KCIC has blogged in the past about our concerns surrounding SPARTA Insurance Company and its potential responsibility for policies written by American Employers Insurance Company (“AEIC”). SPARTA has been paying AEIC claims while pursuing a lawsuit against Pennsylvania Insurance Company (“PIC”), who it argues is actually still responsible for the AEIC policies because PIC novated the policies to OneBeacon Insurance Company (now Bedivere Insurance Company, in liquidation in Pennsylvania) without SPARTA’s consent. In the fall of 2025, the US District Court for the District of Massachusetts agreed, finding that SPARTA’s inaction and silence at the time of the novation did not establish its consent.

How Did We Get Here?

AEIC had long been affiliated with the US-based Commercial Union companies, even writing on the same paper at times. Claims from insureds seeking to access their rights under AEIC and Commercial Union policies were typically handled together. In the early 2000s, AEIC ceased writing new business. As part of a 2005 restructuring by AEIC’s parent, OneBeacon Insurance Group, nearly all of AEIC’s liabilities were assumed by Pennsylvania General Insurance Company, now known as Pennsylvania Insurance Company. In 2007, SPARTA Holdings purchased AEIC and renamed it to SPARTA Insurance Company; AEIC was intended to be a clean shell at that point, with liabilities still assumed by PIC and further guaranteed by OneBeacon Insurance Company. AEIC insureds continued to present claims to OneBeacon.

Then, in 2012, PIC transferred all of its liabilities to OneBeacon Insurance Company and was then sold to North American Casualty as a clean shell. The court ruled that SPARTA was not a party to this transfer and therefore did not consent to it. SPARTA contends that it was not even notified of the transaction until well after it was completed.

SPARTA’s lack of consent is important because in 2014, OneBeacon Insurance Company was sold to Armour Holdings and renamed Bedivere Insurance Company. AEIC insureds now needed to present their claims to Bedivere. Everything worked fine enough until Bedivere’s financial health deteriorated to the point that it was declared insolvent and put into liquidation in March of 2021, at which point Bedivere ceased paying claims under AEIC or any other policies. After PIC refused to pay these claims, SPARTA began paying them through capital contributions from its parent company, and subsequently initiated the lawsuit in July of 2021 in the United States District Court of Massachusetts.

After several years of litigation, the court agreed with SPARTA in September 2025 that PIC’s liability for AEIC policies could not be transferred unilaterally as part of the 2012 transaction. As a result, PIC’s responsibility to provide coverage for such policies was not extinguished.

What Does It Mean for AEIC Insureds?

The short answer is: we don’t know yet! Last fall’s ruling declared that SPARTA needed to present actual claims that they had paid out on to pursue reimbursement from PIC for those claims. SPARTA has done just that, filing multiple lawsuits since, including a demand for $23 million relating to SPARTA’s resolution of claims made by the Archdiocese of New Orleans. That lawsuit alleges that PIC owes SPARTA more than $120 million in total.

SPARTA actively pursued commutations with many AEIC insureds in an effort to achieve more certainty on the dollars at issue in its dispute with PIC. As KCIC has previously reported, SPARTA has been paying AEIC losses not through its own reserves, but from special capital contributions from its parent, Catalina Holdings. Presumably, it will now seek reimbursement from PIC for these claims and other costs associated with them.

Pursuant to a sealed document filed on May 29,2026, the cases are stayed because SPARTA and PIC have provisionally settled the lawsuits, subject to regulatory approval. Details of the settlement are not yet public, but PIC’s 2025 annual statutory financials disclose a $53,500,000 increase in losses relating to a proposed settlement of the SPARTA litigation. Whether this number represents PIC’s full and final responsibility for AEIC claims remains to be seen.

We naturally wanted to investigate whether PIC can reasonably afford to pay such a settlement. After this charge, PIC’s 2025 annual financials reported $91 million in policyholders surplus, which corresponds to a 585% risk-based capital ratio (well above the 200% Company Action Level when regulatory intervention might occur). As of March 31, 2026, PIC’s policyholders surplus had fallen to $79 million, still a 508% RBC ratio.  Based on these ratios and the fact that it continues to write new business, PIC looks to be on solid footing. It has the benefit of continuing to write new business and collecting premiums and is supported by a parent organization that is committed to the insurance industry.

What should AEIC policyholders do now?

AEIC policyholders have generally benefited from SPARTA paying claims while it contends that PIC is ultimately responsible. Given the uncertainty, some policyholders proactively commuted AEIC coverage to avoid getting tied up in a future liquidation proceeding. It isn’t clear whether the proposed settlement would change SPARTA’s course of conduct on AEIC policies and claims.

Those policyholders who kept the coverage should continue to engage with SPARTA and proactively seek confirmation of how their claims will be handled going forward. Until more is known, policyholders who are providing notice of new claims may wish to send to both SPARTA and PIC to be safe.

What Did We Learn?

The 2025 ruling is a reminder to insurers and other companies that legacy liabilities do not disappear when ownership changes. Determining which insurer is responsible for decades-old policies may require careful investigation, but following the trail (and the money) can pay big dividends. Understanding a legacy insurer’s financial strength and incentives is an important part of the insurance recovery strategy.

KCIC will continue to monitor and report on the SPARTA-PIC dispute, any disclosed settlement, and the companies’ financial results. Stay tuned for the next chapter in this long-running insurance company drama!