Woo vs. Harmon - Witness Peter Lowe

David C. Farmer, Successor-Trustee vs. Harmon

(Formerly Woo vs. Harmon & Nicholson vs. Harmon)

CV05-00030 DAE KSC

U.S. District Court For the District of Hawaii

Judges: David A. Ezra; Kevin S. Chang

—

DEFENDANT’S WITNESS

PETER J. LOWE

Officer of M&M Insurance Management Services, Inc., former Vice President, P&C Insurance Company; witness in EQ2048.

Marsh & McLennan, Inc.
1099 Alakea Street, 22^nd Floor
Honolulu, HI 96813

Tel: 808-531-4211
Fax: 808-521-5892

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NEW UPDATE (09-07-08):

EARL I. ANZAI
Attorney General of Hawaii

DOROTHY D. SELLERS
HUGH R. JONES
Deputy Attorneys General
425 Queen Street
Honolulu, Hawaii 96813

Attorneys for the Beneficiaries

IN THE CIRCUIT COURT OF THE FIRST CIRCUIT

STATE OF HAWAII

In the Matter of the Estate

BERNICE P. BISHOP,

Deceased.

EQUITY NO. 2048 KSCC

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REPORT OF ATTORNEY GENERAL CONCERNING MAY 7, 1999 ORDER

The May 7, 1999 order regarding orders to show cause requires the former trustees immediately to resign offices and directorships in the trust’s subsidiary and affiliated organizations... P&C Insurance Company, Inc., is a captive insurance company, the sole stock holder which is Pauahi Holdings Inc.

The Attorney General respectfully invites the court’s attention to the annual report publicly filed on March 28, 2000 by P&C (Ex. 1). The annual report lists Henry H. Peters as a director. The Attorney General is unable to determine whether the listing is incorrect; or whether Peters remains a director in violation of court order. The Attorney General’s several inquiries of the trust concerning this matter remain unanswered despite the passage of three months (Ex. 2).

DATED: Honolulu, Hawaii, May 5, 2000

Respectfully submitted,

<s> DOROTHY SELLERS
Deputy Attorney General

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DECLARATION OF DOROTHY SELLERS

DOROTHY SELLERS hereby states:

1. I am a deputy attorney general, and I am familiar with the case records and files in Hawaii First Circuit Court Equity No. 2048 going back to approximately August 1997.

2. I have personal knowledge of the facts contained in this declaration and am competent to testify to them.

3. Exhibit 1 is a true and correct copy of the annual report of P&C Insurance Company for the year ending Dec. 31, 1999, filed in late March 2000.

4, Exhibit 2 is a true and correct letter of my February 15, 2000 letter to counsel for the trust asking for verification that Henry Peters had resigned from P&C and the effective date of the resignation. I have never received a response to that letter.

5. On March 13, 2000, deputy attorney general Hugh Jones wrote trustee Libkuman (with a copy to general counsel Colleen Wong) about a number of matters. The final two paragraphs of that letter are:

Finally, we also requested some time ago copies of Henry Peters’ letters of resignation from directorships and ex officio positions, and specifically from P&C Insurance Company. Although the resignation letters of the other trustees were filed with the Court, Peters’ were not.

Please respond to these requests before March 31, 2000. Thank you.

I DECLARE UNDER PENALTY OF PERJURY THAT THE FOREGOING IS TRUE AND CORRECT.

DATED: Honolulu, Hawaii, May 5, 2000

www.kycbs.net/Doc-EQ2048-PC-Peters-5-5-0.pdf

www.kycbs.net/PC-Arms-Length-Guide-10-1-94.pdf

www.kycbs.net/Doc-EQ2048-Mediation-Order-3-9-0.pdf

www.kycbs.net/KSBE-INTERROGATORIES.htm

www.kycbs.net/RICO-In-Paradise.htm

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NEW DISCOVERY (02-09-08): Kamehameha Schools made a “confidential” settlement agreement with the plaintiff in the John Doe vs. Kamehameha Schools case, which my former attorney, John Goemans, Esq., says, according to what he has learned from the IRS, violates the rules for a non-profit charitable trust:

February 9, 2008

$7M

An attorney involved in a challenge to Kamehameha Schools' Hawaiians-only policy reveals the amount of a settlement

By Ken Kobayashi, Honolulu Star-Bulletin

Kamehameha Schools made the first move to settle a legal challenge to their admissions policy giving preference to native Hawaiians and later agreed to pay $7 million, a lawyer involved in the case said yesterday.

John Goemans, an attorney for an unnamed non-native Hawaiian student who filed a lawsuit contesting the policy, said the charitable trust offered for the first time to talk about an out-of-court settlement last May, just days before the U.S. Supreme Court was to decide whether to hear the case.

Goemans, a former Big Island attorney recuperating in Florida from heart surgery, and Sacramento, Calif., lawyer Eric Grant, the lead attorney, represented the unnamed student and his mother.

"They (the schools) approached Eric and said we wanted to settle and we have to settle by Friday morning," when it was believed the high court was to make a decision about accepting the case, Goemans said.

He said it appeared the high court would accept their appeal of an 8-7 decision by the 9th U.S. Circuit Court of Appeals that upheld the policy.

"They (the schools) were worried about losing in the Supreme Court," Goemans said.

Goemans said he did not know how Grant and the Kamehameha Schools arrived at the $7 million figure.

The hotly disputed federal civil rights lawsuit caused a firestorm of controversy among Kamehameha Schools supporters who believed the challenge struck at the more than century-old admissions policy and the heart of the charitable trust's mission to educate children of Hawaiian ancestry.

The confidential settlement was announced on May 14. Those connected with the case repeatedly refused to disclose the terms.

Goemans said he was disclosing the amount because he said he recently learned from Internal Revenue Service officials that Kamehameha Schools, a tax-exempt charitable trust, cannot keep the figure confidential.

"Because exempt organizations operate in the public good, you got to report all your expenses with particularity, and you cannot keep information relative to those expenses confidential," he said. "It's in the public interest to have full disclosure."

Ann Botticelli, Kamehameha Schools spokeswoman, said yesterday the settlement contained a confidentiality clause.

"We intend to honor the terms, and we will not be discussing the settlement or John Goemans' assertions," she said.

Grant said yesterday he had no comment.

Kamehameha Schools, a multibillion-dollar charitable trust and the state's largest private landowner, was established under the 1883 will of Princess Bernice Pauahi Bishop. It educates more than 6,700 students at its flagship campus at Kapalama Heights, two other campuses on Maui and the Big Island, and 31 preschools throughout the state.

Senior U.S. District Judge Alan Kay upheld the school's Hawaiians-first policy, but a panel of the appeals court in San Francisco ruled 2-1 that the practice violated federal civil rights laws. That decision triggered statewide protests and marches by school supporters.

Later, a larger appeals court panel voted 8-7 to uphold the policy.

It was an appeal by Grant of that 8-7 ruling that was on the doorsteps of the U.S. Supreme Court when the settlement was announced.

At the time, school officials indicated that the settlement calling for the dismissal of the lawsuit leaves intact the appeals court's 8-7 decision upholding the admissions policy.

But the dismissal does not guarantee that another lawsuit might surface and make its way to the high court, although it would first have to go through the federal trial and appeals courts, where the 8-7 ruling would be considered to be binding on the issue. But even if those who file the new lawsuit lose on those two levels, they could still ask the high court to review the case.

Honolulu attorney David Rosen said he has plaintiffs for a lawsuit to challenge the admissions policy. He said the settlement does not affect his case. Rosen said he expects the suit will be filed this year.

Goemans said Grant received 40 percent, or $2.8 million of the $7 million. Goemans said he is preparing to file his own lawsuit seeking to recover a "reasonable percentage" of the $7 million for his work in the case.

Goemans said he found the unnamed student and arranged for Grant to be the attorney for the student and his mother.

"I put the whole thing together," Goemans said. "But for me there would not have been a $7 million payment."

The student never was admitted to Kamehameha Schools because his case was pending. He has since graduated from high school and had been attending college, Grant said last year.

http://starbulletin.com/2008/02/09/news/story02.html

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February 9, 2008

Amount of settlement
raises critical concern

By Robert Shikina, rshikina@starbulletin.com

Supporters and critics expressed surprise yesterday at the $7 million Kamehameha Schools paid a student to settle a lawsuit disputing its Hawaiians-first admission policy.

One Kamehameha Schools alumnus says disclosure of the settlement with the anonymous, non-Hawaiian student will prompt questions among Hawaiians.

"I'm not happy with $7 million," said Kamehameha Schools alumnus Jan E. Hanohano Dill. "Unfortunately, that's a lot of money, and it's going to create a lot of questions in the Hawaiian community whether it was right or wrong and to continue."

Dill, also a board member of Na Pua a Ke Ali'i Pauahi, a nonprofit group whose members include students, parents, and alumni of Kamehameha Schools, said he continues to support the school's decision.

"I don't know the details, and I think that's something that has to be cleared," he said. "You settle because you want to avoid costs that would be incurred as you go forward."

He added, "I have to believe that they understood that this was something good for the Hawaiian people. ... It will be clear as things unfold whether that was true."

Dill, who is also president of the nonprofit Partners in Development Foundation, said the admissions policy must eventually be addressed and that the settlement avoids this case but does not stop other cases.

Marion Joy, former vice president of Na Pua, called the settlement a "misuse of trust funds."

"The trust is continually going to be challenged," she said. "This is not going to be the last. ... As far as settling for the particular lawsuit, it's not in the best interests of the beneficiaries (of the 1883 will of Princess Bernice Pauahi Bishop)."

Kamehameha Schools declined comment.

Honolulu attorney David Rosen, who has sought potential clients to sue Kamehameha over its admissions policy after the settlement, sent out a statement yesterday that said the $7 million settlement was used to "buy off this case."

He added that the trustees should open a campus on the Leeward Coast of Oahu and possibly Molokai where increased educational opportunities are needed.

H. William Burgess, a retired attorney and founder of Aloha for All, a group opposed to Hawaiian sovereignty, said the settlement raises questions about the proper use of the trust funds.

"Normally, trustees, if they're doubtful about doing something, they ask the court to give them instructions," he said. "Yet in this case, the biggest charitable trust, probably in the nation, instead of welcoming the opportunity to get the highest court in the land to settle it, they pay $7 million to leave it open. And it is very much open."

http://starbulletin.com/2008/02/09/news/story03.html

* * *

From The Catbird Seat website:

The Wise Old Owl asks: How much of the settlement amount came from Kamehameha’s insurance companies, and how much came from the trust funds? How much did Kamehameha Schools (and/or their insurance company) spend for defense costs in this case before they decided to settle? Who is their insurance company? Their insurance broker? Who actually signed the Settlement Agreement?

http://www.kycbs.net/Bishop7.htm

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July 11, 2000

Master backs interim
trustees on insurance

The estate could lose $75 million in insurance coverage
if trustees assist the state

By Rick Daysog, Star-Bulletin

The Kamehameha Schools' interim trustees should not be required to assist Attorney General Earl Anzai in his suit for multimillion-dollar surcharges against the trust's former board members, according to a court-appointed special master.

In a 19-page report filed in state Probate Court yesterday, attorney Michael Tanoue also said that the $6 billion charitable trust's current trustees aren't obligated to file a separate surcharge suit against ex-trustees Henry Peters, Richard "Dickie" Wong, Oswald Stender, Gerard Jervis and Lokelani Lindsey.

Tanoue's recommendations -- which will be subject to a July 21 hearing -- largely side with the estate's interim trustees, who have raised concerns that the trust could lose up to $75 million in insurance coverage if they take an active role in the state's litigation.

The attorney general's office has argued that the interim board has stonewalled its requests for information, causing a one-year trial delay. They believe that the interim trustees have allowed the estate's insurance policy to dictate their fiduciary duty.

The state's suit -- which is scheduled for a Sept. 18 trial -- alleges that the former trustees took excessive compensation, jeopardized the trust's tax-exempt status, mismanaged the trust's educational programs and incurred more than $200 million in investment losses during their tenures.

The former trustees have denied wrongdoing, but resigned last year after the Internal Revenue Service threatened to revoke the trust's tax-free status.

Tanoue said the state may be legally correct in its arguments that the interim board is duty-bound to pursue its predecessors for breaches of trust. But the "practical reality" is that the legal actions could result in little monetary recovery and could lead to the loss of the estate's insurance coverage, he said.

Tanoue added that the interim trustees should not be required to file a separate surcharge suit against their predecessors, saying such efforts would be duplicative and a waste of trust assets.

"Put it plainly, the interim trustees understand that any potential "paper judgement' against the former trustees -- though perhaps morally satisfying -- may not result in the return of any substantial monies to the trust estate," Tanoue said.

Deputy Attorney General Dorothy Sellers declined comment on Tanoue's recommendations.

The legal dispute between the state and the interim board emerged after the state's insurer, Federal Insurance Co., threatened to revoke up to $25 million in coverage if the interim board took an active role in the state's litigation.

Separately, Bermuda-based XL Insurance Co. informed the trust it would reserve the right to deny $50 million in reinsurance coverage purchased by the trust's captive insurance company, P&C Insurance Co.

http://starbulletin.com/2000/07/11/news/story1.html

November 12, 2007

Second Act

Phyllis Berman, Forbes

Robert Clements became a legend making big money in Bermuda insurance for Marsh & McLennan. Now at age 75 he's finally amassed some nice coin for himself--partly at his former employer's expense.

During a 35-year career at Marsh & McLennan, the giant insurance services firm, Robert Clements revolutionized the Bermuda insurance industry. Two insurers he set up for Marsh, ACE Ltd. and XL Capital Ltd., later went public and now have a combined market cap of $34 billion. Clements was also key in creating another successful insurer, Mid Ocean Re. One history of Bermuda insurance calls him a "founding father."

Clements was a hired hand. He got no founder shares in ACE or XL. In 1986, the year after he pulled off his reinsurance innovations, his bonus was bumped up only $25,000. A decade later he left his job running Marsh's investment arm and a year after that left the board of directors. Although he would remain a few more years as a consultant, at age 65 he essentially was out on his own.

Clements started doing insurance deals for himself. In his seventh and eighth decades Clements launched three companies. One, Arch Capital Group, is now about to crack the world's thousand biggest by market cap. This time around his ideas made him and his family a pile that came to several hundred million dollars before substantial charitable donations.

Doing well is the best revenge. The executive who replaced him at Marsh in 1996, Jeffrey Greenberg, later became chief executive--but lost that job in 2004 when then New York Attorney General Eliot Spitzer alleged fraudulent selling practices. Marsh's shares are trading at barely half of what they were five years ago, and its short interest has risen sharply, meaning a lot of people are betting on a further fall. Of Marsh and its continuing troubles, Clements, a quiet, handsome man with piercing blue eyes who dresses casually, says cagily, "Of course, I wish them the best. But I'm hardly surprised, given the problems they have been forced to cope with."

A Chicago native, Clements went to Dartmouth. "I was never particularly ambitious," says the 75-year-old. "I was a mediocre student. When it came to my career, I was most concerned about vacations and retirement than how I was going to make a living." Clements recalls one professor telling him his real major was "poker, beer and class-cutting." Clements joined Marsh in 1960, working as a casualty broker in Canada; his dad, also a Dartmouth grad, was a manager in the firm's Chicago office.

Higher-ups spotted his talent. Clements rose through the ranks and moved to the New York corporate offices to become head of national casualty in 1975. In 1991 he became the parent company's vice chairman, in recognition of his work in the 1980s dramatically expanding the insurance market in Bermuda.

In the years after World War II the self-governing British colony had risen to prominence as a center for captive insurers. These are insurance firms created and wholly owned by a company (often U.S.) to self-insure only that company. Back home the parent company gets a tax deduction for premiums that really are transfers of assets held in reserve for future payouts. In Bermuda the reserves compound in a low-tax regime. Part of Bermuda's lure was avoidance of U.S. state-by-state bureaucracy and quick regulatory approvals. Also, Hamilton, Bermuda is just a three-hour flight from New York.

Clements' opening came in the mid-1980s when a crisis hit the market for excess (or "surplus") insurance, most notably policies underwritten by Lloyd's of London. This coverage kicks in after an underlying "primary" policy pays to its coverage limit. A string of huge claims--asbestos illnesses, hurricanes, the Bhopal gas disaster and other environmental ills, augmented by big jury awards--threatened to bankrupt some insurers. In some cases the excess insurer was being asked to pay for misdeeds that occurred before the primary insurance policy was even in effect.

Doodling on a notepad during a Paris-New York flight in 1984, Clements came up with the idea of creating entirely new terms that came to be known as "occurrence reported" coverage. Customers wanting excess insurance would have to purchase or self-insure large amounts of underlying primary insurance--in some cases covering the first $50 million of claims. New excess policies would cover old claims, say for groundwater contamination, if filed during the new policy period--but only to the limits of the excess coverage. Limits would be limits.

However, Clements' plan, and a similar plan for directors and officers coverage, attracted little interest from traditional insurers or, in the beginning, even from Marsh, his own employer. Marsh said he could set up the operations as long as it didn't have to put in any capital. It would, however, like to get some warrants--long-term options on shares of the new company.

In 1985 Clements persuaded 34 large U.S. companies--such as U.S. Steel, GE, Merck, Dow and Emerson Electric--to invest a total of $285 million to get ACE off the ground. Another $410 million went into XL Capital a few months later. Among the startups' positives: efficient staffing levels, pricing freedom since few competitors offered the product, no lingering claims--and new lucrative high-end products for Marsh's army of brokers.

ACE went public in 1993. Its market cap today is 69 times the money its industrial backers put in. The initial stakes in XL Capital, which went public in 1991, have grown 33-fold. "The biggest thing that has happened in the insurance business since the Chicago fire," one trade pub gushed about Clements' successes. Marsh likely collected several billion dollars from those warrants.

Clements' third company: Mid Ocean Re, a Bermuda reinsurer aimed at catastrophes like hurricanes or collapsed buildings as opposed to longer-gestation situations like asbestos contamination. This time Marsh took a 10% stake for $36 million in the 1992 founding. Clements got a sliver of equity. Marsh's stake paid off nicely when Mid Ocean was sold a few years later to, as it happened, XL Capital.

One night while at dinner with his eldest son, John, a West Coast investment banker, Robert Clements griped that his ideas were being copycatted during the long stretches it took to raise capital for a new company. "The next time you have a great idea, Dad," John said, "you should raise a fund." Replied Clements, who had spent much of his working life putting together deals for his employer, "What's a fund?"

In 1995 Clements started Arch Capital, another reinsurer with money from Marsh, other investors and himself. After he left Marsh, Marsh sold its interest. Clements then sold off Arch's book of existing business, raised $750 million from outside investors and in 2000 relaunched Arch as a public company, getting 4% of the stock as a fee. It was a good time to start a new reinsurance company, since the established ones were so fearful of potential big claims (like the resurgence of asbestos claims) that they refused to offer policies even to their best risks. In 2006 Arch had $3 billion in premiums.

Enough reinsurance. Why not move in on the primary market? Clements raised $1 billion and this year started Ironshore Ltd. The company, which has only 40 employees and works out of a small office in Hamilton, expects to offer policies insuring against storm and earthquake damage in several dozen countries, including the U.S.

In 2004 Clements, his son and two ex-Marsh presidents raised $320 million to launch Integro Corp., which brokers the sale of large, complex policies for corporations. So far, however, Integro has yet to prove itself, amid industry gossip that the expensive force of brokers it recruited--many from scandal-plagued Marsh--has yet to earn its keep. Clements says Integro is growing rapidly and wasn't supposed to make money in its first three years.

On Sept. 11, 2001 Clements, a kayaker, stroked into Long Island Sound to watch the huge black stream of smoke rising 35 miles to the southwest at the World Trade Center. (XL Capital and ACE were among the companies that had exposure to the resulting multibillion-dollar billion casualty settlement.)

The tragic event underscored the peculiar nature of insurance. "What we do is a kind of a craft," he muses. "Underwriting complex, enormous risks for the corporate world is something like a being high-wire walker."

http://www.forbes.com/part_forbes/2007/1112/127.html

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Peter Lowe is expected to testify regarding Marsh & McLennan’s brokerage contract with P&C, and whether that contract was on a time-and-expense or flat fee basis. He is also expected to testify regarding alleged over-charging, bid-rigging, accounting irregularities, unfair claims practices, and other illegal acts committed by Marsh & McLennan.

Peter Lowe is expected to testify regarding his relationships with Defendant, Gilbert Tam, William S. Richardson, Henry Peters, Nathan Aipa, Ron Poepoe, Rocco Sansone, Christine Lee, Garrett Liu, Pat Onogi, Colleen Wong, Louanne Kam, John Mullen & Company, Mercer Consulting, PricewaterhouseCoopers, Federal Insurance Company, AmRe, Michael Morgan, XL Ltd, Judge Kevin Chang, Judge David Ezra, Judge Eden Elizabeth Hifo, Sidney Ayabe, Jeffrey Sia, David Farmer, St. Paul Travelers Insurance Co., Mid-Ocean Re, Robert Clements, Paul Bremer, and others yet to be named.

Peter Lowe is also expected to testify regarding “arms-length” issues and whether, as an officer of P&C, he was expected to follow directions from the President of P&C, or from Nathan Aipa, Louanne Kam, or other employees of Kamehameha Schools/Bishop Estate regarding the operations and finances of P&C. Mr. Lowe is also expected to provide the following information regarding each claim made by Defendant against Kamehameha Schools/Bishop Estate, its subsidiaries, and related companies, including Defendant’s Wrongful Termination Countersuit, and RICO lawsuit: Date Claim Made, Insurance Carriers, Policy Numbers, Policy Periods and Names of Claims Adjusters.

Internet References:

www.kycbs.net/IRS-Intermediate-Sanctions.pdf

www.kycbs.net/BH-CHRON-88-96.htm

www.kycbs.net/PC-PriceWaterhouse-8-9-94.pdf

www.kycbs.net/PC-Arms-Length-Guide-10-1-94.pdf

www.kycbs.net/PC-Harmon-to-Lowe-8-28-96.pdf

www.kycbs.net/PC-Harmon-to-Lowe-9-5-96.pdf

www.kycbs.net/PC-Harmon-to-Lowe-10-1-96.pdf

www.kycbs.net/PC-MMI-Fee-Proposal-10-8-96.pdf

www.kycbs.net/PC-Coopers-Lybrand-11-20-96.htm

www.kycbs.net/DOCS-PC-Coopers-11-20-96.htm

www.kycbs.net/EQ2048-Anzai-McCubbin-4-27-0.pdf