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A LOOK BACK 1982-1986


The Reagan administration unveils legislation that would shift to employers most of the burden for paying the health care costs of older workers. Under the legislation, most medical and hospital costs would move to employer plans from the Medicare program for active workers age 65 and older.

The Insurance Services Office Inc. releases a new comprehensive general liability policy form, the first CGL revision since 1973. The new form requires all risks to be written on a claims-made or claims-discovered basis with a definite aggregate limit, helping insurers reduce potential long-term losses from still-undiscovered risks.

Rising costs and a slow economy may lead employers to reduce health care benefits for the first time in years. Recession-battered companies are asking their employees to accept benefit concessions, particularly in negotiations with labor unions.

Employers may face thousands of dollars in added benefit costs following a federal court ruling that mandates equitable pregnancy benefits for employees' wives. The court upholds an Equal Employment Opportunity Commission argument that companies must extend the same level of pregnancy benefits to workers' spouses as to pregnant employees.

For the first time since 1977, no state passed comprehensive product liability reform legislation, partly due to the easing of the insurance market for product liability coverage.

A federal court judge in Pennsylvania becomes the first judge to uphold a 1980 federal law that gives multiemployer pension funds the power to demand huge payments from companies that withdraw from the funds.

A New York bankruptcy court will establish several precedents for resolving mass health injury litigation as part of Manville Corp.'s reorganization. Manville, seeking bankruptcy protection from mounting asbestos injury suits, faces 16,500 claims and expects 32,000 more. The bankruptcy proceeding will address several complex issues, including how much to award a person who contracts a disabling disease from asbestos.

Broker Alexander & Alexander Services Inc. sues former directors of Alexander Howden Group P.L.C., alleging they diverted $56 million in Howden funds for personal gain. A&A, which completed its acquisition of Howden in early 1982, offered to settle the matter quietly for a French villa, several valuable paintings, a Panamanian company and shares in a petroleum company. After learning the directors had overstated the value of these assets, however, A&A sues for full recovery of the funds.

A federal court ruling, later affirmed by an appellate court, lets companies that self-insure their workers compensation risks to deduct certain reserves from their taxes. The rulings, which permit Kaiser Steel Corp. to deduct more than $425,000 in reserves for uncontested workers comp claims, reject government arguments that employers must determine the accuracy of their liabilities on a case-by-case basis.

Equal pension benefits for men and women is at issue in a U.S. Supreme Court ruling. The high court holds that insurers cannot pay lesser benefits to women who contribute the same amount to pension funds as do men. Insurers defend the practice by arguing that women outlive men and therefore collect benefits over a longer period. Equal benefits must be offered for contributions made to plans after Aug. 1, 1983, the court rules.

One of Bermuda's largest captives, Insco Ltd., formed by Gulf Oil Corp., ceases underwriting unrelated marine business and reinsurance for Gulf's marine risks. Insco cites poor profit potential as the reason.

Standard & Poor's Corp. begins issuing claims-paying ability ratings on insurance companies. The move gives risk managers a source other than A.M. Best Co. for information on insurers' financial health.

The breakup of American Telephone & Telegraph Co. spurs a pension dispute. A labor union, the Communications Workers of America, asks a federal court handling AT&T's breakup not to divide some of the pension assets among the seven regional Baby Bells. Each regional company is to form its own pension plan, which would prevent AT&T workers who switch companies from carrying over their pension credits.

Dow Chemical Co. stops producing Bendectin, an anti-nausea drug prescribed for pregnant women. Dow Chemical claims bad publicity, legal expenses and rising insurance premiums force its hand, but critics argue the company intends to reduce its liability.

More employers take steps to contain health care costs. Hit with double-digit cost increases throughout the 1980s, employers resolve to hold the line on further increases. A wide-ranging study finds that changing benefit plan design and administration can generate considerable savings.

A South Dakota law permits state-chartered banks to sell insurance. New York-based Citicorp acquires a controlling interest in a state-chartered South Dakota bank and signals its intent to enter the insurance market.

Years of fierce competition among insurers lead to a long-predicted hard market. Tightening commences early in the year as reinsurers begin canceling treaties. The domino effect spreads to all property/casualty lines by the end of year, prompting sharp increases in rates.

As a result of pressure from reinsurers to cap liability under the commercial general liability policy form, the Insurance Services Office Inc. agrees to exclude both sudden and non-sudden pollution from its proposed new general liability forms. Policyholders fear that the decision could leave them high and dry, especially amid the tightening environmental impairment liability market.

In a move seen as a potential blow to self-insurance, Congress passes legislation removing tax deductions for self-insured loss reserves. Under the law, companies that establish self-insured reserves for property/casualty losses may deduct losses only as they are paid, not losses that are known but payable in a future year. The Deficit Reduction Act of 1984 also increases taxes due on the income of offshore captive insurers.

Major defendants in asbestos litigation and their insurers agree to the formation of a facility to handle asbestos claims more fairly and efficiently. Named after Harry H. Wellington, the Yale Law School Dean who chaired the negotiations, the Wellington Agreement provides extensive coverage to policyholders while ending all punitive damage claims the asbestos producers brought against their insurers.

Federally mandated warnings on cigarette packages do not shield tobacco companies from lawsuits by smokers, a U.S. District Court judge rules. The decision opens the way for a lawsuit to be heard against cigarette makers Liggett Group Inc., Philip Morris Inc. and Loews Corp.

The Internal Revenue Service declares many types of flexible spending accounts invalid, in effect wiping out a tool that many employers use to help contain health care costs. In the spring, the IRS unveils rules under which an FSA would be valid. Under those rules, participants must forfeit unused benefits in an FSA at the end of each year and employees must make irrevocable benefit selections before beginning the plan year. Employers claim the "use it or lose it" requirement will remove FSAs' effectiveness as a cost-containment tool.

The re-election of President Ronald Reagan in 1984 is expected to threaten the tax-favored status of employee benefit plans. The Reagan administration, which promises not to raise basic taxes, may tap benefits as a potentially huge source of tax revenue.

To help employees be better workers and parents, a growing number of employers are crossing the long-observed line that has kept employees' family problems out of the workplace. Corporate giants such as Time Inc., Digital Equipment Corp. and Philip Morris Cos. Inc. are sponsoring "work and family" seminars to help working parents cope with their dual roles.

A new law aims to give women a better chance of earning pension and survivors' benefits. The Retirement Equity Act of 1984 will require employers to overhaul retirement plans to lower the minimum participation age and ease eligibility rules for survivors' benefits. Most of these changes are expected to lead to slight benefit cost increases.

The tightening of the property/casualty market begun earlier in the year worsens, leading to the worst capacity crunch in history. Rates on some classes of business rise 1,000% while capacity dwindles. Many larger companies turn to alternative markets to obtain coverage. In addition, several prominent insurers pull out of the environmental impairment liability market, leaving capacity for EIL risks almost non-existent.

A.M. Best Co. issues poor ratings to many large commercial insurers. Best also changes its evaluation criteria, no longer giving credit for reinsurance ceded to non-U.S. companies and secured with a letter of credit. Of the 1,775 property/casualty companies that Best rates in 1985, 331 receive lower ratings, while 118 get omitted ratings. Twenty-five companies received a higher Best rating, one-fourth the number that did in 1984.

In a disheartening end to insurers' four-year battle for product liability reform, the Senate Commerce Committee declines to advance comprehensive reform legislation.

The alternative market gains another insurer with the formation of ACE Insurance Co. Ltd. in the Cayman Islands. ACE begins issuing policies after raising about $260 million in capital from more than 20 corporate sponsors and non-sponsor policyholders.

In an early merger of large brokers, Sedgwick Group P.L.C., the largest Lloyd's of London broker, joins forces with Fred S. James & Co. Inc., the fifth-largest U.S. broker. The acquisition gives Sedgwick the U.S. presence it has long sought and give James, currently a subsidiary of San Francisco-based Transamerica Corp., the vast overseas network it lacks.

A judge rules retirees have a contractual right to promised post-retirement health care benefits. In his decision, U.S. District Court Judge Thomas Wiseman Jr. in Nashville, Tenn., rules employers cannot unilaterally change those benefits after retirement, even if plan documents expressly say the employer has the right to alter or terminate plans.

A far-reaching federal legislative proposal gives Congress a hand in shaping benefit plans. Included in a legislative package is a provision that would deny employers their tax deduction for health care expenditures if they did not cover employees' spouses and dependents after an employee dies, separates from his or her spouse or divorces.

Employers lose a battle over ERISA pre-emption as the U.S. Supreme Court rules that states can require employers to offer certain benefits under group health insurance plans. The ruling gives employers an incentive to self-insure, however, because the court says self-insured plans cannot be required to offer specific benefits.

Wheeling-Pittsburgh Steel Corp.'s termination of its severely underfunded pension plans would give the Pension Benefit Guaranty Corp. the largest claim in its 10-year history. Wheeling-Pittsburgh claims could hit $200 million to $300 million in unfunded liabilities, much higher than the PBGC's previous record claim of $63.3 million. More big plan terminations may be on the horizon.

The crisis in the availability of liability insurance forces states to consider passing tort reform measures, which 34 legislatures do. Of those states, however, only nine pass significant reforms. The other states' reform measures are more limited.

Property/casualty insurance rates rise while capacity continues to shrink. Risk managers had been stung in 1984 and 1985 with high rate increases and many were unable to find adequate liability limits, prompting some companies to go without coverage.

Congress expands the federal Risk Retention Act to make it easier for businesses to band together to self-insure liability risks and buy liability insurance on a group basis. Amendments to the Risk Retention Act permit the formation of special, group owned captives -- called risk retention groups -- to provide all casualty coverages except workers compensation.

The Insurance Services Office Inc.'s revised claims-made commercial general liability policy form is adopted by more than two-thirds of the states, though a dozen bar or restrict its use. Hotly debated, the claims-made CGL form gains support after ISO accedes to regulators' demands that the form reinstate aggregate policy limits when extended reporting period coverage is purchased. Insurers use the form for primary coverage mainly on the most hazardous and largest businesses.

New excess liability insurance facilities take form offshore in response to U.S. businesses' coverage needs. ACE Insurance Co. Ltd., organized in late 1985 by broker Marsh & McLennan Cos. Inc. and investment bank Morgan Guaranty Trust Co., writes $200 million in gross premiums in its first year. M&M and Morgan Guaranty subsequently help form a new Bermuda-domiciled insurer, X.L. Insurance Co. Ltd., to offer lower-layer excess general liability coverage. X.L. writes limits of $75 million excess of at least $25 million in underlying coverage.

Health care continuation provisions in the Consolidated Omnibus Budget Reconciliation Act anger employers. COBRA requires employers with at least 20 full-time workers to extend their group health care programs to former employees and widowed, divorced or separated spouses of employees. Although companies may charge spouses and former employees a premium of 102% of the group rate, the law adds substantial numbers of people to employers' health care plans and raises their administrative costs.

The Tax Reform Act of 1986 makes numerous changes to employee benefit plans, including lowering the maximum annual salary deferral level for401(k) plans to $7,000 from $30,000 and requiring employers to adopt more rapid pension vesting schedules.

Health care costs surge as the medical component of the Consumer Price Index rises at average rate of 7.7%, the highest since the early 1980s. Several factors are blamed for the rise, including that employers squeezed all the savings they could out of health care cost control measures and that providers raised prices to offset lower utilization of services.

Congress considers but ultimately rejects a proposal to require employers to subsidize state health insurance pools for high-risk individuals. Employers battled to stop the proposal, which, if adopted, would have significantly raised their costs.

A federal appeals court says companies can terminate health care benefits for retirees. Overturning a ruling against White Farm Equipment Co., the court says the Employee Retirement Income Security Act of 1974 does not permit a federal judge to fashion common law to mandate vesting of retiree health benefits.