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Posted On: Jun. 15, 1997 12:00 AM CST

Court rejects claim AIG unfairly winning Golden Eagle clients

SAN FRANCISCO-American International Group Inc. is not using insider information it obtained in bidding for Golden Eagle Insurance Co. to compete for business written by the troubled insurer, a California judge has ruled.

San Francisco Superior Court Judge William Cahill rejected a June 11 motion filed by the California Insurance Department and Liberty Mutual Insurance Co. seeking to stop AIG from soliciting small and middle-market business using Golden Eagle producer lists.

AIG obtained the lists after it won a sealed bid for Golden Eagle in April. However, the New York-based insurer has yet to return those lists to the department since the court turned Golden Eagle over to Liberty Mutual last month, the motion said. AIG has not returned the documents nor informed the commissioner of its intent to destroy them, according to the motion.

But AIG claimed in a countermotion that it did not use the Golden Eagle documents but had solicited business using Kirschner's, a commercial marketing service that compiles, maintains and publishes lists of independent agents. AIG further argued that the motion to stop it is "nothing but an attempt to enjoin open and fair competition."

Insurance Department officials were not available for comment.

Pension reform plans offered

WASHINGTON-Two pension plan reform proposals were unveiled last week.

A bipartisan group of senators introduced The Retirement Security for the 21st Century Act, S. 889. It includes provisions that would: reduce the maximum vesting period for matching employer contributions to defined contribution plans to three years from the current five; allow employees granted unpaid maternity or paternity leave to make up any 401(k) contributions missed during their leave without affecting the plan's qualified status; encourage small businesses to set up 401(k) plans; encourage rollovers when employees change jobs; eliminate certain reporting requirements; and expand the Pension Benefit Guaranty Corp.'s missing participant program.

The measure also calls for requiring annual benefit statements to be distributed to participants in a defined contribution plan while participants in defined benefit plans would be entitled to a statement at least once every three years.

The measure is expected to be offered as an amendment to a tax reduction package scheduled to be considered this week by the Senate Finance Committee.

Also last week, Labor Secretary Alexis Herman unveiled the Labor Department's pension reform agenda, which includes: repealing "limited scope audits" for pension plans with 100 or more participants; requiring quality control reviews for auditors; requiring direct reporting by plan administrators of "egregious" violations; eliminating some reporting requirements; and expanding the PBGC's program to find missing beneficiaries.

Currently plan administrators can exclude assets held by financial institutions such as banks and insurers from the mandatory annual audit by choosing the so-called "limited scope audit." When this is done, "the department, plan sponsors and participants cannot tell whether plan assets are secure," Ms. Herman said. About half of the largest 65,000 plans currently undergo the limited audit, she noted.

N.J. Blues, Anthem merger fails

NEWARK, N.J.-Blue Cross & Blue Shield of New Jersey will continue trying to shed its non-profit status despite the collapse last week of its merger with for-profit Anthem Inc.

The New Jersey plan had sought to become a mutual health insurer and to merge with Anthem's vast managed health care network.

Indianapolis-based Anthem and the New Jersey BC/BS plan announced last year that they would merge to create a company with $9 billion in revenues and 7 million subscribers in New Jersey, Indiana, Kentucky and Ohio.

But legal action by New Jersey officials, who claim the plan owes residents for years of special tax exemptions and other concessions as a non-profit entity, delayed the merger.

"Right now the company is committed to mutualizing, and the company will continue to pursue that," a New Jersey plan spokesman said. However, the merger agreement with Anthem was to expire June 30 and could not have been consummated in time.

A merger with the New Jersey Blues, even if regulators can be persuaded, could take two or three years, an Anthem spokesman said. "At this time, the fight is not an Anthem fight," he said. "They have to mutualize before they can merge with us."

Riscorp shakes up operations

SARASOTA, Fla.-Beleaguered workers compensation insurer Riscorp Inc. is closing offices, restricting underwriting, reducing its workforce and has named new top managers.

Riscorp, a holding company for several managed care workers comp underwriting and service units, is closing offices in Fort Lauderdale, Fla.; Montgomery, Ala.; Oklahoma City; Kansas City, Kan.; Atlanta; and Richmond, Va. Operations will be consolidated in regional offices in Sarasota, serving Florida; Birmingham, serving Alabama; and Charlotte, serving North Carolina, South Carolina and Georgia.

Riscorp will stop writing new business in Oklahoma, Kansas, Missouri and Virginia, although it will maintain its licenses. The business will be run off by its Birmingham and Charlotte offices.

Riscorp also is laying off 141 of its 836 employees, a 17%staff reduction that will cut payroll 28%because many of the jobs eliminated are executive positions, the company said.

Frederick M. Dawson, who joined the company as chief executive officer in May, also assumes the title of president. James A. Malone has resigned as president and chief operating officer.

Richard B. Franz, who also joined Riscorp in May as senior vp and chief financial officer, resigned and has been replaced by Stephen C. Rece, a Riscorp senior vp who also oversees the company's reinsurance programs.

In addition, Walter E. Riehemann, former acting general counsel, has been named general counsel; and Gregory P. Kuzma, senior vp, has been named treasurer, replacing L. Scott Merritt, who resigned.

Riscorp has been battered by problems since its $128 million initial public offering last year. These have included a racketeering suit by former policyholders, a grand jury probe of its political campaign contributions and shareholder suits that followed a huge drop in Riscorp's stock price (BI, Feb. 3). The racketeering and shareholder suits are still pending.

Bad faith award overturned

SANTA ANA, Calif.-Units of CIGNA Corp. do not have to pay $2.6 million in punitive damages for refusing to pay more than a $10,000 off-premises policy limit to a computer chip manufacturer following a robbery, a judge has ruled.

The state court judge struck down the jury award, ruling the insurer did not act in bad faith.

The June 2 decision by Orange County Superior Court Judge Floyd H. Schenk involved an August 1995 robbery of memory chips from a driver for Santa Ana, Calif.-based Lifetime Memory Products Inc. After CIGNA units Insurance Co. of North America and Century Indemnity Co. refused to pay more than the $10,000 limit for "off premises" loss of personal property, the policyholder sued, stating the chips were part of its stock, which was covered up to $8 million.

The CIGNA units' refusal to pay more than $10,000 "was reasonable in light of the terms of the policy," said Judge Schenk, adding that "clear and convincing evidence" needed to grant punitive damages was not there. But the CIGNA units were ordered to pay $131,600 in policy benefits plus interest.

Paul Columbus, Lifetime's president, said he plans to appeal the decision. "We feel our chances are very high," he said.

Deadline set for HMO

TALLAHASSEE, Fla.-A Florida health maintenance organization is facing receivership if it can't come up with a plan to get out of financial trouble by Aug. 27.

A Leon County Circuit Court judge set the date for operators of Sunrise Healthcare Plan Inc. of Fort Lauderdale to indicate whether the HMO can make up liabilities that exceeded assets by $583,000 as of March 31.

The HMO, which serves around 15,000 members, has acknowledged it is insolvent and has been ordered to not write new or renewal business.

If the HMO cannot pay claims, Florida law protects subscribers from liability for making those payments.

Computer model questioned

TALLAHASSEE-A computer model for calculating potential losses from Florida hurricanes could lead to drastically higher property rates and should not be used, State Treasurer and Insurance Commissioner Bill Nelson charged in legal action earlier this month.

The commissioner's petition asks an administrative law judge to block use of the model developed by Applied Insurance Research Inc. of Boston to project hurricane losses. The Florida Commission on Hurricane Loss Projection Methodology has approved the model, which means insurers can use the data in rate-making.

Mr. Nelson contends the loss projection panel erred in approving the model, which the Insurance Department says could lead to homeowners' rates for hurricane coverage increasing by more than ten fold in some areas.

Briefly noted

French broker Gras Savoye S.A. and German broker Jauch & Huebener KGaA both declined to comment on rumors circulating in Europe last week that they are in merger talks with other brokers. Both companies are key members of the UNISON brokerage network, which lost its largest partner when Johnson & Higgins was acquired by Marsh & McLennan Cos. Inc. earlier this year. . . .Ward-THG Inc., Swiss Reinsurance Co. and Thomas Howell Group (Americas) Inc. have settled a lawsuit brought by Ward-THG against Swiss Re and Thomas Howell (BI, Nov. 4, 1996). Also settled was an additional suit brought by GT Holding Corp. against Ward-THG. The lawsuits arose out of Swiss Re's sale of Thomas Howell to Ward-THG competitor Crawford & Co. . . .A brief impasse in the negotiations between the tobacco industry and state attorneys general apparently has been resolved as Brown & Williamson Tobacco Co. is back at the table after reportedly balking at proposed nicotine reduction guidelines. Meanwhile, California last week joined dozens of other states in suing the tobacco industry to recover health care costs. . . .Vermont Gov. Howard Dean has signed a measure into law that requires health insurers to provide the same level of benefits for mental illnesses as for physcial ailments. The law includes alcohol and drug addictions among the range of mental illnesses. It bars insurers from setting lower lifetime coverage caps for mental illnesses than for physical conditions. . . .The Arizona Supreme Court last week refused to step into the middle of a pollution coverage dispute in which a trial court has ruled the sudden and accidental pollution exclusion bars coverage for losses that did not occur abruptly. The lower court refused to consider the exclusion's regulatory history.*.*.*.The revised budget reconciliation tax package offered by House Ways & Means Committee Chairman Bill Archer, R-Texas, does not reimpose the special taxes that pay for the federal Superfund program. Rep Archer had earlier pledged not to reinstate the taxes without an overhaul of Superfund's liability system (BI, Feb. 10). . . .An appeal of the HIV-tainted blood products settlement has been filed by two members of the settling class. As a result, the payments of $100,000 to each of more than 6,000 claimants, originally scheduled to be made in early July, have been put on hold.