A federal judge has released millions of dollars car dealers set aside to pay claims under vehicle service contracts insured by insolvent National Warranty Insurance Co., according to the trade newspaper Automotive News.

The United States Bankruptcy Court in Omaha ruled Sept. 5 that the money does not belong to National Warranty, which is in liquidation proceedings in the Cayman Islands where it is

incorporated.

About half of the estimated 5,000 dealers who sold vehicle service contracts insured by Lincoln, Neb.-based National Warranty had deposited money in escrow accounts to pay claims if the insurer was unable to do so. But these funds were frozen by the Grand Court of the Cayman Islands when it issued an order protecting National Warranty from creditors June 6.

The court declared the troubled insurer insolvent on August 1. About 1 million service contracts are still in force and many dealers have been honoring the contracts, according to Automotive News, even though National Warranty stopped paying claims.

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