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U.K. JURY ACQUITS MAXWELLS AND ADVISER OF PENSION FRAUD
LONDON-Kevin and Ian Maxwell and adviser Larry Trachtenberg were found innocent Friday of defrauding employee pension funds of the media empire created by the late Robert Maxwell.
All three faced charges of defrauding Bishopsgate Investment Management Ltd., the company that managed the pension funds, of approximately (pounds) 22 million ($34.7 million) of shares it owned in an Israeli company, Teva Pharmaceutical Industries Ltd.
Kevin Maxwell also had faced a second charge of conspiring with his father to put at risk other BIM assets, namely 100 million ($157.5 million) worth of shares in another Israeli company, Scitex Corp. Ltd.
Robert Maxwell died in November 1992, shortly before the alleged fraud came to light. Prosecutors had charged that the money from both of the stock sales was used to prop up Robert Maxwell Group P.L.C., a holding company for Maxwell family interests.
Kevin and Ian Maxwell were directors of their father's media companies and trustees of the pension funds. Mr. Trachtenberg had been a financial adviser to Robert Maxwell.
After the trial, which had lasted more than seven months and will cost an estimated 25 million ($39.4 million), the jury took 12 days to reach its verdict-though this included two days off for illnesses.
The Maxwell case was a major contributing factor in the move to tighten pension regulations in the United Kingdom.
CIGNA PLAN OPPOSITION GROWS
LANSING, Mich.-A third regulator, Michigan Insurance Commissioner D. Joseph Olson, says he will try to block CIGNA Corp. from reorganizing into an active operation and a runoff operation for its long-tail liabilities if the Pennsylvania commissioner approves the plan.
Mr. Olson said thousands of Michigan policyholders would be forced into a runoff company "with doubtful reserves." He said he would work with CIGNA to resolve its problems with long-tail liabilities but that the current plan "is not acceptable."
Mr. Olson has informed Pennsylvania Insurance Commissioner Linda S. Kaiser of his decision. If she approves the plan, Mr. Olson would work with the Michigan attorney general "to seek judicial protection of Michigan policyholders." For example, the attorney general could ask an administrative law judge to declare either that the active operation must guarantee the runoff operation's solvency or that CIGNA cannot reorganize, said John Schoonmaker, director of legal resources for the Michigan Insurance Bureau.
Referring to other regulators who oppose the plan, a CIGNA spokesman said, "What we're dealing with, we believe, is a misinterpretation of the plan and the law" in Pennsylvania that CIGNA says allows it to split its insurance operations in half and move its long-tail liabilities into a runoff facility without first obtaining policyholder approval. If Ms. Kaiser approves the plan, "we'll work with the regulators of the other states to make the plan work for all policyholders," he said.
Illinois and Missouri regulators also oppose CIGNA's plan. Some other regulators also have concerns. The plan has garnered favorable regulatory review only in Connecticut (BI, Jan. 8).
HEALTH INSURERS SUING OVER LAW
OLYMPIA, Wash.-Several health insurers are suing Washington Insurance Commissioner Deborah Senn, challenging her interpretation of a new law that she says requires health insurers to pay for naturopaths, chiropractors and other alternative health care providers.
The law applies to managed care and fee-for-service plans but not self-funded plans and union trusts in which employers provide health benefits outside the state's regulatory authority, Ms. Senn said. It takes effect on the first policy renewal date after Jan. 1, 1996.
Ms. Senn's office said she only is enforcing a section of health care reform legislation adopted in 1995. But, in the lawsuit filed Jan. 8, the plaintiffs claim the commissioner is overstepping her authority by seeking to "expand mandatory coverage for alternative health care providers to all health care plans issued in the state of Washington."
The suit was filed in Thurston County Superior Court on behalf of Blue Cross of Washington & Alaska, King County Medical Blue Shield, Pierce County Medical Bureau Inc., Group Health Cooperative of Puget Sound, Blue Cross & Blue Shield of Oregon, Washington Physicians Service Assn., Medical Service Corp. of Eastern Washington and Kaiser Foundation Health Plan of the Northwest.
1995 STORMS AMONG COSTLIEST
RAHWAY, N.J.-Fueled largely by Hurricane Opal's battering of the Gulf Coast, 1995 ranks as the third costliest year on record in terms of insured catastrophe losses, according to the Property Claim Services division of the American Insurance Services Group.
The October hurricane's $2.1 billion in insured property damage made 1995's final three months the costliest fourth quarter on record, and accounted for more than a quarter of 1995's estimated total damage of $8.3 billion.
Total fourth-quarter insured property losses reached $2.6 billion, more than double the $1.2 billion average for the four previous years.
At $23 billion, 1992 remains the costliest year on record and 1994 is second at $17 billion.
Separately, PCS last week estimated that the snowstorm that buried much of the East Coast earlier in the month will lead to 300,000 property claims representing $585 million in damage (BI, Jan. 15).
The storm, which hit 17 states between Jan. 6 and Jan. 9, is the fifth costliest winter storm since 1965, according to PCS.
That estimate does not include claims from a second snow storm that hit the Northeast on Jan. 12.
Still more storms caused extensive damage to the Midwest late last week and appeared likely to receive catastrophe designation.
The costliest winter storm was the "Blizzard of 1993," which caused $1.75 billion in insured property damage (BI, March 22, 1993).
COURT LIMITS KAL DAMAGES
WASHINGTON-International airlines scored a victory last week when the U.S. Supreme Court ruled that under the Warsaw Convention plaintiffs cannot collect loss of society damages related to a death on the high seas.
In the suit, Zicherman et al. vs. Korean Air Lines Co. Ltd., brought by the mother and sister of an American woman killed when Korean Air Lines Flight 007 was shot down in 1983 by a Soviet jet, the Supreme Court ruled that the Warsaw Convention permits compensation only for legally recognizable harm, which is determined by the applicable domestic law. In this case, the court ruled that since the plane was shot down over water the appropriate U.S. law is the Death on the High Seas Act, which allows only economic damages. As a result, the plaintiffs cannot receive $98,000 in damages they were awarded by a trial court for loss of society.
That award was first set aside by the 2nd U.S. Circuit Court of Appeals. The Supreme Court affirmed the decision, clarifying what law should apply under cases brought under the Warsaw Convention's Article 17, which governs compensation in international air crashes.
"This ruling is a major case," said Lee Kreindler of Kreindler & Kreindler in New York, a plaintiffs attorney involved in other aviation litigation. "The Supreme Court has said it will be a choice-of-law rule governing these Warsaw Convention cases, and if the law is the Death on the High Seas Act, no loss of society damages will be awarded."
KKR DEAL ENDS XEROX PLAN
SEATTLE-With the announced $2.7 billion sale of Talegen Holdings Inc. to a group led by Kohlberg Kravis & Roberts Co. and Talegen management, Xerox Corp. will complete its long-sought exit from financial services.
The deal is to be done in two parts. First, the investors will pay $2.1 billion for four Talegen units: Coregis Group Inc., Crum & Forster Holdings Inc., Industrial Indemnity Holdings Inc., and Westchester Specialty Group Inc. The payments will consist of $1.3 billion in cash, $450 million in preferred stock in a new company formed by the KKR group and $360 million in debt.
Secondly, the group will pay $612 million for The Resolution Group Inc., the unit that manages Talegen's runoff businesses. The payments will consist of $150 million in cash and $462 million in performance-based securities issued by another company formed by the KKR group.
Joseph W. Brown Jr. will remain chairman of Talegen and the runoff management unit, and each operating insurer will remain separate business entities.
Xerox's Bermuda reinsurance unit, Ridge Reinsurance Ltd., will continue to reinsure Talegen. Xerox will take a $1.5 million charge for the fourth quarter to increase Talegen's loss reserves.
Both A.M. Best Co. in Oldwick, N.J., and Standard & Poor's Corp. in New York said that the increased leverage could lead to downgrades for the insurance units. All the companies have various A level ratings.
Stephen Merrett recently stepped down as Lloyd's of London's representative in Superfund negotiations, following the announcement of possible Lloyd's disciplinary actions stemming from losses on syndicates he managed (BI, Nov. 6, 1995). Sir Peter Miller, chairman of Lloyd's from 1984 to 1987, has taken over....The California Supreme Court will hear an appeal of an appellate court decision in West American Insurance Co. vs. Freeman that upheld a $12 million punitive damages jury award against an Ohio Casualty Corp. unit in a bad faith action. The award is the highest punitive damages award to be upheld by a California appellate court in a published decision, and will be the focus of the state Supreme Court's decision....The U.S. Supreme Court let stand a New Hampshire Supreme Court ruling that Ford Motor Co. can be sued under state product liability law for selling a car without an air bag, even though federal law did not require bags in the 1988 Ford Escort involved in a fatal crash (BI, Sept. 25, 1995....New York Gov. George Pataki is expected to sign legislation that would require health insurers and HMOs to pay for at least 48 hours of hospital care for newborns and their mothers. Maryland, New Jersey and North Carolina already have such laws....Clinton administration officials last week said a pension simplification package will be included in the administration's next budget package.....Most employers with cash balance pension plans would be able to use their current methods of crediting employees' account balances with interest, under Internal Revenue Service Notice 96-8 issued last week.....U.S. District Court Judge Helen Ginger Berrigan will preside over a major class-action suit against cigarette manufacturers in New Orleans following the death of Judge Okla Jones II earlier in the month. Judge Jones last year had certified the class action, which alleges cigarette makers increased nicotine levels to addict smokers (BI, Feb. 27, 1995).....The U.S. Supreme Court Friday agreed to review two cases of interest to risk and benefit managers: Gasperini vs. Center for Humanities, which concerns the power of federal judges to reduce monetary awards by juries; and Spink vs. Lockheed Corp., which found an early retirement program offering older employees increased pension benefits in exchange for a waiver of their right to sue the company for employment discrimination violated ERISA (BI, Sept. 18, 1995).