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NEW YORK -- Catastrophe-related insured property losses set a second-quarter record of about $3.4 billion during the second three months of this year, according to the Property Claim Services unit of the Insurance Services Office Inc.

According to PCS, the second-quarter losses stemmed from 16 catastrophes, defined as events within a particular territory that cause at least $25 million in insured property damage and affect a significant number of insurers and policyholders.

The costliest of these catastrophes was a series of windstorms that struck 12 states from the upper Midwest to New England between May 30 and June 1 (BI, June 8). That catastrophe caused an estimated $650 million in insured property damage.

Second-quarter losses pushed the year's catastrophe loss total to $4.4 billion for the first six months of 1998, the highest first-half total since 1994. PCS designated 26 catastrophes during the first half of this year, the largest number for the same period since 1982.

Los Angeles sues over tobacco

LOS ANGELES -- The city of Los Angeles is seeking more than $2.5 billion in a lawsuit filed last week accusing the tobacco industry of violating Proposition 65 by selling its products without warning the public about the health risks of exposure to second-hand smoke.

The lawsuit, which seeks an injunction and civil penalties, is the first such legal action by a governmental entity on the issue of exposure to second-hand smoke, according to Los Angeles City Attorney Jim Hahn.

"I am concerned about all non-smokers who are exposed to tobacco smoke," said Mr. Hahn, who was a leader in the legal fight last year that resulted in R.J. Reynolds Tobacco Co. ending its Joe Camel advertising campaign.

"But I am particularly concerned about children who are around smokers and, unlike adults, frequently do not have the freedom of movement to get away from it," Mr. Hahn said in announcing the lawsuit at a City Hall news conference last week.

Studies by the California Environmental Protection Agency, the federal EPA and other organizations indicate that second-hand smoke is responsible for up to 2,200 children being born each year in California with below-normal birth weights and 120 deaths annually in the state due to Sudden Infant Death Syndrome. The studies also show that, on a national basis, second-hand smoke has exacerbated asthma symptoms in up to 1 million children, resulting in increased medical costs of about $6.3 billion each year.

Proposition 65, a voter initiative passed in November 1986, requires anyone doing business in California to warn members of the public before they expose them to any chemical causing cancer or reproductive toxicity.

The lawsuit, filed in Los Angeles Superior Court, seeks civil penalties of $2,500 per person per day of second-hand smoke exposure. That could exceed $2.5 billion, based on a 1997 California EPA study that established an estimate of the number of non-smokers exposed daily to second-hand smoke.

The lawsuit also seeks an injunction barring tobacco companies from selling their products in California without a "clear and reasonable warning" about the health risks of second-hand smoke and conducting a court-approved public information or corrective advertising campaign to inform the public that tobacco products expose non-smoking persons to carcinogens and reproductive toxicants."

Named as defendants are 16 tobacco companies and 15 retailers selling tobacco products in the state.

Calls seeking comment from the tobacco industry were not returned.

Four drug companies settle

CHICAGO -- Drug stores across the country will divide up another $350 million as four more pharmaceutical manufacturers have agreed to settle a federal price-fixing suit that retail pharmacies brought against them.

Abbott Laboratories, Hoechst Marion Roussel Inc., Pharmacia & Upjohn Inc. and Rhone-Poulenc Rorer Inc. presented the proposed settlement last week in U.S. District Court in Chicago. The settlement is subject to the approval of U.S. District Court Judge Charles P. Kocoras, who is to preside over a trial of the remaining drugmakers in the suit scheduled to begin in September.

Last year, the judge approved a $351 million settlement between the approximately 40,000 druggists involved in the class action and 11 other pharmaceutical manufacturers named in the suit (BI, Feb. 24, 1997). The lawsuit contends that the drugmakers engaged in unfair business practices by denying the independent pharmacists the same discounts provided to health maintenance organizations, mail-order drug programs, hospitals, nursing homes and other bulk buyers.

Cendant sticking with deal

PARSIPPANY, N.J. -- Cendant Corp. last week said it will complete its proposed acquisition of American Bankers Insurance Group, despite the meltdown in its stock price that followed its disclosure of widespread accounting fraud at one of its units.

Cendant announced it will restate its 1997, 1996 and 1995 earnings after finding that its CUC International unit booked phantom revenues and engaged in other improper accounting practices. Charges for 1997 will amount to between 22 and 28 cents per share, or $190 million to $240 million after taxes, about double the amounts Cendant predicted when it first announced its discovery of accounting problems in April.

Cendant also said the Securities and Exchange Commission and federal prosecutors in New Jersey are investigating.

After the announcement, Cendant's stock fell to $15.50 at closing July 17 from $22.19 on July 10.

However, Cendant said it plans to go ahead with the deal, which calls for it to pay $67 a share in cash for 51% of ABIG's shares and the equivalent in Cendant stock for the balance of ABIG.

Cendant asked the Florida Insurance Department last week for a 30-day extension of time to file financial statements regulators need to review the proposed ABIG deal.

Meanwhile, A.M. Best Co. revised the "under review" status of ABIG's ratings to negative from "developing." Best noted that the accounting debacle has affected the "currency value" of Cendant's stock and could affect Cendant's cost of financing the cash part of the deal.

P/C premium growth down

OLDWICK, N.J. -- Net written premiums for the top 250 property/casualty insurers grew only 3.1% in 1997, according to A.M. Best Co.

That premium growth is down from 3.4% in 1996 and 3.6% in 1995, according to the Oldwick, N.J.-based rating agency.

Growth rates varied widely among the 250 insurers.

State Farm Group remains the nation's largest insurer by far, with $34.8 billion in premiums in 1997, but premiums grew only 0.8% over 1996, whereas Liberty Mutual Group, ranked eighth, saw premiums grow 13.7% to $5.9 billion.

No. 3-ranked CNA Financial Corp.'s premiums fell 2.2% to $9.9 billion, and at No. 4, American International Group Inc.'s premiums increased 1.7% to $9.4 billion. Allstate Corp. is ranked No. 2.

The biggest drop in premiums was at No. 10-ranked Zurich Insurance Group-U.S., where premiums fell 2.4% to $5 billion.

Illinois Blues plan settles

CHICAGO -- An agreement by the Illinois Blues plan to pay $144 million to settle a federal suit alleging it mishandled Medicare claims is not expected to hinder the insurer's ability to pay claims.

Chicago-based Health Care Service Corp., also known as Blue Cross & Blue Shield of Illinois, settled with the government Thursday. Under the settlement terms, the insurer will pay $140 million to settle civil charges and an additional $4 million in criminal fines.

The case stemmed from HCSC's handling of Medicare Part B claims in the insurer's Marion, Ill., office from 1984 to 1995. HCSC pleaded guilty to eight felony counts, including conspiracy to obstruct a federal audit, in U.S. District Court for the Southern District of Illinois in East St. Louis, Ill., though senior management denied it had any knowledge of the misconduct. Five current or former employees have been indicted; another two already have pleaded guilty in the case.

"The settlement will not impact in any way our ability to pay claims. We have adequate reserves to handle this and continue in our normal course of business, nor will it affect premiums or any other financial aspect of our business," said a spokesman for the insurer in Chicago.

$30.6 million award in drug error

SANTA ANA, Calif. -- Thrifty Payless Inc. will pay $30.6 million for the care of a 10-year-old California girl left with brain damage after being given a medication nearly seven times more powerful than what her doctor had prescribed.

The drugstore chain admitted during trial last week in Orange County Superior Court that one of its pharmacists had erroneously filled Bryn Cabanillas' prescription with 100-milligram phenobarbital tablets instead of the 15-milligram tablets her doctor had prescribed and that was indicated on the prescription bottle.

A spokeswoman for Camp Hill, Pa.-based Rite Aid Corp., which owns Thrifty Payless, said the company is insured for the jury award but declined to provide details.

A company statement pointed out that the incident took place in 1994 -- three years before its acquisition of Thrifty Payless.

"We want to assure our customers that we take patient safety very seriously. We set strict quality control guidelines for our pharmacists, and our No. 1 priority is promoting and ensuring the health and safety of our customers," the statement said.

Briefly noted

MBL Life Assurance Corp., formerly Mutual Benefit Life Insurance Co. (BI, Sept. 22, 1997), has reached an agreement to sell its individual life insurance and individual and group annuity businesses to Los Angeles-based SunAmerica Inc. for about $130 million in

cash. . . .New York Gov. George E. Pataki has announced a 6% cut in workers comp rates to be effective Oct. 1. This is the fourth consecutive year rates have dropped in New York. . . .Minnetonka, Minn.-based United HealthCare Corp. said that as anticipated, the U.S. Department of Justice has asked for more information on the managed care firm's proposed merger with Louisville, Ky.-based Humana Inc. (BI, June 1). Shareholders of both firms are set to vote on the stock deal at separate meetings Aug. 27. . . .Hartford, Conn.-based Aetna Inc. has completed its acquisition of New York-based NYLCare Health Plans, the health business unit of New York Life Insurance Co. (BI, March 23). . . .Fund American Enterprises Holdings Inc. is buying the 50% it does not already own of Folksamerica Holding Co. Inc., a New York-based reinsurer. . . .Santa Ana, Calif.-based PacifiCare Health Systems Inc. said it has signed a letter of agreement to sell its Utah business unit, which has 115,000 commercial members, to an investment group for an undisclosed amount. PacifiCare had acquired the Utah plan in February 1997 as part of its purchase of FHP International Corp (BI, Aug. 12, 1996). . . .American International Group Inc. has acquired a controlling interest in 20th Century Industries, an objective announced earlier this year (BI, April 20). . . .Gov. Pete Wilson vetoed a bill that would have nullified a California appellate court decision allowing employers to make economic decisions that result in younger workers replacing older ones. Employers strongly opposed S.B. 1098, fearing it would have gone beyond nullifying the 4th Appellate District's decision in Michael J. Marks vs. Loral Corp.

Errors & omissions

1997 revenues per employee for Forbes Group Ltd. are $60,756. The incorrect figure was listed with the profile on page 42 of this issue