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Pennsylvania clears the way for 15,000 lawsuits against Reliance customers

The Pennsylvania Insurance Department has allowed almost 15,000 lawsuits against customers of financially troubled Reliance Insurance Co. to go forward, but 17 of the most expensive cases remain on hold.

"The extension of the stay is for the 17 cases that may have exposed Reliance to financial difficulty — those that involved disputes of over $5 million."

Reliance is involved in the lawsuits because insurance companies are often responsible for defending and/or paying the legal expenses of their customers. For example, if someone who was insured by Reliance injured you in a car accident, and you sued him, Reliance might provide the lawyer to defend him because the insurance company would be responsible for paying any damages you won, up to the limits of the insurance policy.

The Pennsylvania Insurance Department, which assumed control of the insurer on May 29, 2001, had been granted a 60-day stay on all litigation pending against Reliance customers, effectively putting on hold thousands of claims. On Aug. 2, 2001, Pennsylvania Commonwealth Court granted a further 180-day extension of the stay for the 17 most expensive suits, but allowed the rest to go forward.

According to Rosanne Placey, press secretary for the Pennsylvania Insurance Department, the department had originally requested that the litigation be delayed so that they could ensure the cases would be suitably handled.

"The extension of the stay is for the 17 cases that may have exposed Reliance to financial difficulty — those that involved disputes of over $5 million," says Placey. "We wanted to be sure that we understood all of the issues involved so we could make sure that the litigation was managed properly."

The parent company of Reliance Insurance, Reliance Group Holdings Inc., has filed for bankruptcy, and the insurer may still face liquidation by the Pennsylvania Insurance Department.

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