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SAN FRANCISCO-An airline trade group is suing the City of San Francisco to prevent enforcement of the city's domestic partner benefits mandate on city contractors.

The suit, brought by the Air Transport Assn., an industry group consisting of 22 major U.S. airlines, claims the measure violates federal law and the U.S. Constitution. The ordinance, scheduled to go into effect June 1, requires all companies that contract with the city to provide benefits to registered domestic partners of their employeesequal to those offered to spouses of employees (BI, Nov. 11, 1996).

The suit seeks a temporary restraining order to stop the ordinance's enforcement, alleging that it is pre-empted by three federal laws: the Airline Deregulation Act, The Railway Labor Act and the Employee Retirement Income Security Act.

"Airlines have always been governed by federal, not local, laws because it would be impossible to operate in hundreds of communities with different and possibly contradictory, local ordinances," Carol Hallet, the president and chief executive officer of ATA, said in a statement. "A national transportation system requires one regulatory master, and that is the federal government."

One ATA member, Elk Grove Township, Ill.-based United Airlines, previously balked at the ordinance. The airline earlier this year objected to complying with the order but later signed an agreement with the city allowing it to lease property at the city-owned San Francisco International Airport for two years without providing the benefits (BI, Feb. 17).

Geoff Kors, the drafter of the ordinance and legislative aide to its co-sponsor, Councilwoman Leslie Katz, said its purpose is to eliminate discrimination by establishing standards for the city's business partners. "The city has the right to decide who they lease their property to," he said.

Though the law is primarily designed to provide benefits to employees' gay and lesbian partners, the suit says it is "not based on moral or philosophical considerations regarding the personal relations of airline employees."

Mr. Kors disagreed, saying none of the airlines in the ATA provides its employees with domestic partner benefits.

A similar proposal to San Francisco's law is being drafted by lawyers for the New York City Council. The proposal's sponsor, Councilman Tom Duane, said the suit will not deter him from introducing the bill.

Pollution exclusion bill vetoed

INDIANAPOLIS-Insurers in Indiana have failed to unequivocally exclude pollution coverage from future commercial liability policies.

A bill that would have incorporated a pollution exclusion into the Indiana Insurance Code was passed by the Legislature last month but unexpectedly vetoed by Gov. Frank O'Bannon last week.

The bill's definition of pollution was too broad, Gov. O'Bannon said in his veto message. The bill sought legislative backing to exclude environmental coverage in policies that contained the absolute pollution exclusion or "substantially similar" language, he said.

"I believe that the definition of 'pollutants' in this bill may increase the risk that insurers could deny coverage for claims having nothing to do with pollution in the ordinary sense of the word," Gov. O'Bannon said in the message. Businesses in the state opposed the bill, and no other state has enacted similar legislation, his message added.

"The insurance industry can address the problem by drafting a clear and unambiguous contractual pollution exclusion," he said.

The bill was a response to American States Insurance Co. vs. Kiger, in which the Indiana high court stepped away from decisions in most other states and ruled the 1986 pollution exclusion was ambiguous. The bill would have excluded environmental coverage from CGL policies issued after June 30, 1997.

The veto will discourage insurers from covering liability risks in Indiana, said Robert J. Hurns, associate counsel at the National Assn. of Independent Insurers in Des Plaines, Ill. "If they know now that they have an exclusion in the insurance contract that won't be honored, what kind of incentive is that for them to write the coverage?" he asked.

Insurers likely will seek an override, said Fred McGarvey, vp in the Skokie, Ill., office of the American Insurance Assn.

Aircraft maker to fight award

TUCSON, Ariz.-Raytheon Aircraft Co. plans to ask a federal trial court judge to set aside the $60 million judgment a jury awarded the families of two experienced pilots killed in 1991 when their twin-engine plane went into a flat spin and crashed.

The federal court jury in Tucson on May 2 found that a design defect in an airplane series the company manufactured causes flat spins. During a flat spin, an airplane is at no more than a 45-degree angle to the ground, and recovering from that predicament is difficult.

The judgment is the largest-ever compensatory award in Arizona, said Tucson attorney Dale Haralson, who represented the plane's owner.

Dr. Paul Dempsey, a 43-year-old plastic surgeon who had just bought the 10-year-old plane, was killed in the March 27, 1991, crash southeast of Tucson. Dr. Dempsey was survived by a wife and three children. Also killed was flight instructor Brian Smith, 29, of Fargo, N.D. Mr. Smith was survived by a wife and two children.

The pilots were flying a Beechcraft Baron 58P, which Beech Aircraft Corp. manufactured. Raytheon Co. of Lexington, Mass., bought Beech in 1980 and merged it with its Raytheon Aircraft subsidiary in 1984. Mr. Smith was familiarizing Dr. Dempsey with the pressurized airplane, and the two were performing routine maneuvers when the plane crashed. The jury did not assign any fault to the pilots.

Since the 1970s, there have been 35 flat-spin crashes involving Baron twin-engine airplanes, said attorney John Howie of Howie & Sweeney L.L.P. in Dallas, who represented the Smith family. That is the worst incident rate among makers of similar aircraft, he said.

Only two pilots are known to have recovered from flat spins in Beech airplanes, but both used maneuvers that are not detailed in Beech pilot operating handbooks, the plaintiffs attorneys said.

Raytheon Aircraft witnesses testified that the aftermarket vortex generators installed on Dr. Dempsey's plane to decrease the risk of flat spins actually increased the risk. The equipment, which is manufactured by another company, is installed on about 600 Beechcraft planes, but neither Raytheon nor the Federal Aviation Administration has notified airplane owners of the alleged risk, the plaintiffs attorneys said.

The jury did not assign any blame to the vortex generators, which were not installed on any of the other 34 Beechcraft planes involved in flat-spin crashes, Mr. Howie said.

A Raytheon Aircraft spokesman said he would not comment on the case.

He said the company has adequate product liability insurance to cover the award. The deductible is covered by Beech's captive insurer, Travel Air Insurance Co., which is self-managed.

Bill would allow suing HMOs

AUSTIN, Texas-A bill passed by the Texas Legislature that would allow managed care patients to sue their health maintenance organizations for malpractice is awaiting action by Republican Gov. George W. Bush, who now has a week to decide to support or veto it.

Under the bill, which legal experts say apparently would be the first

in the nation to allow malpractice actions against HMOs, managed

care networks would face new civil liability for denying or delaying treatment.

A spokeswoman for the Texas HMO Assn. in Austin expressed "grave concerns with the whole premise of the bill," because she said patients already have legal tools to sue HMOs through breach of contract claims, deceptive trade practices suits and other measures.

But Kim Ross, vp for public policy of the Texas Medical Assn. in Austin, said Texas HMOs often have been treated too leniently by judges and that the law would be a much more effective means for patients to obtain justice.

To the extent that HMOs have been viewed as benefit plans by courts, and thus preempted by the Employee Retirement Income Security

Act, malpractice suits against them have been thwarted or blocked, according to Henry Saveth, a principal at A. Foster Higgins & Co. Inc. in New York.

While the Texas bill is an attempt to add a weapon to the plaintiff's arsenal, such efforts may fall short if courts deem the Texas proposal itself to be pre-empted by ERISA, he said.

The net change in cost to plan sponsors, should the legislation pass, is hard to predict, said Robert L. Roth, a principal with the law firm of Michaels, Wishner & Bonner in Washington. HMO expenses would rise as insurance and litigation costs increase, but the law could in turn provide the opportunity for plans to pay physicians less, easing HMOs' cost burden, he said.

J&H/M&M names top managers

NEW YORK-J&H Marsh & McLennan Inc. has named several top managers for the merged U.S. operations created by M&M's takeover of Johnson & Higgins in March.

Robert J. Newhouse III, formerly chairman of M&M's U.S. operations, will fill the same role for the merged companies, overseeing seven U.S. regions.

Regional managers reporting to Mr. Newhouse will be:

Roger E. Egan, head of the Northeast region based in New York. Mr. Egan filled a similar role at M&M.

William C. Bauman, a former J&H director now heading the Mid- Atlantic region based in Washington.

Donald E. Williams, head of the merged Southeast regional operation based in Nashville, Tenn. He formerly held a similar position at M&M.

Richard E. Valliere, head of the Midwest region based in Detroit. He held a similar position with J&H.

Lloyd C. Reid, head of the new Southwest regional unit based in Houston. He held a similar position with M&M.

James W. McElvany, former chairman of J&H California and head of the broker's Los Angeles office. He now heads the merged companies' Los Angeles-based Pacific South region.

Gerald R. Swanson, former chairman of J&H Washington and Western regional director. He now heads the Seattle-based Pacific North unit of the merged companies.

MSA bill to come to House

WASHINGTON-Legislation expected to be introduced in the U.S. House of Representatives this week would allow midsize and large employers to offer tax-favored medical savings accounts to their employees.

The measure that Rep. Matt Salmon, R-Ariz., will propose would lift the current 50-employee cap on workforce size under the current eligibility rules for MSA plans.

Rep. Salmon's proposal also would remove the 750,000 limit on the number of MSA policies that can be established during a four-year pilot period. Congress set that limit last year as part of broader legislation that gave MSAs, which meet certain federally set standards, their tax-favored status.

Briefly noted

China Southern Airlines is insured with the People's Insurance Co. of China for losses from a Boeing 737-300 jetliner that crashed while trying to land during a thunderstorm in the southern city of Shenzhen earlier this month, killing an estimated 65 passengers and crew. The hull is insured for more than $40 million, and the hull and liability coverage is reinsured by Western reinsurers, led by Lloyd's aviation syndicates at Murray Lawrence & Partners Ltd. The coverage is placed in London by Willis Corroon Group P.L.C. and Bowring Aviation Ltd. . . .Twenty-seven Blue Cross/Blue Shield plans, which have agreed to work together for the business of large, multistate employers, have signed agreements with Network Management Services and Health Benefits America. NMS and HBA, which are specialists in account administration and computer interfaces, will help the Blues provide "seamless" managed care coverage to companies with at least 5,000 employees. . . .The New Jersey Supreme Court last week ruled that general liability insurance policyholders that sue their insurers for a defense and pollution coverage are not entitled to a jury trial.