JEFFERSON CITY, Mo. -- A Lloyd's of London syndicate must post security for several million dollars of Transit Casualty Co. reinsurance claims under a court-appointed special master's report that rejects Lloyd's charges of self-dealing by Transit receivership officials.

The special master, James P. Dalton, recommended in a Dec. 23 report that Lloyd's syndicate 553 be required to cover $752,045 of Transit's paid claims and post a letter of credit or cash for $9.6 million in Transit case reserves. Mr. Dalton also recommended awarding Transit attorneys' fees and $55,300 in damages for the syndicate's "vexatious refusal" to pay claims, analagous to a finding of bad faith.

The recommendations must be approved by a Cole County, Mo., Circuit Court judge.

Lloyd's failed to give Transit specific reasons for refusing to pay almost all of its claims until long after Transit filed suit against the reinsurer, Mr. Dalton found.

He also turned aside Lloyd's charges that Transit managers have wrongly allowed claims against the estate to pad management incentive bonuses based on Transit's reinsurance recoveries. Transit Special Deputy Receiver J. Burleigh Arnold and two top deputies stand to collect several million dollars in bonuses, Transit documents show (BI, May 4, 1998).

"I found no credible evidence of the incentive plan playing a part in Transit's claims allowances or reserves, nor did I find that Transit allowed excessive recovery on covered claims for the purpose of inflating reinsurance recovery," Mr. Dalton concluded.

A spokesman for Equitas Ltd., which will pay Transit claims on behalf of Syndicate 553, said Equitas has not yet seen the decision and will review it before deciding whether to appeal.

Syndicate 553 was one of 15 Lloyd's syndicates Transit sued to recover a total of $3.3 million on paid claims and $23.3 million in case reserves. The case against the remaining syndicates has not yet gone to trial (BI, May 11, 1998).

$15 billion in cat losses tallied

MUNICH, Germany -- Insurers have been let off relatively lightly from last year's string of more than 700 large natural catastrophes, according to figures released by Munich Reinsurance Co.

Although overall economic losses from the disasters topped $90 billion -- three times greater than the 1997 total -- many of the regions particularly badly hit in 1998 traditionally have low insurance penetration, Munich Re said. As a result, insurers only picked up about 15% of the total bill for damages. Nevertheless, at $15 billion in total insured damages, this still meant 1998 was the fourth-highest loss year for the industry, Munich Re said.

The largest insured loss of the year was Hurricane Georges, which hit the Caribbean and the Gulf of Mexico, causing $3.3 billion in insured losses, according to Munich Re figures.

Both El Nino and its related climate phenomenon La Nina may have been contributing factors to the "unusually large" number of tropical cyclones and other extreme weather conditions during 1998, the report said. In addition, the mean global temperature for the year was the highest on record, indicating a trend toward global warming, the reinsurer said. This has manifested itself in Europe through warmer but stormier winters.

Lloyd's capacity down 2.9%

LONDON -- Lloyd's of London's capacity for 1999 has dipped below L10 billion ($16.83 billion) for the first time in six years.

Figures issued last week showed that underwriters this year are writing business against L9.87 billion ($16.61 billion) in capacity, down 2.9% compared with 1998 capacity of L10.17 billion ($17.08 billion). Prior to 1993, when capacity fell to L8.88 billion ($13.45 billion) as losses started to bite and investors fled the market, Lloyd's last traded against capacity of less than L10 billion in 1986.

Lloyd's also reported that corporate investors have increased their share of the market capacity, providing L7.17 billion ($12.07 billion), or 73% of the total for 1999. 1998 was the first time corporate investors supplied a greater proportion of capacity than traditional names.

Almost one-quarter of the 6,835 unlimited liability names who underwrote in 1998 have exited the market altogether and are no longer actively trading at Lloyd's. Another 548 names have changed their underwriting arrangements and converted to limited liability status.

Also last week, members agency Sedgwick Oakwood Lloyd's Underwriting Agents Ltd. warned of reduced profits for Lloyd's in the 1996 to 1998 underwriting years. As a result of deterioration on some lines -- especially extended U.S. auto warranty business -- Sedgwick Oakwood predicts profits will decline to L560 million ($942.5 million) for the 1996 year of account, down 12% from an earlier prediction of L635 million ($1.07 billion) in profits.

For the 1997 year of account, motor and aviation losses are projected to lower profits to L242 million ($407 million), Sedgwick Oakwood estimated. For 1998, Sedgwick Oakwood said it expects Lloyd's to post a pure underwriting loss that may be offset by investment income.

Kaiser relents on Viagra

SACRAMENTO, Calif. -- The Kaiser Foundation Health Plan has agreed to pay the cost of the anti-impotence drug Viagra in California under a settlement reached with state regulators last week.

While Kaiser stopped paying for Viagra as of last April, it resumed payment when the drug was added to its formulary in September because Viagra couldn't be excluded unless authorized by the Department of Corporations, a spokesman said. As part of the agreement, Kaiser will pay the state $250,000 and resolve all grievances from members denied prescriptions for the drug from April to September.

Meanwhile, Kaiser's request to exclude Viagra from coverage still is pending with the Department of Corporations, which oversees health maintenance organizations in California.

A Kaiser spokesman explained that the HMO is seeking the exclusion because Viagra is a lifestyle drug.

Kaiser has received approval to exclude Viagra from its drug formulary in 12 other states and the District of Columbia; New York and Connecticut denied the exclusion. Besides California, regulators in Washington state also are considering Kaiser's exclusion application.

If the exclusion request is denied, California employers likely will see premium increases in 1999 to pay for the drug, the spokesman said. And if the exclusion is not permitted, the Department of Corporations has approved a 50% copayment for Viagra, vs. the usual $5-per-prescription copayment, he said. Viagra retails for about $8 to $10 a pill.

Pizza Hut settles bias suit

CHICAGO -- Pizza Hut of America Inc. has settled a discrimination suit with a group of customers after a federal judge applied a state hate-crime law to the company.

The case, filed in Chicago, derived from incidents during a black family's dinner in the Pizza Hut restaurant in Godfrey, Ill. During the dinner, according to court papers, employees made racist remarks to some family members, failed to provide them with silverware or beverages, turned the restaurant lights off and on, turned on a jukebox and vacuumed under their table. Also, after the customers left the restaurant, employees accosted some family members in the parking lot and made threatening gestures, court papers state.

In a written statement, Pizza Hut said, "There was absolutely no racial or discriminatory behavior involved."

The settlement, whose terms were not disclosed, came after Judge William Hart ruled in July that the Illinois Hate Crimes Act applies to Pizza Hut, the first time the law has been applied to a corporation rather than an individual.

The plaintiffs were pleased the case was settled and "happy we made some good law," said their attorney, Edward Voci of Chicago.

Pizza Hut's statement also says the company has a policy against discrimination. "Violations of these policies are not tolerated, and we take this very seriously."

Mr. Voci, however, disagrees. "My clients didn't find it to be true," he said, as the company never apologized. "I hope they learned a lesson."

Insurance executive arrested

MEXICO CITY -- Offshore insurance executive Donald Phillip Havenar, a fugitive since his indictment on bankruptcy fraud charges in November, has been arrested by Mexican federal police.

Mr. Havenar, former chief executive officer of the fraudulent First Assurance & Casualty Co. Ltd. of the Turks & Caicos Islands, was arrested last month in Hermosillo, Mexico, about 150 miles south of the Arizona border.

Mexican police took Mr. Havenar into custody at the offices of Servicios Administrativos de la Frontera de R.L. de C.V., an insurance agency that he operated in Hermosillo and that was headquartered in Arizona, according to a Mexico Attorney General's office statement. The similarly named Frontier Administrators Inc., a Scottsdale, Ariz., firm headed by Samuel B. Love, acted as First Assurance's management company.

Mr. Havenar, Mr. Love and three others were indicted in Oklahoma City on charges of siphoning millions of dollars away from First Assurance both before and after it filed for bankruptcy in 1993. Also named were Jesse J. Maynard, First Assurance's owner, and First Assurance officials Clara Jones Faulk and Vikash Jain (BI, Nov. 16, 1998).

Ms. Faulk and Messrs. Love, Maynard and Jain have pleaded not guilty to the charges and are scheduled to go to trial April 12.

Mr. Havenar has been transferred to a jail in Mexico City, where he is being held pending extradition to the United States.

Briefly noted

Severe weather that raked much of the Southeastern and Mid-Atlantic sections of the United States from Dec. 23-28 has been designated a catastrophe by the Property Claim Services unit of the Insurance Services Office Inc., meaning the wind, ice and freezing caused at least $25 million in insured property damages. An official damage estimate has not yet been issued. . . .Pennsylvania Gov. Tom Ridge has signed into law H. 366, a bill that partially deregulates commercial insurance (BI, Nov. 30, 1998). . . . House Commerce Committee Chairman Tom Bliley, R-Va., intends to push Superfund reform in the new Congress. "Politics has gotten in the way of meaningful reform. Despite honest, sincere and bipartisan proposals, nothing has happened. It will in the 106th Congress, if I get my way," Rep. Bliley said in a Richmond, Va., speech late last month. . . .New York-based Andersen Consulting Inc. and J. Baker Inc., a Canton, Mass.-based retailer, have ended their dispute over an unusual Year 2000 computer claim (BI, Sept. 7, 1998). J. Baker sought from Andersen -- but had not sued for -- reimbursement of costs it incurred since 1991 to make Y2K-compliant a computer merchandising system installed by Andersen in 1989. Andersen responded with a suit for a declaratory judgment in its favor. Both parties agreed to non-binding mediation and accepted the mediator's findings on Dec. 21. The mediator found that Andersen had met its contractual obligations to J. Baker and would not have to reimburse the retailer. As a result, Andersen dropped its suit. . . .The Walt Disney Co., Anaheim police and the California Occupational Safety & Health Administration are investigating a Christmas Eve accident at Disneyland that killed a Washington tourist and injured two other people, including an employee. The accident occurred when a metal cleat ripped loose from the Columbia sailing ship ride and went flying into a crowd. In a separate accident the same day, a 4-year-old boy suffered minor injuries when he fell off a carousel at the theme park. He was treated by Anaheim paramedics and transferred to the University of California-Irvine Medical Center, where he was treated and released. Disney declined to comment further on either incident.

Errors & omissions

* A story in the Dec. 21 issue incorrectly characterized business that CNA Insurance Cos. sold last year to Mutual of Omaha Cos. That block of group health business is coverage sponsored by labor unions for their members.