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LOS ANGELES -- John D. Nordstrom, a San Diego-area insurance producer, has pleaded guilty to a charge of conspiring to defraud tens of thousands of policyholders using a string of sham offshore insurers in the early 1990s.

Mr. Nordstrom was an owner of International Insurance Underwriters of Washington State Inc., a Lynnwood, Wash.-based managing general agent for several bogus insurers set up by the late swindler Alan Teale and others. Mr. Nordstrom also was the majority owner of Toma Surplus Lines Insurance Brokers Inc., a Marina del Rey, Calif., brokerage that produced business for the insurers and that was shut down by the California Insurance Department in 1993. The department also issued a cease and desist order against IIU in 1993.

Federal prosecutors charged that Mr. Nordstrom used IIU to generate millions of dollars of premiums and diverted "substantial portions" of those premiums for his own use and to benefit family, friends and affiliates.

Mr. Nordstrom pleaded guilty last month in federal court in Los Angeles to one count of conspiracy. He faces a maximum of five years in prison and is scheduled to be sentenced Sept. 8.

After Toma collapsed, Mr. Nordstrom went on to operate Specialty Insurance Brokers, a San Diego company that managed an auto insurance program for Citation Insurance Co. The California Insurance Department revoked Specialty's license in 1996, after finding it had failed to remit about $1 million in premiums to Citation.

Mr. Nordstrom is the fourth former IIU official to plead guilty to federal charges.

Court reverses default judgment

SANTA ANA, Calif. -- Truck Insurance Exchange doesn't have to pay a $57.8 million bad-faith default judgment, because the insurer never received adequate notice of its potential liability, a California appellate court has ruled.

The 4th District Court of Appeal ruled last month that the insurer's due process rights were violated because it was not notified that a default judgment based on refusing to turn over documents could expose it to tens of millions of dollars in punitive damages.

"It is clear. . .that a plaintiff seeking punitive damages by default must provide the defendant with notice" before deciding to seek punitive damages through a default judgment against the defendant, wrote Justice Edward J. Wallin in Surgin Surgical Instrumentation Inc. vs. Truck Insurance Exchange.

"Since Truck was deprived of its due process rights to notice. . .the only way to adequately remedy that loss is to return this matter to the discovery phase of the proceedings," Justice Wallin wrote on behalf of the unanimous three-judge panel.

The case stemmed from a 1989 medical device patent dispute between Tustin, Calif.-based Surgin and Alcon Surgical Inc. Although Surgin had comprehensive general liability coverage from Truck, the Farmers Insurance Group affiliate for months refused to confirm or deny coverage. Surgin eventually settled with Alcon and then sued Truck in 1991 for bad faith. But during the course of the lawsuit, Truck allegedly refused to turn over documents despite a court order to do so.

Finding Truck guilty of "flagrant discovery abuses," Orange County Superior Court Judge C. Robert Jameson in 1993 awarded Surgin $57,214,379 -- about 100 times the $574,284.79 awarded in compensatory damages.

Truck appealed, contending the award should be reversed because Surgin failed to provide notice of the amount it was seeking in punitive damages prior to obtaining the default judgment.

The appeal court agreed, reversing the judgment and directing the trial court to impose a "reasonable monetary sanction" for Truck's previous discovery abuse.

YMCA wins ruling on lifeguards

SAN JOSE, Calif. -- Jacuzzis do not require lifeguards, says a state appellate court in a wrongful death suit.

The case involved a 30-year-old man, Stephan Andres, who had a history of seizures and was found face down in a Mountain View, Calif., YMCA spa in 1992 after he apparently accidentally drowned after a seizure.

His family sued the YMCA, and a jury found that even though the YMCA had been negligent, the negligence did not cause the death.

The plaintiffs appealed the ruling, contending the trial court should have told the jury that the YMCA's failure to provide a lifeguard service or supervisor in the locker room was negligent.

In affirming the trial court's action, the appellate court said in its decision last month that, though the state statute requires lifeguards at public swimming pools, "Here, the underlying question is whether the statute requires a lifeguard to be stationed at a 7-foot-by-10-inch by 7-foot-by-4-inch Jacuzzi that is 3-feet-6-inches deep and located in the shower facility of a locker room. . . .To construe the statute to require lifeguards for such facilities would compel Jacuzzi owners to hire professional lifeguards to oversee limited-use and relatively safe facilities. This is an absurd consequence."

Terry Anastassiou, of Ropers, Majeski, Kohn & Bentley in Redwood City, Calif., represented the YMCA. He said, "We think it's a good, common-sense decision by the Court of Appeals."

David Strout of Bush Strout & Kornfeld in Seattle, who represented the Andres family, said, "I still think that our position was the correct position, but I can say that I received a fair hearing."