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Mattel hit with suit over Snacktime doll

SAN DIEGO-Mattel Inc. is facing a $25 million lawsuit seeking punitive damages for injuries allegedly caused by its Cabbage Patch Snacktime Kids doll, which was recalled earlier this month after reports the doll was munching on hair and fingers as well as its intended plastic food.

The suit, filed Jan. 9 in the Superior Court of California, County of San Diego, alleges the toy manufacturer and Wal-Mart Stores Inc., which sold the doll, designed, manufactured, distributed and/or retailed the defective product in conscious disregard of 9-year-old Jessica Wells' rights.

Jessica woke early one morning screaming to find the Cabbage Patch doll she received for Christmas had consumed her hair to her scalp, according to attorneys at Potter, Day & Associates P.C., the San Diego-based law firm that brought the suit.

"A simple on/off switch could have prevented needless pain and suffering for many of the children injured by the product," George Najjar, an attorney with Potter, Day, said in a statement. "When companies choose profits over safety, they should be punished accordingly."

Jessica, on behalf of her parents Thomas and Genie Taylor, is seeking $15,000 in economic and future economic damages, $500,000 in non-economic damages and $25 million in punitive damages. Separately, Mr. Taylor and Ms. Taylor each are seeking $30,000 in economic and non-economic damages.

Mattel and Wal-Mart said they would not comment until they had a chance to fully review the suit.

In the meantime, a spokeswoman for El Segundo, Calif.-based Mattel said 1,000 dolls have been returned for a refund. After at least 100 incidents in which the doll munched on hair and fingers, the company announced it would voluntarily withdraw the product from all retail shelves across the United States, discontinue distribution and offer a full cash refund of $40 to consumers for any returned doll. These actions came one week after Mattel said it would put a warning label on all remaining and new dolls (BI, Jan. 13).

Fireman's Fund to seek bad faith rehearing

SAN FRANCISCO-Fireman's Fund Insurance Co. will seek a rehearing of a California appeals court decision that upheld a $28.6 million bad-faith jury verdict against the insurer.

The 1st District Court of Appeals in San Francisco earlier this month let stand the 1992 award, which includes $21 million in punitive damages.

Paul Glad, an attorney with Sonnenschein, Nath & Rosenthal in San Francisco, which represented the insurer, confirmed that a petition for rehearing would be filed, partly on the grounds that "we deeply believe the court failed to focus on whether the conduct was reprehensible enough to justify the punitive damages."

The request for the rehearing will be filed in the 1st District Court of Appeals.

The appeals court concurred with the verdict that the Novato, Calif.-based insurer improperly refused coverage under an excess liability policy written to limits of $25 million for PaineWebber Real Estate Securities, a unit of PaineWebber Inc.

The jury also awarded PaineWebber $3 million in compensatory damages and $2.8 million in interest, and the trial judge approved $1.8 million in attorneys fees.

PaineWebber had sought coverage for a $20 million settlement reached in 1987 with Burlingame, Calif.-based Homestead Savings & Loan over allegations that PaineWebber brokers were responsible for the poor performance of a program to repackage and resell government mortgage loans as Government National Mortgage Assn. securities.

Court throws out dioxin verdict

ATLANTA-A property damage verdict against Georgia-Pacific Corp. for more than $1 million in damages is not valid, the Mississippi Supreme Court ruled last month.

In Leaf River Forest Products Inc. vs. Simmons, the court reversed an appellate decision upholding a 1990 verdict that the paper products company discharged dioxin from a pulp mill in New Augusta, Miss. A jury had awarded the plaintiff $40,000 in compensatory damages and $1 million in punitive damages.

The Supreme Court ruled that a previous verdict for the plaintiff for trespass or nuisance was invalid because no evidence was presented that dioxin was on or in the vicinity of his property.

"We are pleased and gratified by this most recent victory," said James F. Kelley, senior vp and general counsel at Atlanta-based Georgia-Pacific. "This decision and other recent decisions in Mississippi trial courts confirm our consistent position that there was no evidence of exposure or injury from our Leaf River mill. . . .The vast majority of claims regarding this issue already have been dismissed."

Separately, a Mississippi state circuit court in July dismissed about 9,100 lawsuits against Georgia-Pacific that sought damages resulting from the alleged discharge of dioxin and other chemicals from the same pulp plant.

Lawyer indicted in insurer insolvencies

PHILADELPHIA-A former partner of a prominent Philadelphia law firm has pleaded not guilty to charges of looting two now-defunct life insurers he controlled.

Allen W. Stewart was indicted on 63 counts of racketeering, mail and wire fraud and money laundering for allegedly driving Summit National Life Insurance Co. and Equitable Beneficial Life Insurance Co. into insolvency in a series of schemes from 1988 to 1993. Pennsylvania regulators placed both insurers in liquidation in 1994, the same year Mr. Stewart resigned as a partner of the law firm Morgan, Lewis & Bockius.

According to the indictment, Mr. Stewart bought Summit National in 1988 from Cargill Inc. with a bank loan, later using $59.8 million of the insurer's money to repay the bank and cover other costs. Mr. Stewart then used sham reinsurance agreements and overvalued assets to conceal the reduction of the insurer's capital and surplus, prosecutors charge.

The indictment also alleges that Mr. Stewart diverted Summit National money to his own benefit, buying a $1.6 million oceanfront house in Del Mar, Calif., a $51,750 grandfather clock, a $29,900 Chippendale dresser and a collection of fine wines.

Mr. Stewart also borrowed $5 million from Summit National to buy another life insurer-later named Conestoga Life Assurance Co.-which he controlled and that took over the business of Equitable Beneficial, prosecutors charge.

Mr. Stewart sold Summit National and Equitable Beneficial in 1993 to a buyer who later discovered they were actually insolvent by a combined $123.7 million, according to the indictment.

Mr. Stewart last month pleaded not guilty to the charges. If convicted on all counts, he faces a statutory maximum sentence of 495 years in jail, more than $15 million in fines and forfeiture of $26.9 million in property.

Separately, A.M. Best Co. has downgraded Conestoga Life and a property/casualty subsidiary, American Sentinel Insurance Co., to D from B. Both are owned by Mr. Stewart.

Two companies settle job bias claims

Boston Edison Co. is settling an age-discrimination lawsuit for $2.25 million.

Separately, The Minneapolis Star Tribune is paying $500,000 to a group of female employees who alleged sexual discrimination.

The Boston-based utility said the settlement filed late last month in U.S. District Court in Boston was reached to avoid expensive litigation. The company admitted no wrongdoing in agreeing to pay 34 former employees who alleged they were laid off in 1988 because of their age.

The lawsuit was filed in 1991 by the Equal Employment Opportunity Commission on behalf of the employees, who were between the ages of 55 and 60 when they were laid off.

A Boston Edison spokesman said the EEOC approached the company about a settlement after 22 pieces of the plaintiffs' evidence were disallowed in the suit. He declined to discuss whether insurance would fund the settlement.

The Star Tribune and 70 female reporters and editors used a private mediator to settle complaints regarding pay-equity and gender fairness. The newspaper said in a statement that the two sides have been negotiating such issues for years.

In addition to $500,000 in back pay, the agreement calls for around $125,000 in annual pay increases for some female newsroom employees.

A spokeswoman for the newspaper would not say how the settlement is funded.

California court approves drug tests

SAN FRANCISCO-The California Supreme Court has upheld employee drug testing by public employers, ruling it is permissible to screen job applicants. However, blanket testing cannot be required as a condition for employee promotions.

State and local governments will be bound by the Jan. 6 decision in Lorraine Loder vs. the City of Glendale, but it also is expected to benefit private sector employers.

The case is the first ruling on the constitutionality of drug testing in the workplace from the high court, which previously let stand a lower court's ruling allowing screening.

Court justices ruled that screening is constitutionally permissible for Glendale's potential hires because the city required them to take medical exams 10 years before it added a drug testing component to the exams. Drug screening was adopted in 1986 after the city noted an increase in disciplinary problems related to drug use.

Employers also have a greater need to test potential hires because their day-to-day behavior is unknown, the court noted. But testing all employees already known to the employer, regardless of their duties, violates the U.S. Constitution's 4th Amendment, which prohibits unreasonable search and seizure, the court said.

Such testing might be allowable for jobs where public safety is a concern or positions where substance abuse is particularly a problem, justices wrote. Additionally, testing an employee who shows signs of drug or alcohol impairment is allowable.

The suit was brought by Lorraine Loder, a taxpayer who argued against spending tax money for a program she viewed as unconstitutional. She was backed by the American Civil Liberties Union. The trial court and an appeals court in the case had ruled that testing was allowable only for certain job classifications.

Information in brief

A New York trial court judge earlier this month dismissed five suits alleging negligence by the Long Island Rail Road in a mass shooting incident in 1993. Seven other suits are pending. . . .Former California Assemblyman David Knowles, R-Placerville, has been appointed deputy insurance commissioner for policy, research and special projects. Mr. Knowles chaired the Assembly Insurance Committee during 1995 and 1996 and helped push the California Earthquake Authority through the Legislature. . . . Policyholders of defunct Guarantee Security Life Insurance Co. of Jacksonville, Fla., will receive $6.1 million from the sale of Rudder Cut Cay, a 363-acre island in the Bahamas. The island was among assets seized as part of a settlement with principals of the insurer, which was found insolvent in 1991 (BI, April 8, 1996; April 1, 1996). . . .Aon Corp.'s tender offer for all outstanding shares of A&A common stock was completed Jan. 15, and the tender offer of Series B preferred shares held by subsidiaries of American International Group Inc. was to be completed last Friday. . . .Prudential HealthCare is selling its managed care business in Massachusetts to Tufts Health Plan, including HMO and point-of-service plans serving 50,000 people. The agreement will give Tufts access to 500 new employer groups. . . .A U.S. District Court jury in Los Angeles found New York consultant John D. McAllister guilty of 24 counts of bribing Abdul Sesay, the former risk manager for the Los Angeles County Metropolitan Transportation Authority. Mr. McAllister made $115,000 in payments to Sesay-who has been convicted of accepting bribes-to obtain MTA contracts, charged the U.S. attorney's office. Mr. McAllister is scheduled to be sentenced March 24. . . .Equipment Insurance Managers Inc., a Dallas broker charged in civil fraud lawsuits with diverting premium from nearly two dozen insurers, has filed for Chapter 11 bankruptcy protection. The filing cites United National Group, a plaintiff in one of the suits, as EIM's largest unsecured creditor, with a $1.7 million disputed claim (BI, Oct. 2, 1995). . . .A federal judge in New Haven, Conn., late last month cleared the way for Connecticut to proceed with its $1 billion suit against the tobacco industry. Judge Peter Dorsey threw out a pre-emptive lawsuit filed by the industry that aimed to block the state's suit seeking to recover its costs for treating smoking-related illnesses. . . .The U.S. Supreme Court's recent decision not to review KAL vs. Forman opens the way for some relatives of victims of the 1983 Soviet attack on a Korean airliner to seek damages for the victims' pre-death pain and suffering.