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CIGNA to appeal N.C. finding; judge stays regulator's order

RALEIGH, N.C.-A North Carolina judge on Friday stayed a state insurance commissioner's order that ultimately could force CIGNA Corp.'s active operation to cover the losses of thousands of commercial property/casualty insurance policyholders whose policies were moved to a runoff facility during CIGNA's reorganization last year.

Superior Court Judge Howard E. Manning Jr. stayed Commissioner James E. Long's Aug. 6 order until CIGNA can appeal it in Superior Court. Mr. Long found that the policy movement violated the state's assumption reinsurance statute. That statute bars any contract that creates a novation-the transfer of an insurer's policyholder obligations to another insurer without prior policyholder approval. Mr. Long also ruled CIGNA unlawfully transferred policyholders to an unlicensed company.

Under the order, Insurance Co. of North America-the lead company in CIGNA's active operation-must show it has reserved adequately for losses against the 8,202 North Carolina policies CIGNA says it moved, said Peter A. Kolbe, the department's general counsel. Before the reorganization, INA said it had reserved nearly $35.4 million to cover losses against those policies.

CIGNA does not have to move the policies back to INA, Mr. Kolbe said. But, if the facility were unable to pay policyholders' claims, "I'd take some comfort that their liabilities were listed on INA's statements," he said. Mr. Long also fined INA $820,200.

A CIGNA spokesman said North Carolina's law does not apply in INA's case because no policies were "transferred." CIGNA maintains the policies were moved during a merger, which does not require policyholder consent. CIGNA split INA in two and merged the portion that retained most of INA's liabilities into an existing CIGNA subsidiary.

The spokesman also said no North Carolina policyholders have complained about the reorganization.

Among the eight other states with assumption reinsurance laws, regulators in at least five-Colorado, Georgia, Maine, Nebraska and Rhode Island-said they do not plan to take any similar action immediately but will review Mr. Long's order and monitor the ongoing litigation in Pennsylvania over CIGNA's reorganization. Colorado and Maine regulators also noted that policyholders in their states have not complained about the reorganization.

Novations are prohibited in most other states under case law.

Captive bill passes in New York

ALBANY, N.Y.-Companies can set up captive insurers in New York if a bill passed by the Legislature is signed by Gov. George E. Pataki.

Under the bill, which Gov. Pataki sponsored, companies with gross annual revenues or net worth of more than $100 million would be able to set up a captive insurer in the state. Also, non-profits or public authorities with annual budgets of more than $100 million could establish captives. Group captives also would be permitted under the bill, as long as the companies had aggregate revenues or budgets exceeding $100 million.

The bill would allow captives to insure both the parent company and its affiliated companies for most property/casualty risks but bar them from writing life or health insurance. Captives would be required to use a fronting insurer to write workers comp and motor vehicle coverage.

The legislation would set minimum capital and surplus requirements at $250,000 for single-parent captives and $500,000 for group captives.

The bill also would require captives to maintain a home office and records in New York and submit to oversight by the state's Superintendent of Insurance. Captives also would be prohibited from participating in any state insurance pool or guaranty fund.

Return premiums, judge rules

NEW YORK-Health insurers and health maintenance organizations should receive refunds of $170 million in premiums they paid to a state excess medical malpractice fund, a judge has ruled.

The New York Excess Medical Malpractice program had sufficient reserves to fund itself in the 1995 policy year and should return the money, Supreme Court Judge Joseph P. Torraca said. Former New York Superintendent of Insurance Edward J. Muhl's determination of the 1995 rate "was arbitrary and capricious and affected by an error of law," the judge ruled. In New York, the Supreme Court is a trial court.

In the judgment late last month, Judge Torraca noted that New York insurance law requires that in setting the rate due, consideration be given to past and prospective loss experience of the program.

Actuaries for the New York State Conference of Blue Cross & Blue Shield Plans, who brought the suit, estimate the program is overfunded by $661 million and that in its 12-year existence has had to pay only $89 million in claims.

The New York Insurance Department has not yet decided whether to appeal the judgment. In addition, it wasn't immediately clear last week how the ruling would apply to employers that self-fund health plans.

A second suit seeking the return of 1996 premiums is pending.

The excess medical malpractice fund provides free excess medical malpractice coverage to 20,000 doctors: $1 million excess of $1 million per incident and $3 million excess of $3 million in the aggregate.

A surcharge on hospital discharge fees funded the program. Earlier last month New York lawmakers voted to suspend the payments for one year and ordered a study to assess whether the program could be perpetually self-funding. Gov. George E. Pataki signed the bill (BI, July 7).

Lloyd's intervenes in dispute

LONDON-Regulators at Lloyd's of London are attempting to broker a peace and avoid litigation between investors in loss-making syndicate 657 and the syndicate's agency, Archer Managing Agents Ltd. Syndicate 657, parts of which are being re-underwritten into two other Archer syndicates, had been led by David Lowe since 1993. It specialized in U.K. liability business. The 1994 year of account is still open, and currently Archer estimates the losses between 41% and 45% against (British pounds) 43 million capacity ($63.6 million) for that year of account. Both the 1995 and 1996 accounts also appear to be loss-making, with estimates for 1995 running at 15% against capacity of (British pounds) 42 million ($65.7 million).

Mr. Lowe left the syndicate last year when the extent of the losses started becoming apparent.

Stephen Wenman, chief executive of Archer Group Holdings P.L.C., owned by U.S. reinsurer Chartwell Reinsurance Co. of Stamford, Conn., said, "David Lowe's results have been very disappointing, and we deeply regret the underwriting results."

As the problems emerged earlier this year, Archer made a settlement offer to investors on the syndicate, said Mr. Wenman. All unlimited liability members accepted, he said, but corporate capital investors decided not to take the offer. Last week, New London Capital P.L.C. issued its results for the fiscal year ending March 31, 1997, results it said were negatively affected by syndicate 657's results. NLC had placed (British pounds) 7.5 million capacity ($12.8 million) on the syndicate for 1994, 1995 and 1996. NLC is advised on its Lloyd's syndicate participations by Chartwell Advisers, though Mr. Wenman pointed out the syndicate selection ultimately is a board decision.

Another corporate investor, The Benfield & Rea Investment Trust P.L.C., also issued a statement in which it said syndicate 657 held back the trust's performance.

A spokesman for Lloyd's said that regulators are aiming to bring the various parties together to thrash out the problem, rather than resorting to the courts. It is the responsibility of the corporate capital investors to undertake proper due diligence of the syndicate before investing, he added.

Dallas diocese seeks coverage

DALLAS-The Catholic Diocese of Dallas is asking a federal judge to rule that its insurers should be responsible for part of a $119.6 million sexual abuse judgment if the judgment is upheld against the diocese.

The diocese, which plans to appeal last month's jury verdict in the sexual abuse case (BI, July 28), filed suit shortly after the judgment, asking U.S. District Court Judge Jerry Buchmeyer to rule that coverage written by Interstate Fire & Casualty Co. and syndicates at Lloyd's of London will apply if an award is upheld.

The diocese was found partly responsible for the sexual abuse of several boys from 1981 to 1992 by former priest Randolph "Rudy" Kos.

Interstate Fire & Casualty provided annual limits from June 1978 through June 1985 of $4.8 million above $200,000 of underlying insurance. The lower layers consist of coverage written at Lloyd's and the diocese's self-insured retention. Interstate wrote coverage to limits of $800,000 above the lower layers for the policy period of June 1985 to June 1986.

Interstate Fire & Casualty argued, among other things, that its coverage should not apply because of the jury's findings that the diocese committed gross negligence and concealed information about the abuse. The final year of the coverage contained a sexual abuse exclusion.

Briefly noted

Shareholders in South African broker Forbes Group Ltd. have approved its acquisition of London-based Nelson Hurst P.L.C. In return, the vast majority of Nelson Hurst shareholders accepted the Forbes offer of 185 pence per share, making the deal unconditional. Based on their combined 1996 gross revenues, Forbes is the eighth-largest broker in the world (BI, July 21). . . .Former Assistant Treasury Secretary George Munoz has been sworn in as president and chief executive officer of the Overseas Private Investment Corp., which underwrites political risk insurance for U.S. companies doing business in certain developing countries (BI, July 28). The Senate voted unanimously to confirm him shortly before it left for its August recess. . . .Home Holdings Inc. has settled a rent dispute with Olympia & York Co. and will pay no more than $86 million for the reduced space it requires at its 59 Maiden Lane offices in New York. Home had stopped paying rent on the property last June, saying it would not need all of the 583,000 square feet it had leased for $130 million through September 1999 (BI, July 15, 1996). . . .The National Assn. of Securities Dealers Inc. voted last week to abolish mandatory arbitration of statutory discrimination claims for registered brokers. The new policy must be approved by the Securities and Exchange Commission before it becomes effective. . . .The sale of Industrial Indemnity Holdings Inc. to Fremont General Corp. was completed last week. Fremont will pay $365 million to Xerox Corp. for the workers compensation insurer and pay off $79 million of Industrial Indemnity's debt. . . .New York-based Kroll Associates will merge with Fairfield, Ohio-based O'Gara Co. in a "pooling of interests" transaction. Kroll, a corporate security and risk management firm, had been slated to be acquired by Alphretta, Ga.-based Choicepoint Inc., but no agreement could be reached (BI, April 7). O'Gara Co. provides corporate security services, systems integration and hardware products. . . . Norwalk, Conn.-based Oxford Health Plans Inc. named William M. Sullivan as its chief executive officer. Company founder Stephen F. Wiggins, who is relinquishing the title, will remain chairman. Separately, the company said last week it had agreed to purchase for an undisclosed amount privately held Riscorp Health Plans Inc., a Sarasota, Fla.-based health insurer that offers point-of-service and health maintenance organization plans to 15,000 members in the Orlando, Tampa, Jacksonville, Miami and southwest Florida areas. . . .The Senate Environment and Public Works Committee will vote on a Superfund reform bill early next month. The current version of the measure, S. 8, would not, however, make significant changes to Superfund's imposition of retroactive liability, which has long been a goal of risk managers and insurers. Senate Democrats withdrew from negotiations on a consensus reform bill after the Republican majority set a markup date of Sept. 11 for the bill.