflects, and Regis concedes, that Tiber is insolvent. In addition, Tiber's accountants cautioned that Tiber's financial and legal circumstances "create an uncertainty about the Company's ability to continue as a going concern." (Id. at Note R.)

The November 12, 2009 meeting was apparently the first time, in the entire history between these two companies, that A.M. Best requested Tiber's financial statement from Regis. Indeed, there is no proof in Best's file on Regis that such information about Tiber had ever been requested. Best, however, claims that on prior occasions Best's employees had inquired about the financial condition of Tiber. Best contends that Regis' representatives, including Mr. Di Loreto and Rinaldo, had always told them that Tiber had "no debt" and that it was financially sound. It is Best's position that, until late 2009, it had always taken Regis at its word. Regis, conversely, argues that Best has always been aware that Tiber is Regis' parent company and that it has never misrepresented Tiber's financial condition to Best. Regis further argues that the judgments against Tiber are and have always been a matter of public record. Accordingly, Regis denies have ever deceived Best and asserts that Tiber's financial condition has no impact at all on Regis.

On December 4, 2009, one day following the receipt of Tiber's financial statement by the proper individuals at Regis, a conference call took place between Altonji, Liebowitz, Mr. Di Loreto, and Earl Helstrom (Regis' accountant). Best expressed concern regarding the judgments and Tiber's insolvency. But unlike an ordinary business that may be seized to satisfy the debts of its parent company, an insurance company cannot be seized without the permission of its regulating authority. Accordingly, Mr. Di Loreto informed Altonji and Leibowitz that Stephen Johnson, Deputy Commissioner of the Pennsylvania Department of Insurance ("PA DOI"), would "confirm" that Pennsylvania would not allow the NY Liquidator to seize Regis in order to satisfy Tiber's debts.

On December 11, 2009, at the request of Mr. Di Loreto, Altonji and Leibowitz called Johnson. Johnson informed Altonji and Leibowitz that, in his view, the NY Liquidator's judgments were "meaningless." *fn4 (Def.'s Ex. OO, "Marc Liebowitz's Handwritten Notes from January 1, 2009 Call with Stephen Johnson.") However, Johnson also informed Altonji and Leibowitz the NY Liquidator had effectively blocked the sale of Regis by refusing to release its judgments against Tiber in return for being paid the proceeds of a proposed sale ($10 million).

Best did not contact NY Liquidator directly, nor did Regis request that Best contact the NY Liquidator directly. However, public records indicate that the NY Liquidator has taken various steps to collect on its judgments. For instance, in April 2003, the NY Liquidator recorded the judgments in Pennsylvania and served writs of execution on Regis for those judgments. The NY Liquidator also forced the sale of the Di Loretos' home in 2009 and obtained a payment of $1.1 million dollars from the eventual sale. The NY Liquidator also collected over $2.65 million from a malpractice action brought against the Di Loretos. Most recently, the NY Liquidator filed a complaint in the Eastern District of Pennsylvania against the Di Loretos, among others, alleging a "scheme" to transfer title to the Di Loreto home to a shell corporation using previously concealed funds and asserting claims for reverse veil-piercing, fraudulent transfer, constructive fraudulent transfer, unjust enrichment, and civil conspiracy. *fn5

That matter is still pending.

Following the phone call with Johnson, the A.M. Best Peer Ratings Committee ("PRC") met on December 14, 2009 to review Regis. The analytic team of Altonji and Leibowitz recommended to the PRC that Regis' 2009 rating (a B rating with stable outlook) be affirmed. However, the PRC (with the exception of Altonji) voted to downgrade Regis from a B to a B(Fair).

The PRC's decision was then referred to a second rating committee, the Corporate Rating Committee ("CRC") because of "extraordinary notching" resulting from Tiber's low rating. *fn6

(Def.'s Mot. Summ. J. 13.) The CRC has different members from the PRC (with one exception) and its members are more senior that the PRC's members. On December 16, 2009, the CRC voted to downgrade Regis' FSR even further, to C (Marginal). All CRC members, except for one, voted to lower Regis' rating with a negative outlook.

The following day, December 17, 2009, Liebowitz sent a draft press release to Mr. Di Loreto, which stated Regis was being downgraded to a C. This instigated a flurry of correspondence between Regis and Best, during which Mr. Di Loreto appealed the downgrade. As part of this process, a second conversation between Best representatives and Johnson took place on January 5, 2010. Johnson again dismissed concerns that Regis was at risk. In sum, the position of the PA DOI, as expressed by Johnson, was that Regis was "walled off" from Tiber's judgments and therefore remained financially viable. Based on this additional conversation with Johnson, the CRC voted to revise Regis' FSR from C to B-. Best sent a revised draft of the press release to Mr. Di Loreto. Mr. Di Loreto again protested, expressing his opinion that Regis should be treated as a stand-alone company and independent of Tiber. Best maintained its position that the financial condition of Tiber had an adverse impact on Regis. Regis issued its final press release, reflecting the B- rating, on January 12, 2010. Regis, in turn, issued its own counter-press release on February 22, 2010. This litigation ensued.

II. STANDARD OF REVIEW

Summary judgment is appropriate where the moving party establishes that "there is no genuine issue as to any material fact and that [it] is entitled to a judgment as a matter of law." Fed R. Civ P. 56(c); see also Levy v. Sterling Holding Co., LLC, 544 F.3d 493, 501 (3d Cir. 2008). A factual dispute between the parties will not defeat a motion for summary judgment unless it is both genuine and material. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Dee v. Borough of Dunmore , 549 F.3d 225, 229 (3d Cir. 2008). A factual dispute is genuine if a reasonable jury could return a verdict for the non-movant, and it is ...


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