No. D-1-Gv-03-004537 the State of Texas § in the District
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Filed 08 July 30 P2:03 Amalia Rodriguez-Mendoza District Clerk Travis District NO. D-1-GV-03-004537 THE STATE OF TEXAS § IN THE DISTRICT COURT OF § v. § TRAVIS COUNTY, TEXAS § HIGHLANDS INSURANCE COMPANY § 53rd JUDICIAL DISTRICT APPLICATION FOR APPROVAL OF NOTICE REGARDING SETTLEMENT (Highlands Insurance Company (U.K.) Ltd. (in Administration)) TO THE HONORABLE JUDGE OF SAID COURT: COMES NOW, Prime Tempus, Inc., Special Deputy Receiver of Highlands Insurance Company ("SDR" and "Highlands," respectively), and files this Application for Approval of Notice Regarding Settlement (Highlands Insurance Company (U.K.) Ltd (in Administration)) ("Notice Application") and in support would respectfully show the Court as follows: I. INTRODUCTION 1. Concurrently with this Notice Application, the SDR has filed its Application for Authority to Settle (Highlands Insurance Company (U.K.) Ltd. (in Administration)) ("Settlement Application"). In the Settlement Application, the SDR requests authority to enter into a settlement agreement with Highlands Insurance Company (U.K.) Ltd. (in Administration) ("HICUK"). A copy of the proposed Settlement Agreement Between Highlands Insurance Company in Receivership and Highlands Insurance Company (U.K.) Ltd. (in Administration) ("Agreement") is attached to the Settlement Application as Exhibit A. Nothing in this Notice Application is intended to modify, limit, or expand in any way the Settlement Application or the terms of the Agreement. 2. The purpose of this Notice Application is to set out the notice plan to provide notice of the Settlement Application and the Agreement to those persons who have requested to be on the service list and such other persons as determined by the SDR pursuant to TEX. INS. CODE § 443.007(d). The SDR incorporates by reference as if fully set out all of the factual recitations included in the Settlement Application, contained in Paragraphs 6-11, 14-16. The SDR incorporates by reference as if fully set out all the definitions of terms and all other parts of the Agreement that is attached to the Settlement Application. II. AUTHORITY 3. On November 6, 2003, this Court entered its Agreed Permanent Injunction and Order Appointing Permanent Receiver ("Permanent Injunction") placing Highlands into permanent receivership ("Receivership") and appointing the Commissioner of Insurance for the State of Texas its Receiver. 4. The Receiver appointed Prime Tempus, Inc., as SDR of Highlands effective January 30, 2004. The SDR is authorized to file this Notice Application pursuant to the TEX. INS. CODE §§ 443.102, 443.007(d), and 443.008. III. PERSONS IMPACTED BY SETTLEMENT AGREEMENT 5. For over 10 years, Highlands, through the underwriting stamps of Highlands Underwriting Agents Limited and Tower X of Tower Underwriting Management Limited, underwrote and assumed, both U.S. and non-U.S., risks in the London Market. These risks included direct primary and excess layer liability slips as well as reinsurance liability slips (the "slips"). It is the slips that are the subject of the Settlement Application and the Agreement. 6. The SDR has identified several categories of persons who may be impacted by the Settlement Application ("affected party/parties"). The facts relating to the relevant slips give rise to some of these categories. All persons, including corporate entities, to whom a slip was issued in the London Market could be affected parties whose legal rights may be impacted by the Settlement Application. Based on the information available, it is believed that, all of the Application for Approval of Notice Regarding Settlement (Highlands Insurance Company (U.K.) Ltd (in Administration)) Page 2 of 10 coverages provided by the slips were occurrence coverages. Since the risks were issued starting in the early 1970s to the early 1980s, a timespan of 30 to 40 years, many of the corporate entities have been modified by sales, mergers, and acquisitions, making identification of all persons entitled to claim coverage difficult, if not impossible. Accordingly, even with a copy of the slip, the SDR is aware that the address listed on a 40 year old slip is not likely to be an address that will provide meaningful notice to affected parties without some additional investigation into a current address. In addition, due to the age of this book of business there could be slips issued that have not yet been identified. In practical terms, unless a claim has been presented since the early to mid eighties, the slip may not have been identified. 7. Much of the exposure on these London Market slips is for asbestos exposure and other mass tort type claims. Accordingly, the SDR has identified certain types of claimants likely to be involved. Since the SDR handles these types of exposures and claims in other categories of Highlands' policies and its other receivership estate experience, it is aware of the likely sources of new arisings on these types of long-tail exposures and has identified the areas of possible issue on these insurance risks. 8. The SDR is aware of several categories of affected parties for which it cannot identify a name or an address, or can only locate one or the other. Further, the SDR has been made aware by HICUK that copies of all of the slips cannot be located. 9. Finally, the SDR does have some limited information available regarding some of the slips that are the subject of the Settlement Application and the Agreement. With these considerations in mind, the SDR has determined a proposed course of notice as set out below. Application for Approval of Notice Regarding Settlement (Highlands Insurance Company (U.K.) Ltd (in Administration)) Page 3 of 10 IV. PROPOSED NOTICE OF SETTLEMENT 10. The SDR has created a mailout list from physical records of slips1 that the SDR received from HICUK in December 2007.2 Additionally, since the SDR is aware that the addresses, and possibly the names on a slip that is over 30 years old, are not correct the SDR has taken extra measures to obtain current data. To update this information, the SDR has undertaken to locate current corporate names and more up to date addresses of their physical location. 11. After the SDR filed its Plan of Rehabilitation ("Rehabilitation Plan"), HICUK mailed notices to the brokers and attorneys responsible for U.S. domiciled policyholders under the Section 51 Policies, requesting that proofs of claim be filed in the Highlands estate by claimants under Section 51 Policies issued to U.S. domiciled policyholders. Some holders of Section 51 Policies did file proofs of claim in the Highlands estate. All of the holders of Section 51 Policies that filed a proof of claim in the Highlands estate will be included on the mailout list. All persons who filed a proof of claim with Highlands on a commercial insurance policy (except for workers compensation and certain commercial automobile coverages) or for reinsurance claims will be on the mailout list. 12. As a part of the evidence submitted by HICUK during the trial of the Rehabilitation Plan before the master, HICUK submitted a list of slips, with slip numbers and assured names. This information has been added to the mailout list, and information on addresses has been researched. 1 Only some of the direct slips were available in the physical records. HICUK is aware that there are direct slips where they are unable to locate a physical copy of the slip. 2 As a part of the due diligence process that Highlands and HICUK participated in relating to a potential agreement to settle, HICUK provided pdfs of the slips over which it had possession. On these pdfs of 40 year old onion skins of typewritten carbon copies it was difficult, if not impossible, to clearly read the names and addresses of the name assureds named. Many of the pdfs were crumbling around the edges and had much discoloration from age. Application for Approval of Notice Regarding Settlement (Highlands Insurance Company (U.K.) Ltd (in Administration)) Page 4 of 10 13. As a part of its administration proceedings, HICUK has sent out notices to the identified creditors of its estate. HICUK has kept this list updated as new information on addresses has been received from creditors. HICUK has provided this updated list to Highlands and it has been added to the mailout list. 14. In the London Market, the brokers are the point of contact for insurance risks like those covered under the Section 51 Policies. HICUK has provided Highlands with the list of all the brokers responsible for the Section 51 Policies and these brokers will be on the mailout list. All of the attorneys who are involved on claims on Section 51 Policies were received from HICUK and will be on the list as well. 15. Sometimes coverage in the London Market would be sought by a US insurance agent, to provide for all of their client's insurance needs. Accordingly, the SDR will add to the mailout list the agents, brokers, producers of record, managing general agents, and third party administrators who worked with Highlands at the time Highlands stopped writing insurance risks or at the time of receivership, as shown by the electronic records of Highlands. 16. All reinsurers that Highlands' records reflect as having any involvement with Highlands are being included on the mailout list. There are some similarities of reinsurers with Highlands and HICUK. Due to the possibility that the Settlement Application may impact the legal rights of these reinsurers, the SDR determined that providing notice would be appropriate. 17. Because the historical types of claim made under the slips are for asbestos liabilities, the SDR has obtained a list of some asbestos trusts formed in bankruptcy estates in the United States and will include these parties in the mailout list.