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A LOOK BACK: 1987-1991

Posted On: Oct. 29, 1997 12:00 AM CST

A California court is giving permission to the California Insurance Department to liquidate Mission Insurance Co. and four of its subsidiaries. The liquidation order ends more than a year of frenzied efforts to keep Mission alive. The Mission insolvency currently totals $520 million and may become the largest insurance company insolvency ever.

New York Insurance Department Superintendent James P. Corcoran is suing Frank B. Hall & Co. and auditor Touche Ross & Co. for $140 million, charging they are responsible for the insolvency of Union Indemnity Insurance Co. of New York, a former Hall unit. The suit accuses Hall of "neglecting and abusing" Union Indemnity, which was ordered liquidated by a New York court in 1985, and accuses Touche Ross of knowingly approving false financial statements for Union Indemnity.

Legislation being drafted by Rep. Rod Chandler, R-Wash., would give employers a new tax-effective way to fund their retiree health care liabilities. The legislation would allow an employer to make annual tax-deductible contributions of $2,000 per employee to a special retiree health care trust. The funds would earn tax-free interest. Business groups say their members would welcome a tax-attractive vehicle to fund the tens of billions of dollars in promised but unfunded retiree health benefits.

Insurers say they will fight legislation introduced by Sen. Howard Metzenbaum, D-Ohio, that would gut the McCarran-Ferguson Act. Among other things, the legislation would bar the Insurance Services Office Inc. from analyzing claims information and publishing advisory rates.

In one of the largest suits of its kind, Westinghouse Electric Corp. is suing all of its property and liability insurers since 1948 for the defense and indemnification of pollution claims against the company. The suits seeks coverage for the cost of cleaning up 74 separate hazardous waste sites nationwide and for responding to the hundreds of bodily injury claims filed by Westinghouse customers claiming they were exposed to toxic substances contained in the company's products.

Competition in the property/casualty insurance market is accelerating. Brokers report that property rates are falling at least 25% while rates for most types of liability insurance are dropping 10% to 15%.

Police in Britain and France have arrested five former officials of Alexander Howden Group P.L.C. on various charges of fraud or theft. The officials, including flamboyant former Lloyd's underwriter Ian R. Posgate, were arrested in connection with the siphoning of "millions of pounds" from Howden and its subsidiaries prior to 1982.

The Pension Benefit Guaranty Corp. is returning three previously terminated pension plans, which have more than $2 billion in unfunded liabilities, to LTV Corp. The PBGC took its action after Dallas-based LTV, which earlier said it couldn't afford to contribute to its pension plans, set up a new low-cost pension program.

The stock market crash is unlikely to cause the commercial property/casualty insurance market to tighten, even though the crash reduced insurers' surplus by about 10%. The record one-day 508-point drop in the Dow Jones 30 Industrials may restrain competition somewhat, but many experts believe lower rates are inevitable because the industry enjoys a glut of capital.

The New York Insurance Exchange is closing its doors to new and renewal business following membership approval of an underwriting suspension. Syndicates stopped binding business Nov. 23 and agreed not to issue policies with effective dates subsequent to Dec. 31.

Some 59% of employers with more than 10,000 workers say at least one of their employees has AIDS. The Alexander & Alexander Consulting Group survey found that 10.1% of employers nationwide have at least one employee with acquired immune deficiency syndrome. Large employers were more likely to have employees with AIDS than smaller firms.

As many as 50% of employers with 401(k) plans have had to cut back on salary deferrals to the plans by higher-paid employees in order for the plans to pass the tough non-discrimination tests laid down by the Tax Reform Act of 1986. In addition, employers say they are adding loan provisions to boost participation by lower- paid employees.

Insurers, reinsurers and other industry officials conspired to manipulate the U.S. commercial liability insurance market, seven state attorneys general have charged in anti-trust litigation. As a result of the conspiracy, the Insurance Services Offices Inc. was forced to rewrite its new commercial general liability insurance policy forms to exclude all coverage for pollution and include a retroactive date in the claims-made CGL policy, the suit says. The suit names four primary U.S. insurers, ISO, the Reinsurance Assn. of America, six U.S. reinsurers, eight Lloyd's of London managing agencies, six British reinsurers and three reinsurance brokers.

J.C. Penney Co. Inc.'s health care plan, under which an employee only can obtain coverage for a spouse who earns less than the employee is legal, a federal appeals court says. The 6th U.S. Circuit Court of Appeals said the plan did not discriminate against women because Penney had a "legitimate business reason" for offering the plan. Benefit experts note that as the number of two-wage earner families increase, more employers may try to limit coverage for an employee's spouse.

Massachusetts Gov. Michael Dukakis signs legislation establishing an innovative "play or pay" approach to expanding health care coverage in the Bay State. Under the law, which is scheduled to go into effect in 1992, employers that have at least six employees would be have to pay a new $1,680 tax per employee to fund health care for the uninsured. The per employee tax can be offset for each dollar an employer spends on health care.

Competition continues to heat up in the commercial property/casualty insurance market. Buyers renewing their coverages this spring are seeing rates fall by between 10% and 40% while also receiving better terms and conditions. Unlike the soft market of the late 1970s and early '80s, competition is now being driven by insurers rather than reinsurers.

Employers are paying out far more in COBRA claims than they are taking in premiums from COBRA beneficiaries. Some employers responding to a BI survey say they are paying $2 in COBRA claims for each dollar of premium paid by former workers and spouses who purchase coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985.

The explosion of the Piper Alpha oil platform in the North Sea could produce a $1 billion loss, the largest man-made disaster in history. Some 164 people were either killed or missing. The 12-year-old platform, which was operated by Occidental Petroleum Corp., was insured for $790 million, while liability losses could exceed $100 million.

The explosion of a Pan American World Airways jumbo jet over the Scottish town of Lockerbie could produce one of the biggest aviation losses ever. Underwriters are reserving $250 million to $300 million to cover claims arising from the crash of the Boeing 747, which killed all 243 passengers and about 15 people on the ground.

The Internal Revenue Service is preparing a new rule that could require employers with flexible spending accounts to cover employee health care expenditures they never intended to pay. Under the rule, employers would have to reimburse employees for health care expenses even if there was not enough money in the FSA to cover the expense. Employers would be out of luck if an employee quit before making new contributions to the FSA.

Many benefit managers say they will continue to offer their employees coverage from Maxicare Health Plans Inc., despite the bankruptcy filing by what had once been one of the nation's largest health maintenance organizations. Employers say they will closely monitor service provided by Maxicare and hold special open enrollment periods if necessary.

Exxon Corp. has at least $600 million of commercial insurance to pay for pollution cleanup and liability claims resulting from a massive oil spill in Alaska's ecologically rich Prince William Sound. About 10.1 million gallons of crude oil spilled from the Exxon Valdez tanker after it hit a rocky reef.

Alexander & Alexander is questioning the ability of H.S. Weavers (Underwriting) Agencies to pay future claims. A&A says it is unable to determine Walbrook Insurance Co. Ltd.'s potential to meet future obligations. Walbrook writes most of the Weavers line slip. A&A, a major producer of business for Weavers, is instructing its brokers to obtain alternative quotes, leaving it to clients to decide if they want to buy coverage from Weavers.

The Pension Benefit Guaranty Corp. cannot return to LTV Corp. three previously terminated pension plans and their $2 billion in unfunded liabilities, an appeals court says. The 2nd U.S. Circuit Court of Appeals in New York dismissed the argument by the federal pension agency that the Employee Retirement Income Security Act of 1974 gives the agency the power to return previously terminated plans after a company, like LTV, sets up new pension plans.

Frank B. Hall & Co. will pay $48 million to the New York Insurance Department to settle charges that it was responsible for the collapse of former subsidiary Union Indemnity Insurance Co. of New York. The agreement, which calls for Hall to make an initial $19 million payment followed by installments over a 10-year period, settles a $140 million suit against Hall by New York insurance regulators.

Insurance industry defendants in a massive antitrust suit win a big victory when a federal judge dismisses the 1988 suit by 19 state attorneys general. U.S. District Judge William Schwarzer in San Francisco essentially ruled that the states failed to show that the defendants engaged in a boycott, which would be a violation of the McCarran-Ferguson Act. The states are expected to appeal.

Insured property damages from Hurricane Hugo, which ravaged North and South Carolina, Puerto Rico and the Virgin Islands, will be at least $4 billion, making it the costliest storm on record. The brunt of the damage was in South Carolina, where insured losses are put at $2.55 billion. In the Charleston area alone, more than 300,000 buildings were damaged. The flood of claims, though, is not expected to douse property/casualty rate cutting.

An employer can prohibit fertile women from holding jobs that pose a significant risk to the health of their fetuses, a federal appeals court says. The 7th U.S. Circuit Court of Appeals says the "fetal protection policy" of Johnson Controls Inc., a Milwaukee-based manufacturer of lead-filled batteries, did not unfairly discriminate against fertile female employees.

At least $1 billion in property damage claims are expected from a powerful earthquake that shook the San Francisco-Oakland area. The quake, which registered 7.1 on the Richter scale, resulted in the collapse of a mile-long section of the Nimitz Freeway in Oakland and the deaths of several dozen motorists.

Section 89 is no more. The House and Senate vote to repeal the controversial part of the Internal Revenue Code that set massive and, according to employers, hopelessly complex non-discrimination rules for welfare plans.

The Washington Supreme Court rules that the costs of a government-ordered pollution cleanup are insurable. The Jan. 4 ruling marks the first time a state supreme court has interpreted standard language in the comprehensive general liability policy that states the insurer "will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages."

AlliedSignal Inc.'s trailblazing national managed health care program could save the industrial giant $200 million in health care costs over three years based on the program's results during its first 18 months. AlliedSignal says the per-capita health care costs for the 43,000 employees enrolled in the program, initiated in 1988, now is about $2,450. That is 23% less than the $3,200 the company projected had the employees and the 70,000 dependents remained in a traditional indemnity plan.

Despite pro-policyholder rulings by state supreme courts in Washington and North Carolina, the Maine Supreme Judicial Court says the costs of government-ordered pollution cleanups are not covered "damages" under comprehensive general liability insurance policies.

The Internal Revenue Service proposes long-awaited pension non-discrimination rules, which interpret the pension provisions of the Tax Reform Act of 1986. The regulations, which are detailed in more than 300 pages, cover areas such as minimum participation requirements for pension plans, Social Security integration and non-discrimination tests relating to benefits and employer contributions.

The merger of Corroon & Black Corp. and Willis Faber P.L.C. is expected to be a perfect fit that will create the truly global broker each had long sought to become. The combination will create the fourth-largest insurance broker in the world.

State insurance regulators can require a risk purchasing group insurer domiciled in another state to be licensed in their states before the purchasing group can do business, the 11th U.S. Circuit Court of Appeals has ruled. Employers for now can continue to "restructure" their 401(k) plans to make it easier to pass non-discrimination tests, but the Internal Revenue Service may ban the new technique. Restructuring a 401(k) plan for testing purposes could mean the difference between passing and failing the non-discrimination tests, benefit experts say.

Legitimate concern about insurers' real estate portfolios and unreasonable investor panic are fueling a dive in insurer stock prices, analysts say. A sharp downturn is sparked by the Oct. 5 announcement by Travelers Corp. that it is adding $650 million to real estate and mortgage loan reserves.

A woman who contracted AIDS from her dentist is suing a dental preferred provider organization for its role in directing her to that now-deceased provider. If Kimberly Bergalis' suit against CIGNA Dental Health Plan is successful, it could increase managed care organizations' liability.

Bloodstock insurers are facing their largest-ever claim after the death of Alydar, one of the most successful breeding stallions in thoroughbred history. Alydar may have been insured for more than $35 million.

Rep. Jack Brooks, D-Texas, introduces legislation -- identical to a measure that died during the last congressional session -- that would overhaul the McCarran-Ferguson Act and strip insurers of their key exemptions from federal antitrust law.

The Persian Gulf War is creating chaos for risk managers, insurers and brokers worldwide. Because of the fighting, buyers and brokers are uncertain whether policies will cover terrorist acts prompted by the war; insurers have canceled terrorism coverage for energy-related risks so the coverage can be rewritten at a higher price; and aviation and marine war risk rates are rising.

The U.S. Supreme Court rules 7-1 that the due process clause of the 14th Amendment does not mandate restrictions on punitive damages awarded by juries. The court rejects the arguments of business organizations that had asked the court to limit punitive awards. Instead, the court concludes that trial judges must properly instruct jurors on the purpose of punitive damages and calls for sufficient judicial review of punitive awards.

A U.S. Supreme Court ruling that employers may not prohibit all fertile women from holding jobs that pose a significant risk to the health of their unborn children could increase liability and other costs for employers. The ruling is a defeat for Johnson Controls Inc., which had enforced a policy of prohibiting fertile women from working with lead, a known toxin.

Concerned about the declining value of Executive Life Insurance Co.'s extensive junk bond holdings, California Insurance Commissioner John Garamendi has seized control of the insurer. Of Executive Life's $10.1 billion in assets, about $6.4 billion is invested in junk bonds, Mr. Garamendi said.

Insured damages from a fire storm that roared through an affluent area of Oakland, Calif., could reach $1.2 million, according to insurance industry estimates. Although the loss is another blow to the catastrophe reinsurance market, it is not expected to force up prices in the commercial property/casualty market.

Officials of a California county say a hold-harmless agreement will shield the county from liability in the death of a woman who was struck by a giant umbrella constructed on county land as part of a project by the artist Christo. The 20-foot umbrellas, each weighing almost 500 pounds, were deployed along California's Tejon Pass.

Lloyd's of London members are resigning from the market at a record pace. Some 3,245 members have resigned from Lloyd's already this year, compared with 1,894 resignations at this time in 1990. The resignations will cause capacity at Lloyd's to be cut by 10% for 1992, officials predict.