Scottish Lion shock decision w ill be appealed, vows PwC

The decision by a Scottish Court last week to prevent the proposed Scottish Lion solvent scheme of arrangement because of objections by some policyholders will be appealed, scheme adviser and partner at PricewaterhouseCoopers (PwC) Dan Schwarzmann has told The Insurance Insider.

The ruling by Lord Glennie - which sent shockwaves through the legacy industry when he issued his opinion last month - handed victory to a group of US-based policyholders who opposed the plan and was the second time a scheme to crystalise the liabilities of the run-off (re)insurer had been rebuffed.

The repercussions of the decision are one of the key discussions points at the annual AIRROC event - the largest gathering of run-off market in the US - which began on 19 October.

The Audley Gilroy-owned insurer and administrators PwC now have until 6 November to lodge the formal application. There will be a 21-day period after that in which grounds of appeal may be lodged, and an appeal hearing will be fixed.

Last week's two days of hearings also saw presiding judge Lord Glennie find the Scottish Lion party liable to pay the bulk of the expenses incurred by the creditors which objected to the scheme, marshaled by specialist law firm Covington & Burling.

"After the judge indicated which way he was leaning in the initial ruling on the fundamental point of scheme of arrangement law, it was not possible to make a deal with Covingtons clients or move to alter the scheme. There was nothing we could do to prevent the dismissal and, despite commentary to the contrary, the ruling was confirming what the judge had already said. It should be remembered that the Scottish system is different to that in England". Schwarzmann said.

And the dramatic Scottish Lion ruling - which sparked debate and confusion in the market prior to the formal dismissal - has dented confidence in insurance schemes whatever the outcome of the appeal, according to the consensus of senior legal practitioners

Speaking to The Insurance Insider, Juliette Winter, director and general counsel of Ruxley Ventures summed up the view:

"As a result of Scottish Lion solvent schemes are unlikely to be the preferred route for insurers wanting finality in respect of their discontinued business. However, whilst schemes are not for the faint hearted we believe that they are far from dead in the water and can succeed if considerable time and effort is taken dealing with policyholder concerns and making the Court comfortable with what is proposed."

And partner at Covington and Burling, Anne Ware told The Insurance Insider: "Lord Glennie has vindicated our clients' concerns that this particular petition was flawed."

Since the original decision, legacy practitioners have begun debating the likely repercussions for solvent schemes. Two distinct camps are forming: there are those who see far-reaching ramifications for the entire solvent schemes of arrangement mechanism, and those who interpret Lord Glennie's ruling as a case-specific one that should warn the industry over the ingredients of such schemes.