Thousands of dealerships can't get at money they set aside to help cover claims from service contracts backed by failed National Warranty Insurance Co.
The dealerships' money has been frozen by an order from a court in the Cayman Islands as National Warranty goes through liquidation proceedings. As a result, some dealers are paying tens of thousands of dollars out of their own pockets to settle claims.
Dealerships are in a costly limbo until the funds are released, says Kirk Borchardt, a Santa Barbara, Calif., attorney who represents some of the dealerships.
He says some of his clients have $2 million to $3 million in dealership-owned reinsurance companies set up to pay claims if a service contract program runs into trouble.
"Imagine how angry those dealers are," Borchardt says.
National Warranty, which is based in Lincoln, Neb., and incorporated in the Cayman Islands, was declared insolvent by the Grand Court of the Cayman Islands on Aug. 1. The court ordered that its assets be liquidated.
The insurer also has sought to extend an order protecting it from creditors in U.S. Bankruptcy Court in Omaha, Neb. But a decision expected Tuesday, Aug. 5, was postponed indefinitely.