The emperor robed himself in the finest threads money could buy. All stood in awe as he led a grand procession to display his new garments. To his embarrassment, the emperor learned he had no clothes. This old tale could just as easily apply to balloon insurance coverage.
You pay a premium and have a policy written in black and white. But what if a few months or even years latter, you receive a letter advising that the insurance company which stood behind the policy was no longer solvent and had filed for bankruptcy. Scary thought. Now you, like the emperor, are naked in front the world.
Impossible? In February of [1994] many balloonists received a letter from Deloitte & Touche's, Hamilton, Bermuda, office advising former policyholders that they, like the emperor, did not have any coverage. Avalon Insurance Company, Ltd. was in liquidation. Avalon was an offshore insurance company used by Urbine Balloon Agency of Greensboro, North Carolina, to write balloon insurance.
According to the letter from Deloitte, the liquidation trustee, Avalon was originally registered as an insurer under the 1978 Bermuda Insurance Act as The Vista Reinsurance Company, Ltd., June 30, 1983. The company subsequently changed its name as follows: In August 1987 to The Vista Insurance Company, Ltd.; in July 1990 to The Vista Marine Insurance Company, Ltd.; and in July 1991 to Avalon Insurance Company, Ltd. The share capital was authorized and fully paid as 140,000 shares of $1 par value each. Of those, 139,993 shares were held by Pegasus International Holdings, Inc., a company registered in North Carolina. The remaining seven shares were held by seven different people including Robert Urbine.
The letter went on to state that Robert Urbine was operating Avalon through his company based in North Carolina, Piedmont Financial Services. The letter also stated that during the period from August 1991 to June 1992, a number of reinsurance transactions were entered into for which there is little information on file.
The Urbines and their balloon insurance company have not been accused of any wrongdoing in regard to the liquidation of Avalon.
What happens when an insurance company becomes bankrupt? As many people in Florida and California discovered after Hurricane Andrew and the numerous disasters in the Golden State, they did not have any coverage.
State insurance commissioners evaluate companies that file to conduct business in their state. The assets of the insurance companies are examined to see if adequate resources are available to pay potential claims. If the state insurance commissioner does not think that the assets of the company are adequate to provide for potential claim losses, the insurance company is barred from soliciting business in that state. That does not necessarily mean that you cannot buy insurance from any insurance company that you want. Each state is different. For example, in California, companies soliciting insurance business must be approved. Among other requirements these companies must pay the state a tax on the premiums collected. California, however, does not prohibit its citizens from buying insurance from whomever they want. The only provision is that if the insurance is purchased from a company not approved, the insured must pay the tax.
In many states, paid balloon rides are regulated. In California the Public Utilities Commission regulates that activity. Balloon ride operations must have minimum passenger liability limits and the insurance company must be approved by the state. A spokesperson for the California PUC told Balloon Life that when a balloon ride operation submits their application they check the insurance company against a list of approved companies from the insurance commission office.
When an insurance company is declared insolvent it goes through a process similar to a company in bankruptcy. Creditors, including insured policyholders with claims, can present proof of debt to the trustee. The trustee locates all assets of the liquidated insurance company, establishes a priority of claims, and uses the available funds to pay those claims.
If little or no assets exist, the parties that have submitted proof of debt will not receive any funds. For example, when Executive Life Insurance was seized by the California State Insurance Commissioner, people with guaranteed insurance annuity policies saw their payout cut in half.
Policyholders are at risk with a failed insurance company in several ways. First, they no longer have insurance coverage and are out the premium they paid. Second, should a claim against them be filed, the insurance company is no longer able to hire legal counsel to defend the insured in a lawsuit. Third, should a claim be awarded against the former insured, the insured party will have to pay the award out of their pocket. That places the person, who paid the premium at risk for claims pending and claims yet to be filed.
With claims yet to be filed the balloonist may not be aware that there is a potential risk. Most claims are usually filed within months of the accident/incident. The longest a balloon insurance claim has taken to be filed is three years. Each state imposes its own statute of limitations for filing claims.
Accident claims, especially personal injury claims, that are not filed soon after the alleged incident can come as a real surprise. One balloonist, operating a ride business in Northern California, had a claim filed against him after he had changed insurance companies. His insurance company during the time of the incident leading to the claim was Pacific Star and Marine. The policy was written by Urbine Balloon Agency.
At the time the claim was made Pacific Star and Marine had filed for bankruptcy. The balloonist was on his own for his legal defense and any judgement which might arise from the case. He was able to settle the claim for several thousand dollars, paid from his own pocket.
Insurance is, by definition, a protective measure. By buying a policy the purchaser has coverage against loss, but only up to the limitations of the policy.
In its simplest form insurance pools money of many individuals to pay claims against its policyholders. In this way insurance spreads the risk of one person over many.
The insurance company usually takes one or more actions to secure its own financial strength. One of the methods is to buy reinsurance. In this case the company is further spreading the risk by purchasing insurance for itself. This continues to spread the risk over a wider field.
Insurance companies also make investments. Real estate, stocks, and bonds are a number of financial instruments used.
What happened to Avalon? According to Business Insurance, an insurance industry newsletter, Robert Urbine is quoted as being victimized by others involved with Avalon and Intrepid Insurance Company of West Virginia. Intrepid, which Urbine helped to form in 1987, was declared insolvent and ordered into rehabilitation in 1991. The article went on to state that Mr. Arthur A. Blumeyer III is a convicted insurance con man who wrote policies for Avalon and other companies without authority and failed to forward premiums.
Where does that leave Avalon policyholders that Urbine Balloon Agency had written insurance for? Balloon Life spoke with Kent Urbine at his Greensboro, North Carolina office.
"We saw the Avalon problem coming," said Kent Urbine. "We stopped writing policies for Avalon in December 1992. At the time Avalon went into liquidation there were four or five unpaid claims that had not been settled. Offers had been made but, the plaintiffs' attorneys were holding out for more. They should have taken the offers."
Maybe. Now the insured will have to make good on any judgement awarded against them and pay their own legal fees.
Urbine told Balloon Life that they are now writing all of their balloon insurance through International Casualty & Surety Co. Ltd. of New Zealand. IC&S has been capitalized with many of the same assets as First Assurance & Casualty Co. Ltd. of the Turks & Caicos Islands, which was barred in several states from doing business and filed for bankruptcy last year.
"IC&S has a policyholders' trust account set up in the U.S.," Urbine said.
Nancy Barnett, a trust officer at The Trust Co., St. Joseph, Missouri, confirmed to Balloon Life that IC&S has set up an account consisting of 400,000 shares of Maxxim International Corp. of Dallas, Texas, valued at $1.5 million.
George Burrell, president, Maxxim International Corp., told Balloon Life that his company's main business is nurturing niche companies that need assistance in reaching their next level of business. Maxxim‹stock symbol MXMI‹is traded in the Over The Counter market, level three.
The financial stability of insurance companies has been an issue for the Balloon Federation of America. The BFA's Board of Directors requires any pilot who wishes to fly in a Competitive Division/BFA sanctioned race to have insurance from a U.S. insurance company with a rating of at least B or from Lloyd's of London.
In addition to the BFA, several other balloon events including the Kodak Albuquerque International Balloon Fiesta, have placed similar requirements on their balloon participants. This action, at present, only excludes balloonists who have purchased their balloon insurance through Urbine Balloon Agency.
Urbine Balloon Agency, which uses offshore insurance companies, points out that Lloyd's of London is offshore. Lloyd's is not a company but, an insurance market place. It has no shareholders and accepts no corporate liability for risks insured there. Lloyd's is a society of underwriters, all of whom accept insurance risks for their personal profit or loss and are liable to the full extent of their private wealth to meet their insurance commitments. Balloon insurance for example, a Lloyd's broker will approach syndicates to get the "slip" fully subscribed, each taking a percentage of the business.
1992 The Davies Company, Vail, Colorado, put together an insurance package comprising coverage from both Lloyds and other insurance companies. In March of 1993, the non-Lloyds company insuring balloons through Davies went bankrupt. This created an exposure in the total coverage. The Davies Company immediately arranged other insurance for its policyholders. "No policyholders suffered a financial loss," says Tom Davies. Today Davies uses 100 percent Lloyds coverage.
Kent Urbine also pointed out that Aviation Office of America has also stopped writing balloon insurance. Over the last 15 years a number of insurance companies have abandoned the balloon market. From a claims standpoint, however, there is a big difference between a company leaving the market and one that ceases to exist. When a claim arises it is the insurance company who had the policy at the time of the incident that is involved in providing coverage for you. Even if you no longer have insurance from that company.
Insurance companies still in business will be able to provide services necessary to help settle the claim. Companies in liquidation or no longer in business will not be able to provide any services or benefits.
Massive claims against insurance companies can cause any company to become financially insolvent. If an insurance company is an admitted carrier in a state, there is a fund that the state insurance commissioner uses to help pay claims from for the insolvent company.
Buying insurance is more than just finding the best rates. Financial stability of the company is an important consideration. Thinking that you are covered, when in reality you are naked, is a very uncomfortable situation‹just ask the emperor.