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CHAIRMAN, FOUR FORMER OFFICERS OF RISCORP INDICTED OVER DONATIONS
SARASOTA, Fla.-A federal grand jury has indicted the chairman and four former officers of workers compensation insurer Riscorp Inc. for allegedly funneling $383,500 in illegal campaign contributions to more than 20 Florida politicians, including two state insurance commissioners.
Named in a 27-count indictment last week were William D. Griffin, chairman of the Sarasota, Fla.-based insurer; James A. Malone, former Riscorp president; Thomas E. Danson Jr., former executive vp; Richard A. Halloy, former chief financial officer; and Edward J. Hammel, former senior vp-finance.
The indictment charges that the five men conspired to circumvent campaign finance laws by arranging for Riscorp employees, family members and friends to make donations that Riscorp reimbursed through fraudulent "bonuses" it paid to employees. The five men, who were hoping to gain political favors, also solicited lawyers and consultants doing business with Riscorp to make contributions that Riscorp then would reimburse, disguising the payments as professional fees, prosecutors charge.
One of the main beneficiaries of Riscorp's money was former Insurance Commissioner Tom Gallagher, who received about $57,000 in illegal contributions in his 1990 campaign for the commissioner's job and another $48,900 in his unsuccessful 1994 run for governor, the indictment says.
Current Insurance Commissioner Bill Nelson's campaign received $62,800 in illegal Riscorp contributions during 1994, the indictment says.
The indictment does not accuse the candidates of wrongdoing.
None of the defendants could be reached, and none had entered a plea last week. Each faces a maximum of five years in jail and $250,000 in fines on each count.
The indictment also names Riscorp and a subsidiary, but the company announced last week that the subsidiary has agreed to plead guilty to one conspiracy count in return for dismissal of the charges against Riscorp. The company said it expects to be fined up to $300,000.
Riscorp also said Mr. Griffin will resign his positions with the company and its affiliates.
Commissioner Nelson also issued an order barring Mr. Griffin from the insurance business in the state until the federal charges have been resolved.
Riscorp had been a major provider of managed care workers comp insurance and services in Florida, North Carolina and several other states. However, it has drastically scaled back its operations after being battered by a variety of troubles since its 1996 initial public offering, including a pending civil racketeering suit by disgruntled policyholders and the delisting of its stock from the NASDAQ stock exchange (BI, Feb. 3, 1997).
ACE to buy Westchester
ATLANTA-ACE Ltd. is taking a more direct stake in the U.S. insurance market with its $333 million purchase of Westchester Specialty Group Inc. from Talegen Holdings Inc.
The move also takes Xerox Corp., parent of Talegen, one step away from its long-held intent to exit the insurance market.
The purchase of Westchester gives ACE "a whole new entry into the U.S. insurance market," said Brian Duperreault, chairman, president and chief executive officer of ACE.
ACE, like some other Bermuda insurers, is restricted in its marketing and other activities in the United States for regulatory and tax reasons. Because Westchester will remain a separate company, those restrictions will not apply.
Westchester has offices in Atlanta, San Francisco and Glendale, Calif., and it writes specialty commercial property and umbrella liability coverages. In 1996, it wrote $257.8 million in gross premiums (BI, Sept. 15).
Under its new ownership, Westchester will expand its products and its geographic spread, Mr. Duperreault said. New products may include professional liability coverages as well as commercial package policies, he said.
Included in the deal is a $750 million reinsurance contract with National Indemnity, a subsidiary of Berkshire Hathaway Inc., which Talegen bought for $65 million.
"We wanted to make sure that there was a reinsurance contract in place for any reasonable worst-case scenario," Mr. Duperreault said.
Like other liability insurers, Westchester faces long-tail liability claims, including pollution claims, Mr. Duperreault said. Westchester already has $795 million in loss reserves, and policyholder surplus stood at $343.2 million at year-end 1996.
The sale of Westchester leaves Xerox with just Crum & Forster Holdings Inc. out of the seven insurance operations it previously owned. Xerox sold Resolution Group earlier this month for $612 million (BI, Sept. 15), and Crum & Forster is expected to be sold by the end of the year.
Accounting giants to merge
NEW YORK-The proposed merger between Coopers & Lybrand L.L.P. and Price Waterhouse L.L.P. will bring together two accounting and consulting giants whose employee benefit and risk management practices significantly differ in size and scope.
Coopers & Lybrand last year was the world's fifth-largest benefit consultant with an estimated $363 million in consulting revenues. In January, Coopers & Lybrand expanded this business with its purchase of Kwasha Lipton, a consulting firm with $79 million in revenues.
Even before the Kwasha acquisition, Coopers & Lybrand had been growing rapidly because of its strength in broad human resources consulting.
By contrast, Price Waterhouse is a much smaller player in the benefits consulting arena. Competitors put Price Waterhouse revenues from benefit consulting at between $30 million and $50 million. It has been successful in recent years in luring top employee benefit staffers from the Internal Revenue Service and the congressional Joint Committee on Taxation.
In 1996, Coopers & Lybrand was the nation's largest independent risk management consultant with $35 million in revenues (BI, March 17). Price Waterhouse has only a small risk management consulting practice, though last year it established a joint risk management consulting venture with broker Sedgwick Group P.L.C. Steven P. Norton, a principal with Coopers & Lybrand in London, said no decision has been made on how the two consultants' risk management units will be merged, though he said it would be a "great combination."
The two firms also maintain huge insurance auditing and consulting practices. "This really puts us in a leadership position in life and non-life work," said John Baily, chairman of Coopers & Lybrand's insurance industry practice in Hartford, Conn., noting insurance is Coopers & Lybrand's single-largest industry practice.
U.K. rail collision insured
LONDON-Losses from the collision of two trains on the outskirts of London last Friday will be the first test of new liability insurance arrangements established by private rail companies following the privatization of British Rail last year.
The packed high-speed passenger train operated by Great Western Railways collided with a freight train as it was heading to London's Paddington station from Swansea, Wales. The collision killed six people and injured scores of others.
The freight train reportedly is owned by the English, Welsh & Scottish Train Co. No coverage information was available for the company as of Friday.
Great Western is one of dozens of passenger rail companies privatized last year. Third-party liability insurance is written by St. Paul International Insurance Co. Ltd., said broker Jardine Lloyd Thompson Group P.L.C. St. Paul offers up to 10 million pounds ($16.1 million) of coverage to rail companies, but it is not known whether Great Western purchased the full limits.
All privatized rail companies, including Great Western, also buy catastrophe coverage for third-party liability coverage of up to 175 million pounds ($282 million) through an excess insurance facility created for British Rail in 1994 (BI, Jan. 20).
EEOC blasts Mitsubishi plant
PEORIA, Ill.-The federal government claims in a new filing that sexual harassment at a Mitsubishi Motor Manufacturing of America Inc. plant was "repeated, routine, generalized, serious, pervasive and known to and supported by management."
In a 68-page memorandum of law filed last week by the Equal Employment Opportunity Commission, the government details what it describes as a "sexually hostile and abusive environment" to which more than 300 women in the company's Normal, Ill., manufacturing plant were subjected over a period of several years.
The EEOC filed the memo in response to Mitsubishi's Aug. 1 motion for partial summary judgment of the government's massive sexual harassment case against the company. In that motion, Mitsubishi said the government should be required to argue each woman's sexual harassment case separately because the company did not allow a "pattern or practice" of sexual harassment.
The EEOC countered, however, that "the environment created by the harassment and the company's role in that environment amounted to Mitsubishi's standard operating procedure." Therefore, "if any sexual harassment case has ever involved a 'pattern or practice' of discrimination under" Title VII of the Civil Rights Act of 1964, "this one does," the government said.
In the brief, filed in the U.S. District Court for the Central District of Illinois in Peoria, Ill., the EEOC said it already has identified more than 400 male employees against whom allegations of sexual harassment have been made and more than 300 women who appear to have been victims.
Mitsubishi said in a statement that it intends to review the EEOC's filing and look into any new issues raised by the government.
The EEOC filed its sexual harassment case against Mitsubishi in April 1996. It could become the biggest sexual harassment case in the EEOC's history.
EXEL Ltd. has combined its reinsurance units X.L. Reinsurance Co. Ltd. and the recently acquired Global Capital Reinsurance Co. Ltd. to form one company named X.L. Global Reinsurance Co. Ltd. K. Bruce Connell will be president and chief operating officer. He was formerly executive vp of X.L. Re. . . .American Airlines Inc. plans to appeal a Miami federal judge's ruling that the airline was guilty of willful misconduct in the December 1995 crash of Flight 965 in mountainous terrain near Cali, Columbia. All but four of 163 people on board were killed. The ruling means the airline is not shielded by the international limits on airline liability. American also said it plans to sue Honeywell Inc. and Jeppesen Sanderson Inc. for their roles in developing and manufacturing the plane's navigation equipment and computer software. . . .California's chief regulator of health maintenance organizations, Commissioner of Corporations Keith Bishop, announced last week that he will resign from his post for personal reasons just four months after winning a bruising confirmation fight. . . .A.B. 594, a measure aiming to reduce costly construction defect litigation in California, passed the Legislature last week (BI, Sept. 15). . . .A California Assembly bill seeking to allow employees to use employer-provided sick leave to care for dependents will be automatically reintroduced next year because certain legislation in the state has a two-year life span (BI, Sept. 1). A.B. 480 passed the Assembly but was not heard by the Senate before legislators adjourned Sept. 12. . . .Three officials of defunct broker Underwriters Financial Group Inc. have been indicted on federal charges of defrauding clients, two premium finance companies and UFG stockholders. The indictment names Donald Ferrarini, former UFG chairman; Bruno Rumignani, former executive vp; and Everett Vieira, a UFG financial consultant. Also charged is A. Michael Kagan, a former senior vp of one of the premium finance companies, CPF Premium Funding Inc. Two other former UFG employees have already pleaded guilty to charges stemming from a federal investigation (BI, July 24, 1995).