Delaware’s Court of Chancery has granted summary judgment to Genworth Life Insurance Co. and related entities in litigation brought by long-term care policyholders challenging a 2016 corporate restructuring. The plaintiffs alleged that terminating reinsurance arrangements and issuing dividends to parent companies functioned as fraudulent transfers that impaired the insurer’s claims-paying resources. Vice Chancellor Nathan A. Cook concluded that the action operated as an impermissible collateral attack on the Delaware insurance commissioner’s prior approval of the restructuring, including a merger that the regulator evaluated for its impact on policyholder protections. While the opinion also addressed disputed questions tied to insolvency and the definition of a transfer, the court resolved the case on administrative finality grounds.
Policyholders’ Fraudulent Transfer Claims and Requested Relief
In Richard Burkhart et al. v. Genworth Financial Inc. et al., Case No. 2018-0691, the policyholders sued in the Delaware Court of Chancery in 2018, targeting steps taken in connection with Genworth’s long-term care insurance business. The complaint alleged that Genworth terminated various reinsurance agreements and issued dividends to parent companies as part of a restructuring that isolated the long-term care insurance arm and merged it with another subsidiary. The policyholders further alleged that a Genworth subsidiary, Genworth Financial International Holdings LLC, sold interests in valuable international mortgage subsidiaries, which they contended diverted assets away from policyholders.
The plaintiffs’ theory was that the restructuring stripped the insurance unit of assets and left the insurer without sufficient capital to meet obligations to policyholders and agents. As framed in the litigation, the requested outcome would have returned what the plaintiffs described as $1.5 billion in claims-paying resources to GLIC. Genworth and its affiliates defended the restructuring as having been vetted by the Delaware Department of Insurance, and they sought summary judgment. They were represented by Richards Layton & Finger PA, Dentons US LLP, and Hueston Hennigan LLP.
Chancery Court Holds the Suit Was a Barred Collateral Attack
Vice Chancellor Cook ruled that the policyholders had standing but held that the defendants were entitled to summary judgment because the suit was barred by Delaware’s collateral attack doctrine. The court treated the action as an effort to revisit core issues already decided when the insurance commissioner approved the 2016 restructuring, including whether the merger would undermine Genworth’s ability to perform its long-term care insurance obligations. The Department of Insurance had considered whether the transaction would reduce the service rendered to policyholders and determined that the merger would not do so.
The opinion also emphasized that the plaintiffs pursued relief in Chancery that they could have sought through the Department’s review process. The court noted that the merger review involved public notice of a hearing, yet the plaintiffs did not object at the time, appear at the noticed hearing, or present evidence, briefing, or argument to the hearing officer or the Department. The vice chancellor further observed that no one sought review of the commissioner’s approval decision after it issued. Against that record, the court concluded that the plaintiffs failed to identify a genuine issue that would allow them to sidestep the collateral attack doctrine and relitigate the substance of the regulator’s approval.
Unreached Issues: Insolvency Disputes and Whether Termination Is a “Transfer”
Although the collateral attack doctrine disposed of the case, Vice Chancellor Cook addressed issues he characterized as presenting serious questions. He stated that if collateral attack principles did not support summary judgment, the more appropriate course would have been to deny summary judgment on contested insolvency and transfer questions rather than definitively resolving them on the existing record. The opinion pointed to factual disputes linked to the long-term care insurance business, where liabilities are forecast decades into the future.
On insolvency, the court indicated that multiple fact disputes remained over whether the reinsurance termination would render Genworth insolvent, a conclusion that would have made summary judgment inappropriate. Separately, the court noted that neither side cited Delaware precedent addressing whether terminating a contract qualifies as a transfer under the Delaware Uniform Fraudulent Transfer Act. The opinion described out-of-state rulings on that question as mixed, suggesting the issue would not be well-suited for summary judgment in this matter, given the lack of controlling Delaware authority and the contested factual record.
Practical Takeaways for Regulated Insurance Restructurings
The decision underscores how administrative approval can shape later civil litigation when plaintiffs attempt to unwind or reframe the economic effects of a regulator-approved insurance restructuring. By treating the suit as a collateral attack, the court placed weight on the Department of Insurance’s prior evaluation of policyholder impact and on the availability of participation and review mechanisms within the administrative process.
For policyholders and other stakeholders, the opinion highlights the litigation risk of waiting until after regulatory approval becomes final to raise objections that go to the central findings supporting that approval. In a narrow but consequential observation, the court’s discussion of unresolved DUFTA questions signals that, absent collateral attack barriers, disputes over long-horizon insurance liabilities and whether contract termination can constitute a transfer may remain fact-intensive and difficult to resolve at the summary judgment stage.
