Motion for Increase in Class 3 Distribution Percentage

STATE OF VERMONT
SUPERIOR COURT
WASHINGTON UNIT
)
COMMISSIONER OF THE )
DEPARTMENT OF FINANCIAL )
REGULATION, )
PLAINTIFF, ) CIVIL DIVISION
) DOCKET NO. 25-CV-01615
v. )
)
CARE RISK RETENTION GROUP, INC. )
RESPONDENT. )
)
MOTION TO INCREASE INTERIM DISTRIBUTION PERCENTAGE ON CLAIMS ALLOWED IN PRIORITY CLASS 3 Kaj Samsom, Commissioner of the Vermont Department of Financial Regulation (“Commissioner”) in his capacity as Liquidator (“Liquidator”) of Care Risk Retention Group, Inc. (“CARE” or the “Company”) hereby moves for an order increasing the interim distribution rate on allowed priority class 3 claims from 25% to 50%.

CARE was placed in liquidation by the Court’s Order of Liquidation entered July
3, 2025 (“Liquidation Order”). The Liquidation Order directed that the Liquidator develop and submit a plan of liquidation within 30 days. On July 18, 2025, the Liquidator filed his Motion for Interim Distribution on Priority Class 3 Claims and for Approval of Liquidation Plans (“Motion for Distribution & Plans”). The Motion for Distribution & Plans presented and requested approval for three different plans governing the administration of this proceeding, one of which is the Plan of Liquidation that addresses the filing, investigation, and determination of claims. The Plan of Liquidation contemplates that, among other things, the Liquidator will “monitor the Company’s financial condition and, as circumstances warrant, petition the Court to FILED: 5/6/2026 12:57 PM Vermont Superior Court Washington Unit 25-CV-01615

establish a distribution percentage for making interim payments on allowed claims.” Plan of Liquidation, ¶ 2.F. Consistent with that approach, the Motion for Distribution & Plans analyzed CARE’s financial condition, requested authority to make an interim distribution on claims allowed in priority class 3, and recommended that the interim distribution rate be set at 25%. See Motion for Distribution & Plans, ¶¶ 4-10. The Court granted the Motion for Distribution & Plans and entered the requested order on July 22, 2025. See Affidavit of J. David Leslie in Support of Motion to Increase Interim Distribution Percentage on Claims Allowed in Priority Class 3 (hereinafter, “Leslie Aff, ¶ __”), ¶¶ 1-2.
2. The 25% interim distribution was premised on several conservative assumptions.
See Motion for Distribution & Plans, ¶¶ 4-10. Most importantly, the 25% distribution was calculated using the assumption that all estate liabilities (other than administrative expenses) would fall in priority class 3. See id., ¶ 9. Though the Liquidator understood it was unlikely that all estate liabilities (other than administrative expenses) would fall in priority class 3, the assumption was adopted for purposes of conservatism and to avoid entangling consideration of the interim distribution with questions about claim value and priority – particularly the value and priority that might be assigned to claims relating to a $34.5 million arbitration award that had been entered against CARE as the result of a California bad faith claim handling action. See id., ¶ 9 and note 3. Leslie Aff., ¶ 2.
3. Questions of claim value and priority for POCs arising out of the California bad
faith claim handling action were resolved in a settlement agreement submitted to the Court on October 29, 2025, by the Liquidator’s Motion for Approval of Settlement Agreement with Claimants Adria Snover and Aruna Gupta. In that settlement agreement, the claimants seeking recovery arising from the California bad faith claim handling action agreed that $1 million of

their claim would be allowed in priority class 3 and the balance ($34,415,885) would be allowed in priority class 6. See id., ¶ 15. This resolution benefited other estate creditors because it would “facilitate a more prompt resolution of policy level claims and a higher distribution to that class of creditors.” See id., ¶ 22. By its order dated October 29, 2025, the Court approved the settlement agreement and allowed the claims in the recommended amounts and priority classes. Leslie Aff, ¶ 3.
4. With the value and priority of the California bad faith claims addressed, the
Liquidator hoped that it would be possible to promptly file a motion for increased distribution percentage. However, in the fall of 2025, the Liquidator also concluded that CARE’s preliquidation case reserves may have been inadequate such that liability estimates could not simply be rolled-forward and it was necessary instead to conduct a ground-up review of all open claims. This process is discussed in greater detail in the Liquidators’ First Status Report (filed herewith), ¶¶ 21-24. Broadly stated, however, the process included investigation of every “open” CARE claim by a third-party administrator, claims consultant, and counsel for the Liquidator. Following a “roundtable” discussion, the team set a defense expense reserve for each claim as well as two alternative estimates of indemnity value. First, the roundtable team would assign a “best estimate” value, reflecting their judgement as to the most likely point within the range of expected settlement/judgment outcomes for each claim. Second, the roundtable team would assign a “pessimistic scenario” value, set at the upper end of the reasonably expected range for settlement/judgment outcomes. Leslie Aff., ¶ 4.
5. This process began in Fall 2025. It was initially hoped results would be available
to support reporting as of December 31, 2025. However, roundtable analysis was not completed for all open claim files until March of 2026 and, even at that point, there were still a number of

claims for which the available information was insufficient to support establishment of a meaningful case reserve. The Liquidator has therefore continued to include an IBNR (“incurred but not reported”) reserve for possible future losses under existing extended reporting period coverages (i.e. “tail” coverage that was fully earned prior to liquidation and could not be cancelled) as well as a significant number of claims that have been reported to CARE but for which the Liquidator has not yet received information sufficient to establish a meaningful indemnity reserve. Leslie Aff., ¶ 5. Interim Distribution Analysis
6. Statutory Structure. The insurance laws provide that, “[u]nder the direction of the
court, the liquidator shall pay distributions in a manner that will assure the proper recognition of priorities and a reasonable balance between the expeditious completion of the liquidation and the protection of unliquidated and undetermined claims.” 8 V.S.A. § 7083; see 8 V.S.A. § 7081 (with regard to priorities, “[e]very claim in each class shall be paid in full or adequate funds retained for such payment before the members of the next class receive any payment.”). Thus, the Liquidator must ascertain the assets of the insolvent insurer, reserve funds for the payment of claims falling in higher priority classes and establish a distribution percentage that reasonably balances the interest of creditors with allowed claims and the interests of creditors with unliquidated/undetermined claims. In conducting this analysis, the Liquidator must adopt conservative estimates to avoid the risk of creating a subclass by distributing more now to creditors with currently allowed claims than can be distributed in the future to creditors whose claims have not yet been determined. See 8 V.S.A. § 7081 (“No subclass shall be established within any class.”).

Practically, compliance with the distribution statute requires projecting estate
liabilities for each priority class. Recognition of priorities for higher classes can then be assured by making distribution on the allowed claims and establishing reserves sufficient to ensure that all remaining claims expected to fall in that priority class can be paid in full. See 8 V.S.A. § 7081. If estimated liabilities in a priority class exceed the assets expected to be available, an interim distribution may be made on allowed claims so long as it is at a level (i.e. a distribution percentage) that is conservative and ensures there will be sufficient funds available to make similar payment on undetermined/unliquidated claims when they are eventually resolved. See 8 V.S.A. § 7083.
Estate Assets. The Liquidator has reported the current financial condition of
CARE in his First Status Report, including more than $25.59 million of assets as of March 31,
This figure includes:

Cash and cash equivalents ($1.35 million);
Invested assets ($15.24 million);
Credits for unpaid premium and other amounts the Liquidator expects to collect
throughs setoff against estate distributions ($490,000);
Credits for interim distributions already made to creditors with allowed priority
class 3 claims ($1.02 million); and,
Reinsurance recoverable ($7.5 million).
Notably, the reinsurance recoverable figure is projected on a conservative basis, assuming loss development consistent with the Liquidator’s “best estimate” of claim values and excluding

consideration of IBNR.1
The total of these numbers is approximately $25.6 million as described in the First Status Report (see ¶¶ 25-26). Leslie Aff., ¶ 6.
9. Liabilities.
a. Priority Class 1 (Administrative Expenses). By statute, the “costs and expenses of administration” fall in priority class 1. See 8 V.S.A. § 7081(1). An initial administrative expense reserve of $2 million was established in July of 2025 when the Company was placed in liquidation. The Liquidator has since drawn this reserve down on a dollar-for-dollar basis as administrative expenses have been paid and it now stands at $1,329,164 b. Priority Class 2 (Administrative Expenses of Guaranty Associations). Because CARE is a risk retention group, priority class 2 (applicable to the administrative expenses of guaranty associations) will necessarily be empty. See 8 V.S.A. § 7081(2). Accordingly, no reserve is established for priority class 2.
c. Priority Class 3 (Claims Arising under Policies). For purposes of establishing a
distribution percentage, the Liquidator values all priority class 3 exposures at $44.79 million. This figure reflects the value of priority class 3 claims reported to or allowed by the Court ($3,989,754), similar claims determined by the Liquidator but not yet reported to the Court ($122,508), an estimate of the remaining cost to defend claims against CARE insureds ($4.74 million), an estimate of the indemnity that may be owed on all open CARE claims valued on a “pessimistic scenario” basis ($32.94 million), and an estimate for IBNR ($3 million). The If CARE has more adverse claims experience, with losses developing closer to the “pessimistic scenario”, then reinsurance recoverable would likely increase above the “best estimate”. Inclusion of IBRN would similarly tend to increase reinsurance recoverable. Conservative approaches are appropriate, however, for purposes of calculating an interim distribution.

“pessimistic scenario” reflects the upper end of the reasonably expected value range for CARE’s indemnity obligations and is the appropriate measure for purposes of evaluating an interim distribution because it is more conservative than the “best estimate” value (the Liquidator’s judgment as to the most likely point within the expected range of potential exposure for a claim) used in financial and status reports and therefore helps to ensure that adequate funds are retained and subclasses avoided. Similarly, the Liquidator includes a $3 million IBNR estimate to provide adequate protection against the risk the future claims may be submitted under existing “tail” coverages and to reflect the risks associated with claims for which there is currently inadequate information to establish a case reserve. Leslie Aff., ¶ 7.
10. Distribution Calculation. The Liquidator believes that the $1.33 million balance of
the administrative expense reserve (described in ¶ 9.a above) is adequate to ensure that all claims in priority class 1 can be paid in full. See 8 V.S.A. §§ 7081 and 7083. Setting those funds aside from the $25.6 million of estate assets (described in ¶ 8) leaves approximately $24.26 million available for distribution on priority class 3 claims estimated at approximately $44.8 million on a “pessimistic scenario” basis. These figures imply that a distribution of approximately 54% may be possible at the conclusion of the CARE liquidation. Leslie Aff., ¶ 8.
11. The 54% figure reflects a number of conservative assumptions (e.g. reserves set at
a “pessimistic scenario” value rather than on a “best estimate” basis) but it would be prudent to retain an additional margin of conservatism by setting the interim distribution percentage lower

than the projected ultimate distribution percentage.2 The Liquidator therefore recommends that the Court increase the interim distribution percentage on allowed priority class 3 claims from 25% to 50%. Leslie Aff., ¶ 9.
12. Anticipated Disbursement. If the interim distribution rate on allowed priority
class 3 claims is increased to 50%, the Liquidator calculates that approximately $1.45 million can be disbursed to creditors with allowed priority class 3 claims. Leslie Aff., ¶ 10. WHEREFORE, the Liquidator requests that the Court enter an order:
a. Granting this Motion to Increase Interim Distribution Percentage on Claims Allowed in Priority Class 3; b. Establishing a 50% interim distribution rate on allowed priority class 3 claims; and
c. Granting such other and further relief as justice may require.
Dated in Montpelier, Vermont, this 6th day of May, 2026.
KAJ SAMSOM, COMMISSIONER,
DEPARTMENT OF FINANCIAL REGULATION
AS LIQUIDATOR OF CARE RISK RETENTION
GROUP, INC.
/s/Jennifer Rood
Jennifer Rood
Assistant General Counsel and Special
Assistant Attorney General
89 Main Street
Montpelier, VT 05620
(802) 828-5672 jennifer.rood@vermont.gov
A proposed form of order accompanies this Motion.
It should be noted that setting class 3 indemnity reserves at the Liquidator’s “best estimate” level and using a $1.5 million IBNR reserve would imply an ultimate class 3 distribution percentage of approximately 81%. Notably, that
figure still includes conservative assumptions, including an estimate of reinsurance recoverable that excludes IBNR.