FOR THE RECORD

Underfunded pension plan

to continue after acquisition

WASHINGTON-Kerr Group Inc., a Lancaster, Pa.-based manufacturer of child-resistant caps and seals, will continue its underfunded pension plan and accelerate contributions as part of a proposed settlement with the Pension Benefit Guaranty Corp.

The settlement came in the wake of court action the PBGC took after the announcement of Kerr's pending acquisition by Fremont Partners, a San Francisco-based investment partnership. PBGC had sought court permission to terminate the Kerr plan because Fremont's acquisition of Kerr was to be financed with debt secured by Kerr assets. That would have put the PBGC behind other creditors if it later had to take over the plan.

As part of the proposed settlement, Kerr will pay $3.5 million into the plan at the time of the close of Kerr's sale to Fremont and will pay an additional $35.5 million to the plan through 2003. The PBGC also will hold a second security interest in substantially all Kerr assets.

The Kerr plan, which has about 5,600 participants, has $130 million in liabilities and $90 million in assets.

Pollution exclusion upheld

for individual harm

PHILADELPHIA-The absolute pollution exclusion applies when a pollutant harms an individual, even if the substances were not released into the environment, a federal appeals court has ruled.

The case arose after Mark Moessner and Henry Drumheller, two employees of Faddis Concrete Products, sustained injuries in February 1993 from inhaling carbon monoxide vapors from a steam generator manufactured by Vapor Energy Service & Engineering Corp. The employees sued Vapor Energy; the company submitted the claims for coverage and defense to its comprehensive general liability insurer, Reliance Insurance Co.

Reliance issued a reservation of rights letter and brought a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify Vapor Energy. Reliance's position was based on the absolute pollution exclusion. The trial court granted Reliance's motion based on the exclusion included in the renewal of the policy.

Mr. Moessner appealed, claiming the exclusion is ambiguous because the policy wording describes pollutants causing an environmental catastrophe and not solely injuring an individual. The appeals court disagreed. The absolute pollution exclusion "clearly states that the exclusion applies to the escape of pollutants 'at any time,' and contains no language limiting its scope to environmental catastrophes," the 3rd U.S. Circuit Court of Appeals said.

The appeals court sent the case back to the trial court to determine whether the policyholder was aware the absolute pollution exclusion was added to the policy at renewal.

HMO serving rural area

leaves CalPERS plan

SACRAMENTO, Calif.-The California Public Employees' Retirement Systems' administrative board last week approved the withdrawal of the health maintenance organization from its 1998 health program because of heavy financial losses in three sparsely populated counties.

Modesto, Calif.-based National HMO said it had lost significant revenue in three Northern California counties, Lassen, Modoc and Siskiyou, where it had about 3,000 CalPERS members, or about half its total CalPERS members in the state, according to a CalPERS spokesman.

A CalPERS spokesman said two preferred provider organizations would continue to be available to CalPERS members in those counties. In addition, the more than 1,000 employees at the state prison in Susanville in Lassen County also have access to the California Correctional Peace Officers Assn. plan, which CalPERS administers.

Meanwhile, CalPERS is exploring other options, including having another one of the HMOs with which it contracts expand into these counties, although this process is not expected to be completed by Jan. 1, when National will stop providing service, the spokesman said.

The spokesman said National's withdrawal is a "major disappointment," although National should be praised for its effort. Extending managed care into sparsely populated rural areas has been one of CalPERS' "top priorities," he said.

Drugmaker ownership

of PBMs criticized

Pharmaceutical manufacturers that have bought pharmacy benefit management companies are increasingly dictating the choice of medications patients receive by pressuring physicians and pharmacists to switch prescriptions to the drugs they manufacture, a recent study charges.

The study, published by New York Public Advocate Mark Green, explores what he says are the "conflicts of interest inherent in drug maker ownership of PBMs."

The report points to Eli Lilly & Co.'s 1994 purchase of PCS Health Systems Inc. as an example of the potential for abuse. Citing confidential 1994 documents obtained from PCS, the report alleges Lilly planned an aggressive marketing campaign for its anti-ulcer medication Axid and its antidepressant drug Prozac. It alleges, among other things, that "millions of messages" were sent to physicians pressuring them to switch to Lilly drugs and that a competitor's antidepressant would be downplayed in PCS formularies.

A spokesman for PCS agrees with "the concept that a patient's welfare and the appropriateness of prescription drugs should be the first consideration. And it is with PCS," he said.

He also denied that PCS "pressures" physicians and pharmacists to switch drugs. He said both patients and physicians are informed of any drug interchange and that patients always have the opportunity to say no and that doctors always have the opportunity to approve or disapprove of the drug.

Stress claim upheld

for disciplined teacher

HONOLULU-Hawaii's Supreme Court recently ruled that a stress-related injury resulting from an employer's disciplinary action against an employee is compensable under the state's workers compensation law.

The case of Regina M. Mitchell vs. the State of Hawaii Department of Education began in 1989 when Ms. Mitchell, a sixth-grade teacher, disregarded an administrator's warning against the use of reward parties to motivate students, according to court documents.

Later, Ms. Mitchell confronted a student that she accused of stealing cookies for a reward party, and the student allegedly became unruly. The student in turn accused Ms. Mitchell of striking him. The school's principal recommended that she be suspended for five days for violating a ban against corporal punishment.

After the recommendation for suspension, Ms. Mitchell became feverish, disoriented and found it difficult to work. She then filed a workers compensation claim, alleging she suffers from stress. Hawaii is one of 25 states that allow mental-mental-type stress claims and one of seven that allow them regardless of whether the stress is deemed unusual.

Hawaii's Department of Labor and Industrial Relations Appeals Board denied the claim, finding that Hawaiian workers comp law did not intend for employees to be compensated for a stress-related personal injury resulting from an employer's disciplinary action.

The high court disagreed, ruling that even if she administered punishment in violation of a work rule, she still sustained a compensable injury because she was acting within the course of her employment at the time.