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August 25, 2011 at 08:00 PM
WASHINGTON BUREAU — An unusual 10th U.S. Circuit Court of Appeals ruling has reminded life insurers about just how careful they have to be when they are trying to get Federal Deposit Insurance Corp. (FDIC) protection.
A 3-judge panel at the 10th Circuit ruled earlier this month that the FDIC need not treat $11.3 million in separate account assets deposited in two corporate accounts at a failed Topeka, Kan., bank as separate account assets.
The FDIC can treat the two corporate accounts as ordinary accounts, each with a $100,000 FDIC insurance limit, because the insurers that set up the accounts – subsidiaries of Aviva USA, Des Moines, Iowa – labeled each account, “operating account,” the panel held.
The ruling apparently could reduce the FDIC payout to the Aviva USA subsidiaries by more than 80%.
Sam Caligiuri, a partner at Day Pitney L.L.P., Hartford, and head of the firm’s insurance regulation and transaction practice group, says the case points up the need for insurers to make every effort to identify funds held in insurance company separate accounts as separate account funds.
“Where Aviva went wrong was classifying these funds in an operating account instead of stating explicitly that these were for an insurance company separate account,” Caligiuri says.
