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BUSINESS GROUPS ENDORSE PRODUCT LIABILITY REFORM PLAN
WASHINGTON-Business groups say they will accept scaled-back product liability reform legislation in the hopes that a narrower measure will win congressional approval and President Clinton's signature.
Last week, the executive committee of the Product Liability Coordinating Committee, a broad-based business lobbying group, said it endorses the principles of the draft product liability bill put together by Sen. John D. Rockefeller IV, D-W.Va. That proposal, White House officials earlier said, could be the basis of a bipartisan bill (BI, Oct. 13). The Rockefeller proposal, now being redrafted by his staff and that of Sen. Slade Gorton, R- Wash., would cap punitive damages only for small business, set an 18- year statute of repose for manufacturers of products that have been used in the workplace, protect retailers and wholesalers from product liability suits, and establish clear rules involving the misuse or alteration of a product.
Significantly, though, the new measure does not eliminate other legal reforms employers have been seeking in their long battle to win passage of federal product liability reform legislation. Those long-sought reforms include: elimination of joint and several liability; setting a statute of repose for all products, not just those used in the workplace; and imposing a dollar cap on all punitive damage awards rather than just those imposed on small employers.
But the PLCC says political reality is driving its decision to back a narrower measure.
"We know what is realistic with this president," said PLCC Executive Director Pat Rowland. Last year, President Clinton vetoed a tort reform measure at least in part because of dollar caps it imposed on awards. President Clinton, though, said he would support a "reasonable" product liability reform bill.
Comprehensive reform, in reality, can only be achieved by incremental means, National Assn. of Wholesaler-Distributors President Dirk Van Dongen wrote last week to Senate Majority Leader Trent Lott, R- Miss., in urging quick passage of reform legislation.
Business groups say a consensus bill could emerge as soon as this week.
Merger lifts risk consulting rank
NEW YORK-The planned merger of accounting giants KPMG Peat Marwick L.L.P. and Ernst & Young L.L.P. would create not only the world's largest accounting firm but also one of the largest risk management consultants and an insurance services behemoth.
The two firms combined will have $18.3 billion in fiscal 1997 revenues-of which U.S. business accounts for $7.5 billion-and worldwide staff of 163,250, including 12,800 partners.
Combined, the firms audit 34.3% of U.S. publicly traded companies reporting to the Securities and Exchange Commission, according to Public Accounting Report, an Atlanta-based publication. This would put the merged firm ahead of the merged operations of Coopers & Lybrand L.L.P. and Price Waterhouse L.L.P., which audit 24.4% of public companies (BI, Sept. 22).
Both KPMG and E&Y have sizable risk management consulting operations: E&Y was the sixth-largest U.S. independent risk management consultant based on $18.2 million in 1996 consulting revenues, and KPMG was the seventh-largest, with $10.9 million in revenues. Combined, the firms would be the No. 3 risk management consultant behind Coopers & Lybrand and Tillinghast-Towers Perrin (BI, March 17).
E&Y and KPMG also are huge providers of services to property/casualty and life/health insurers, offering audit, actuarial, tax and management consulting advice. Clients also include state insurance departments, for which they perform statutory exams and help develop rehabilitation plans.
KPMG has 900 insurance company clients in the United States and provides services to seven of the 20 largest reinsurers, the firm said. E&Y said it has 1,000 insurance clients in North America.
The merger is expected to be effective at the end of the year and is subject to regulatory approval, including an expected antitrust review by the U.S. Justice Department. The firms said they are providing information to the Justice Department.
"We've seen a lot of consolidation in the insurance industry," commented Alan M. Levin, managing director with Standard & Poor's Corp. in New York. "Having an accounting firm that has the scale to keep up with these mega-insurance companies makes sense."
Mr. Levin also discounted any anti-competitive impact on the insurance industry, noting that few insurers are so large that their choice of auditor would be limited to one of the proposed Big Four.
'Safe harbor' brings dismissal
WINSTON-SALEM, N.C.-A federal judge has dismissed a shareholder class-action suit against a North Carolina high-technology company in what lawyers say is the first time a case has been dismissed under a provision of a 1995 securities law.
The law, the Private Securities Litigation Reform Act of 1995, contains a provision that permits companies to make statements about their future performance without fear of suit, provided they contain "meaningful cautionary statements." This provision gives companies a "safe harbor" from liability.
The decision by Judge Richard Erwin is the first to dismiss a suit because the statements fall under the "safe-harbor" provision, said Michael Perino, a lecturer at Stanford Law School and co-author of a study on the securities reform law. "The safe harbor worked as Congress seemed to have intended," he said.
The suit, filed in 1996, alleged that Cree Research Inc. of Durham, N.C., overstated its projected financial results and ability to produce its main product, blue LED chips. In July 1996, the company revealed production problems and lower earnings than previously predicted, causing its stock price to drop.
But the positive statements the company made were covered by the forward-looking provision of the Litigation Reform Act, the judge stated in his seven-page Oct. 17 decision, because they contain sufficient cautions.
The decision provides the first judicial guidance concerning the "safe harbor" provision and allows other companies to follow what Cree has done in making public statements, said the company's lawyer, Bruce Vanyo, a partner with the Palo Alto, Calif., firm of Wilson Sonsini Goodrich & Rosati.
But the guidance is limited because of the decision's lack of in- depth analysis of the issue, said Wayne Borgeest, a partner with Kaufman, Borgeest & Ryan in New York who represents defendants in class-action securities suits.
The plaintiffs are considering an appeal, said their attorney, L. Bruce McDaniel of McDaniel & Anderson in Raleigh, N.C.
RIMS to voice merger concerns
NEW YORK-The Risk & Insurance Management Society Inc. is launching a campaign to voice policyholder concerns over the wave of consolidation in the insurance industry in the wake of the disclosure of a J&H Marsh & McLennan Inc. memo directing brokers to channel certain business through regional centers.
The RIMS executive council and other RIMS committees will seek to meet with insurers and brokerages to ensure that policyholder interests are recognized as the industry implements measures to increase efficiency.
"It is still unknown, and will be for some time, what impact the consolidations will have on industry efficiency and the quality of services and products provided," said RIMS President Stephen M. Wilder in a statement. Mr. Wilder is vp-risk management at The Walt Disney Co.
RIMS conducted a telephone poll of members on consolidation earlier this year, he said.
"Responses were mixed with generally a favorable view of the consolidations over the long term," Mr. Wilder said in the statement.
The move by RIMS follows the disclosure of a J&H Marsh & McLennan internal memo earlier this month that directed brokers to channel property/casualty insurance placed with Chubb through six Global Broking Centers rather than with local Chubb offices (BI, Oct. 13).
J&H Marsh & McLennan said the memo only referred to middle- market business. However, some risk managers raised concerns that the directive could be applied to other business and jeopardize local relationships with insurers.
The RIMS executive council discussed the memo at its Oct. 18 meeting and decided to take a proactive position on consolidation in the brokerage industry.
Ambac acquires Connie Lee
WASHINGTON-Financial guarantee insurer Connie Lee Insurance Co. will be acquired by a subsidiary of another financial guarantee insurer, New York-based Ambac Assurance Corp., the companies said last week.
Specific terms of the transaction, which also includes Connie Lee's holding company, Construction Loan Insurance Corp., will be disclosed after the signing of a definitive acquisition agreement that is scheduled for later this week, said an Ambac spokesman. The agreement is subject to regulatory and shareholder approvals as well as that of both companies' boards of directors.
Connie Lee, which guarantees bonds primarily issued for college and hospital infrastructure projects, said earlier this month it was in exclusive negotiations for a possible sale to a "highly rated insurance company" (BI, Oct. 13). The triple-A rated Ambac, which reported gross premium volume of $247.2 million in 1996, is one of the leading financial guarantee insurers.
Caspa L. Harris Jr., chairman of Connie Lee's Board of Directors, said, "We had been approached before, but Ambac made the better offer." Mr. Harris said the insurer at this point had three options: "We either had to sell the firm or get a new president and move forward
. . . .or close the place up." President and Chief Executive Officer Oliver R. Sockwell retired earlier this year.
There has been speculation that if acquired by another financial guarantee insurer, Connie Lee would be put into runoff. The Ambac spokesman refused to reveal the company's plans beyond saying the transaction would be structured so that Connie Lee would retain its AAA rating from Standard & Poor's Corp.
Rep. Sherwood Boehlert, R-N.Y., last week unveiled a Superfund reform bill that provides little relief from retroactive liability. . . .The U.S. Supreme Court agreed last week to hear arguments in Atlantic Mutual Insurance Co. vs. Commissioner to determine what types of property/casualty loss reserve increases should be discounted for tax purposes. . . .Patricia C. Vaughan, former general counsel for the Risk & Insurance Management Society Inc. in New York, resigned last week to become general counsel for a pharmaceutical research and development company. . . .Gilda A. DeSmith, 44, a former consultant to Los Angeles County's Metropolitan Transportation Authority, pleaded guilty Oct. 20 to giving a $5,000 bribe to former MTA construction risk manager Abdoul Sesay in return for consulting work, according to the U.S. Department of Justice in Los Angeles. Mr. Sesay is serving a 10-month sentence in federal prison after admitting to receiving bribes in return for MTA contracts. . . The California Public Employee Retirement System is joining the derivative action lawsuit against Columbia/HCA Healthcare Corp. by New York State Comptroller Carl McCall. CalPERS' investment in Columbia/HCA of more than 3.7 million shares of common stock has declined by $50 million since initial reports of the company's alleged wrongdoing. The suit seeks to recover lost profits, penalties, illegal gains, fines, legal fees, lost revenues and other damages.