November 30, 2004

WTC Coverage Dispute - Phase Two

WTC lessee Larry Silverstein and several insurers disagree on whether the events of 9/11 at the World Trade Center Properties (WTC) were one "event" or "occurrence" (with one deductible and policy limit) or two (with two deductibles and policy limits). At stake in the dispute is several billion dollars in insurance coverage ... and the dispute is over the meaning of policies that had not been issued at the time of the disaster. The case has been to the Second Circuit and back, and is likely to make that trip, or higher, again. In the interim, the facts have been described as presenting a law school case study that has to be real, because it would not be credible if a professor made it up.

Online resources on the dispute include those linked below. Please let me know of other resources you might recommend:

(Read more)

Silverstein, Insurers Face Off In Round Two $2.264 billion at stake as nine carriers seek to limit 9/11 coverage to one event 10/14/2004, republishing National Underwriter 10/11/2004.

"Words worth billions: ..." Risk & Insurance, June 2004.

"Silverstein hit by Swiss Re setback; prepares for new phase of litigation", Business Insurance 5/10/2004.

WTC Leaseholder Loses Insurance Battle April 30, 2004 (jury verdict that the attacks represented a single event)

"Revisiting the Number of Occurrences Issue -- An Examination of the Case Law on 'Number of Occurrences' In Light of the New York Federal Court's Recent Ruling that the Terrorist Attack on the World Trade Center is a Single Occurrence." Nixon PeabodyLLP, 10/8/2002.

"Double Indemnity", The American Lawyer, 9/3/2002.

"Twin Towers: The 3.6 Billion Question Arising from the World Trade Center Attacks" Defense Counsel Journal, April 2002.

Blogs following the case include:

  • "Mixed Bag of Insurance Coverage For Two Towers" May it Please the Court, 5/2/2004.
  • "Two Towers, Two Planes, One Occurrence, Too Bad" May it Please the Court, 9/27/2003.
  • "9-11 Collapse of WTC Towers Was One Occurrence" Insurance Defense Blog, 10/4/2003.

    See also, Robert P. Hartwig, "September 11, 2001: The First Year -- One Hundred Minutes of Terror that Changed the Global Insurance Industry Forever" Insurance Information Institute, circa 2002.

    The law and science of insurance is the law and science of disaster and its causes. An expert analysis report on the sequence of events and likely causes for the collapse of each WTC Tower is available from the National Institute of Standards and Technology (NIST), released October 19, 2004. Founded in 1901, NIST is a non-regulatory federal agency within the U.S. Commerce Department's Technology Administration. A NIST announcement summarizes its extensive report of findings. )

    Posted by dougsimpson at 11:14 AM | Comments (0) | TrackBack
  • November 24, 2004

    "Finite Risk Reinsurance" background online

    Reports are surfacing about state and federal investigations and allegations that well-known industrial companies and insurers may have used "finite risk reinsurance" to distort financial statements. The legality of the "finite risk" or "loss mitigation" transaction does not appear to be in question. What is in controversy is whether or not it was improperly used by the companies purchasing it. Purchasers of such loss mitigation policies include major insurance companies. As early as 2002, some legal analysts expressed concern that it may be used to disguise underreserving for shocks such as 9/11 and was becoming a target for legal and regulatory challenges.

    Below are listed some professional analyses available online that provide more detailed information on this arrangement that was developed in the 1990's and surged in popularity after 9/11/2001.

    (Read more)

    Swiss Re: ""Finite Risk Insurance -- Alternative risk transfer via finite risk reinsurance: an effective contribution to the stability of the insurance industry"
    " (1997) Abstract: "The study concentrates on the needs and interests of primary insurance companies in the non-life area. The first section sheds light on the circumstances which gave rise to the development of finite solutions. This is followed by the study's main focus, ie description and discussion of the most important forms and functions of finite risk reinsurance, and recent developments which have blurred the distinction with traditional forms of reinsurance. The study also assesses the market potential of finite products in the United States, Europe and Asia."

    Munich Re: "MUNICH RE ART SOLUTIONS Ė FINITE RISK REINSURANCE" (2000). From Abstract: "This publication defines the so-called alternative risk transfer methods in a concise manner and describes their origins and development, existing products and solutions and Munich Reís philosophy in this market segment."

    Guy Carpenter: Interview with head of Finite Risk Specialty Unit (date uncertain -- Google cache version)

    David Kroegel, "Finite Risk in 2003," PPT Presentation to Casualty Actuarial Society (CAS).

    Various authors, various dates, "About ART: Finite Risk," Artemis, "The Alternative Risk Transfer Portal".

    ACE Group, "ACE Global Re Expands its Financial Reinsurance Capabilities," (July 2004).

    As early as 2002, industry writers wrote about increased demand for finite risk insurance following the shocks of 9/11, contributing to the formation of new entities in Bermuda. Such writers also warned of increasing regultory scrutiny of finite risk insurance following indications that such products may have been used to disguise financial weakness in insurers and underreserving for 9/11 losses. Attys. Geoffery Etherington and Thomas F.X. Hodson, Edwards & Angell LLP, "The tail that wags the dog: Developments in finite reinsurance," Risk Transfer Magazine (2002) (Free registration required for access).

    Standard & Poors reported that four insurers "distorted their financial statements by using 'financial risk reinsurance.'" according to Reuters 11/16/04. Latest News and Financial Information |

    On November 24, Reuters and the New York Times also reported that American International Group (A.I.G.) agreed to settle federal inquiries into its participation on similar financial transactions. AIG agree to pay about $80 million and accept an independent monitor. While this is expected to resolve the subject of the grand jury investigation pending in Indiana, the presence of an independent monitor inside A.I.G. could turn up other issues.

    See "AIG targeted by US Grand Jury, AP reports" Unintended Consequences 10/22/04

    Finite insurance has also been a recent subject of inquiry by New York Attorney General Eliot Spitzer. See "Spitzer and SEC investigate "'finite insurance'" Unintended Consequences 11/16/04

    Posted by dougsimpson at 08:13 AM | Comments (0) | TrackBack

    November 19, 2004

    Spitzer Sues, Garamendi Sues and Settles with U.L.R.

    Continuing a series of legal actions against insurance brokers and insurers, New York Attorney General Spitzer and California Insurance Commissioner Garamendi have filed separate suits against Universal Life Resources (U.L.R.), a broker specializing in employee benefits programs for businesses. Links to the complaints and settlement documents are provided below.

    (Read more)

    Mr. Spitzer's suit was filed Friday, November 12 in state court in Manhattan, and alleges that U.L.R. steered business to insurers in exchange for lucrative payoffs and that this practice raised premiums for individual employees.

    In Mr. Garamendi's suit, according to a November 18 story in the New York Times, "Mr. Garamendi accuses Universal Life Resources, a broker specializing in employee benefits, of receiving kickbacks from the insurance companies in exchange for steering to the insurers the business of corporations seeking group life, disability and other coverages. The kickbacks, the lawsuit says, led to higher insurance costs for the corporations and their workers." The suit also names four insurance companies allegedly involved in the practices described in the complaint.

    Commissioner Garamendi has announced that a settlement with U.L.R. has been settled simultaneously with its filing. To prepare his suit, Mr. Garamendi hired Lerach Coughlin Stoia Geller Rudman & Robbins, the same private law firm that brought a private lawsuit on similar grounds in October. It does not appear that a settlement has been reached with the four insurers.

    According to the San Diego Union-Tribune, Mr. Garamendi told a news conference at the Superior Court: "We will be moving very vigorously against the four insurance companies using the information in the Universal Life files," The Union-Tribune also quoted a partner in Lerach Coughlin as saying: "Now that Universal Life Resources has agreed to cooperate, the state can focus more specifically on the illegal practices of the insurance firms, with full assistance from the insiders at Universal Life. * * * This is the tip of the iceberg."

    Links to the New York Complaint are available in Mr. Spitzer's press release.

    Links to the California complaint and settlement documents are available in Mr. Garamendi's press release.

    Posted by dougsimpson at 10:59 AM | Comments (0) | TrackBack

    State/Federal Exam of Disability Claims Practices Settled

    During 2003 and 2004, fifty states and the District of Columbia joined in a market conduct exam of three life insurers that have now agreed to pay $15 million in fines and to change disability benefits claims practices. The U.S. Dept. of Labor, which conducted a parallel investigation of employee benefit plan practices under authority of ERISA, joined the settlement announced November 18.

    (Read more)

    Lead signatories of the agreement include Maine, Massachusetts, Tennessee and New York. "This action is one of the most significant multistate insurance regulatory actions in history, providing a uniform, verifiable and effective state-based settlement for the benefit of UnumProvident policyholders nationwide," said Maine Superintendent Iuppa in an press release Nov. 18.

    The Maine Bureau of Insurance has a "UNUMProvident Multistate Examination/Settlement Agreements" page online containing links to a Q&A, the Multistate Exam Report, the Settlement Agreements with Unum Life, Provident Life, Paul Revere Life and First Unum Life with supporting exhibits.

    Recent N.Y. A.G. lawsuits alleging kickbacks and bid-rigging and Senate oversight hearings on insurance broker practices have raised an issue whether current state regulation of insurance is adequate, or whether more federal oversight is necessary.

    Thanks to the email bulletin from the NAIC Pressroom for the pointer to this news.

    Posted by dougsimpson at 07:15 AM | Comments (0) | TrackBack

    November 18, 2004

    TRIA : Resources online at GEIS, Treasury and BNA

    A collection of materials about Terrorism and the Terrorism Risk Insurance Act (TRIA) is available on the website of GE Insurance Solutions Institute: Terror / TRIA Updates. That includes an article titled "Terrorism Risk Insurance Act of 2002: A Reinsurer's Perspective" that goes into some depth as to the legal, policy and business issues of concern to a reinsurer in light of the TRIA statute.

    The United States Treasury is charged with implementing the provisions of TRIA that provide a $100 billion reinsurance program standing behind the law's mandated offer of terrorism coverage and temporary federal pre-emption of state approvals of terror exclusions in insurance policies. Materials about TRIA are available on the Treasury's website: Terrorism Risk Insurance Program.

    BNA's Web Watch has a page of links to more information about Terrorism Insurance than most care to know.

    Posted by dougsimpson at 07:48 PM | Comments (0) | TrackBack

    November 17, 2004

    Testimony to Senate Panel on Insurance Brokers

    November 16 witness testimony in the "Oversight Hearing on Insurance Brokerage Practices, Including Potential Conflicts of Interest and the Adequacy of the Current Regulatory Framework" before the Senate Committee on Governmental Affairs is available online and includes:

    Member Statements by:

  • Senator Peter G. Fitzgerald and
  • Senator Daniel K. Akaka.

    Witness Statements by:

  • Eliot L. Spitzer, Attorney General , Office of the New York State Attorney General
  • The Honorable Richard Blumenthal , Attorney General, State of Connecticut
  • The Honorable Gregory V. Serio, Superintendent of Insurance, State of New York , Representing the National Association of Insurance Commissioners
  • The Honorable John Garamendi , Insurance Commissioner, State of California
  • Albert R. Counselman, President and CEO, Riggs, Counselman, Michaels & Downes, Inc. , Representing the Council of Insurance Agents and Brokers
  • Alex Soto, President, InSource, Inc. , Representing the Independent Insurance Agents and Brokers of America
  • Ernie Csiszar, President and CEO, Property Casualty Insurers Association of America
  • Janice Ochenkowski, Vice President for External Affairs, Risk and Insurance Management Society
  • J. Robert Hunter, Director of Insurance, Consumer Federation of America

    The hearing focused on on insurance brokerage practices, such as contingent commissions, that raise conflict of interest questions, and whether these practices harm consumers or suggest changes to the existing regulatory framework.

    The Committee website on this hearing includes an archive of the webcast in Real Player format.

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  • NAIC Model Law on Broker Disclosures Criticized by CT A.G. Blumenthal

    The National Association of Insurance Commissioners (NAIC) formed an Executive Task Force on Broker Activities, following legal action launched by New York Attorney General Eliot Spitzer and others into allegations of kickbacks and bid-rigging involving leading insurance broker Marsh & McLennan and multiple insurance companies.

    On November 15, NAIC's Task Force released draft model legislation that would implement new disclosure requirements. The requirements are designed to ensure consumers are provided the information necessary to understand the manner in which brokers are compensated for the sale of insurance products. According to an NAIC Press Release , "the draft model legislation would amend the NAICís current Producer Licensing Model Act. The draft is part of ongoing efforts by state insurance regulators to address issues surrounding the use of compensation arrangements by insurance brokers."

    Connecticut Attorney General Richard Blumenthal called it "a shadow of what it should be," according to an article by Dan Haar, "Model Broker Rules Drafted," Hartford Courant, Business Section, page 1 (November 17, 2004). Blumenthal, Spitzer and others testified on November 16 before a U.S. Senate panel, and also said that "This model simply fails to address the key defects in the current system," according to the Courant. Id.

    The full text of the draft model legislation follows.
    Read more

    For Public Review and Comment
    November 15, 2004

    Broker Disclosure Amendment
    To The Producer Licensing Model Act

    Section __

    Any insurance producer or any business entity related to such producer who is permitted by [statute] to receive any compensation, including commissions, from the insured, shall not accept or receive any compensation, including commissions, from an insurer unless the producer has, prior to insuredís purchase of insurance, (1) obtained the insuredís written consent that such compensation will be received by the producer or business entity related to the producer and (2) disclosed the amount of compensation from the insurer; and the method for calculating such compensation, including any contingent compensation. If the amount of contingent compensation is not known at the time of disclosure, the producer shall disclose a reasonable estimate of the amount and method for calculating such compensation.

    Drafting Note: States that are considering the licensing of business entities should reference subsection 6B of the NAICís Producer Licensing Model Act and the Uniform Application for Business Entity License/Registration, which address the licensing of a business entity acting as an insurance producer.

    Drafting Note: The provisions of this section shall not apply to an insurance producer or any business entity related to such producer that accepts or receives only a nominal fee from the insured.

    Section __

    An insurance producer must disclose the following, if applicable, to an insured or prospective insured, prior to the purchase of insurance:

    1. That the producer will receive compensation from the insurer for the sale;
    2. That the compensation received by the producer may differ depending upon the product and insurer; and
    3. That the producer may receive additional compensation from the insurer based upon other factors, such as premium volume placed with a particular insurer and loss or claims experience.

    Drafting Note: States that are considering the licensing of business entities should reference subsection 6B of the NAICís Producer Licensing Model Act and the Uniform Application for Business Entity License/Registration, which address the licensing of a business entity acting as an insurance producer.

    Source: NAIC Press Office

    Posted by dougsimpson at 05:40 PM | Comments (0) | TrackBack

    November 16, 2004

    Spitzer and SEC investigate "finite insurance"

    Do contracts designed to smooth out earnings at publicly held companies qualify as insurance? New York Attorney General Eliot Spitzer has joined forces with the SEC to investigate such "finite insurance" or "loss-mitigation insurance" agreements, according to the The New York Times today. "Bermuda Firm Is Subpoenaed in Inquiry Into Insurers"

    The new subpoena seeks information from ACE, Ltd., based in Bermuda. Previous inquiries by the SEC and the state of Indiana had focused on finite insurance contracts written by American International Group (A.I.G.). The investigation adds to the focus on the adequacy of state regulation of the business of insurance, reserved to the states by the WWII-era McCarran Ferguson Act.

    The Times notes: "The investigation has also raised questions about the quality and breadth of insurance regulation, which has been the responsibility of the states. The current regulatory framework will be the subject of a hearing in Washington today being convened by Senator Peter G. Fitzgerald, Republican of Illinois."

    Sen. Fitzgerald is the Chair of the U.S. Senate Governmental Affairs Subcommittee on Financial Management, the Budget, and International Security. According to his website, the Subcommittee "will hold a public hearing on Tuesday, November 16, 2004 at 10:30 a.m. in Room SD-342 of the Dirksen Senate Office Building entitled, 'Oversight Hearing on Insurance Brokerage Practices, Including Potential Conflicts of Interest and the Adequacy of the Current Regulatory Framework.' This oversight hearing will focus on insurance brokerage practices, such as contingent commissions, that raise conflict of interest questions, and whether these practices harm consumers or suggest changes to the existing regulatory framework. "

    Posted by dougsimpson at 05:36 AM | Comments (0) | TrackBack

    November 03, 2004

    Network Approach to Biology

    The new field of Systems Biology may extend biology from being merely reactive to being more predictive. Mavens in the field include Alfred Gilman, winner of the 1994 Nobel Prize in medicine, and Leroy Hood at the Institute for Systems Biology, according to a recent article in Wired.

    Wired News: "All Bio Systems Are Go" says that the field "incorporates analysis of the expression of hundreds of different genes and proteins that give clues into the origins of cancer and other diseases. Systems biologists aim to understand how cells work by seeing biology as a network of systems, consisting of genes written in DNA, which send messages about the cell written in RNA, which provide the recipes for proteins, which do the work of life in our bodies. Understanding the networks will lead to tests that will identify diseases such as cancer, diabetes and AIDS."

    Leroy Hood and David Galas are authors of a recent article in Nature that addresses the potential of systems biology approaches in understanding the digital nature of life as revealed by the decoding of the genome. The Digital Code of DNA," Nature 421, 444 - 448 (23 January 2003); doi:10.1038/nature01410

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