Bobby N. Harmon, CPCU, ARM
10951 Southgate Manor Dr. #4 Tel No. (502) 964-0694
Louisville, Kentucky 40229-1651
December 17, 2002
VIA Fax @ (808) 529-7177
Mr. Steven Guttman, Esq.
Kessner Duca Umebayashi Bain & Matsunaga
Central Pacific Plaza, 19th Floor
220 South King Street
Honolulu, HI 96813
RE: Letter dated August 10, 2002, to Matt A. Tsukazaki
Harmon Ch. 7 Bankruptcy Case No. 99-04339
Dear Mr. Guttman:
This is a follow-up to my letter of October 15, 2002, to which I have not received a response.
In further support of my position that serious errors and/or misrepresentations were made by Kamehameha Schools, and/or its insurance companies, insurance brokers, and others with regard to our bankruptcy case, I quote from EQUITY NO. 2048 KSCC, Objection of Attorney General to Interim Trustees’ Petition for Instructions Re: Surcharge Claims, filed on June 20, 2000:
“The Interim Trustees assumed office fourteen months ago. At the instant of assuming office, they assumed all fiduciary duties owed to the Beneficiaries of Kamehameha Schools. The primary fiduciary duty is of course the duty of loyalty, defined as the duty to administer the Trust solely in the interest of the Beneficiaries. . . .
The duty of loyalty to the Beneficiaries encompasses both the duty to enforce and collect claims and the duty to redress the breaches of trust committed by the former trustees. . . .
The Interim Trustees have failed their duty of pursuing claims (including surcharge claims) against the former trustees. Rather, the Interim Trustees have unilaterally and without seeking prior court approval accorded priority to an insurance contract with Federal Insurance Company.
Now, in June 2000, the Interim Trustees are before the court seeking retroactive validation of their fourteen-month course of allegiance to an insurance contract rather than to the trust Beneficiaries.
The court should deny the petition. The court should not countenance having trustees at the helm without the polestar of immutable fiduciary duties. . . .
BACKGROUND
A. Insurance
The former trustees purchased (with trust funds) from Federal Insurance Company an association liability policy for the period July 1, 1997 to July 1, 1999 (the policy).
The Policy defines “loss” to include “defense costs,” and hence the defense costs continuously deplete the limits of liability ($25 million each loss; $25 million each policy year).
The Interim Trustees base their refusal to pursue claims against the former trustees or even to cooperate with the Attorney General in his Surcharge Petition on behalf of the Beneficiaries on one specific provision of the Policy. It is a coverage exclusion that applies to any loss in connection with any claim made against any insured “by or on behalf of an Insured for an Insured For-profit Organization ...” (the insured versus insured exclusion) and does not apply to any claim that is “a derivative action on behalf on an Insured Organization by one or persons who are not Insured Persons and who bring and maintain the claim without the solicitation, assistance, or participation of any Insured Person.” . . .
In 1994, at the recommendation of J&H Marsh & McLennan, Inc. (Marsh), Kamehameha Schools formed a captive insurance company, P&C Insurance Company (P&C). P&C was entirely operated by Marsh pursuant to management agreement. As of September 1, 1997, P&C issued an excess lines policy, including the excess for the association liability policy issued by Federal Insurance Company. At the same time, P&C reinsured its excess lines policy by purchasing from a joint venture of Cigna and XL insurance companies an integrated risk financing policy covering P&C’s entire excess policy risk. As to association liability, the risk was $50 million excess of $25 million.
XL takes the position that no coverage is available under the reinsurance policy based on an allegedly incorrect “warranty of no known loss” at the inception of the reinsurance policy, an alleged continuing failure to give timely notice of claims (including the Surcharge Petition), and an alleged failure to cooperate with XL’s investigation of the claims that were tendered for coverage....
The duties of the Interim Trustees with respect of breaches of trust by the former trustees are clear. The Interim Trustees have an affirmative duty to use reasonable care to preserve the Trust property and protect it from loss and damage. . . . The Interim Trustees have an affirmative duty to enforce and collect claims belonging to the Trust....
For fourteen months, the Interim Trustees have simply failed their duties to the Beneficiaries by taking no action to enforce and collect the surcharge claims (other than agreeing to preserve their right to someday take action) and by steadfastly adhering to a policy of non-stop non-cooperation with the Attorney General on the Surcharge Petition....
There is no justification for the non-action and non-cooperation of the Interim Trustees. There is particularly no justification in Endorsement 4 of the Policy, on which they rely.
As a practical matter, because the documents critical to the Surcharge Petition are in the possession of the Interim Trustees, their policy of non-cooperation with the Attorney General can only obstruct the proof of the surcharge claims, to the detriment of the Beneficiaries.
Moreover, the Interim Trustees’ policy of non-cooperation does not even advance the professed goal of preserving the Policy limits....
It is true that the Policy was purchased by the former trustees, not the Interim Trustees. But if Endorsement 4 is an impediment to the proper discharge of the Interim Trustees’ duties to the Beneficiaries, the solution is neither to breach those duties for fourteen months nor to annually file vague petitions for instructions in proceedings in which Federal Insurance Company is not a party (and is not even on the service list of the Interim Trustees).
One solution is for the Interim Trustees to resolve the issue directly with Federal Insurance Company, if necessary by a declaratory judgment action concerning the interpretation and scope of Endorsement 4. . . .
We ask the court to view the situation from the vantage point of the Attorney General. Unlike the former trustees, the Interim Trustees are not legally disabled from pursuing the surcharge claims. The Interim Trustees have multiple affirmative duties to pursue those claims. They have, by determined non-stop non-cooperation, negatively affected the Attorney General’s efforts in the Surcharge Petition on behalf of Hawaiian children.
The Interim Trustees apparently believe that, to preserve the common fund of the insurance money, they may impose on the good offices of the Attorney General to discharge what is rightfully their own responsibility of seeking redress from the former trustees. It is fair for the Attorney General to question why the already overburdened taxpayers of Hawaii should provide legal services to the richest organization in Hawaii (and one that is already taxpayer subsidized in the form of the tax exemption.) . . .”
< END OF QUOTE >
Attached to this Objection as Exhibit 7 was a letter dated April 27, 2000, from Attorney General Earl Anzai addressed to Hamilton I. McCubbin, CEO, and the Interim Trustees. To quote from this letter:
I am writing about the excess lines reinsurance agreement between P&C Insurance Company and X.L. Insurance Co., Ltd. (the Agreement).
The Agreement encompasses association liability, has an inception date of September 1, 1997, and, as to association liability, has limits of $50 million excess of $25 million. The policy premium was approximately $1.3 million annually and has always been timely paid.
X.L. contends that there is no coverage for the claims asserted in the AG Surcharge Petition, primarily because of alleged misstatements in representations and warranties by trust employees Christine Lee and Louanne Kam.
It is beyond argument that the Interim Trustees have a fiduciary duty to redress the breaches of trust of the former trustees. It may be that any dispute with X.L. will create embarrassment for trust employees. . . . Nonetheless, what is at stake here is $50 million for the education of Hawaiian children. There is no reason for the Interim Trustees to walk away from $50 million.
On behalf of the trust beneficiaries, I request that the Interim Trustees discharge their duty to redress the breaches of trust by the former trustees by initiating action against X.L. to enforce the Agreement. I also request that you put J&H Marsh & McLennan (MM) on notice and ensure their participation in the mediation. MM set up the P&C integrated risk program and installed American Re as the reinsurer for the first two years. Yet at the critical juncture in late summer 1997, MM assisted the trust in applying to X.L. for reinsurance rather than simply renewing with American Re. WE understand that MM was instrumental in preparing the application for reinsurance, that the trust relied on the professional expertise of MM, and that MM may have an ownership or other interest in X.L.
Time is of the essence here and a failure to act by the Interim Trustees will only exacerbate existing problems.
(s) Earl I. Anzai, Attorney General
< END OF QUOTE >
You will recall from my RICO lawsuit (for which Trustee Mary Lou Woo assumed responsibility), that Federal Insurance Company, P&C Insurance Co., Inc., and Marsh & McLennan, Inc. were named Defendants in addition to the former Trustees. You also will recall that a major point of contention was Endorsement 4: the ‘Insured vs. Insured’ endorsement. The two cases are similar, also, in the fact that although the former trustees were defendants in my lawsuit, the responsibility for the final settlement was assumed by the interim trustees. The interim trustees also relied upon in-house attorneys Nathan Aipa, Louanne Kam and Colleen Wong in the processing and handling of the insurance claims in both cases. Christine Lee, who is mentioned in the Attorney General’s letter was a former employee of Marsh & McLennan.
As I stated in previous letters and court filings, I believe that employees of Kamehameha Schools (namely Aipa, Kam, Wong and Lee), in collusion with employees of Marsh & McLennan (namely Rocco Sansone and Peter Lowe) and outside law firms, were involved in a scheme to defraud the court in my bankruptcy case.
I continue to believe that none of the law firms that purported to be representing the former Bishop Estate trustees named in my RICO lawsuit were, in fact, retained by these trustees. I believe that the named in-house attorneys improperly engaged the law firms of Marr, Hipp, Jones & Pepper; Torkildson, Katz, Fonseca, Jaffe, Moore & Hetherington; and Ayabe, Chong, Nishimoto, Sia & Nakamura, without the consent of the former trustees and/or the required pre-approval of these law firms by Federal Insurance Company.
I repeat a statement from my previous letters the fact that none of the former trustees signed the Settlement Agreement – another indication that they were not, in fact, being represented by their professed attorneys.
You have asked me to “stop my letter writing campaign,” and you have recommended to Trustee Mary Lou Woo that she not respond to my questions, which you have characterized as “spurious”. I, too, would like to stop writing these letters – especially as I seem never to receive an answer.
If the information that I have provided in this letter is insufficient for you to take action to remedy what I consider to be continuing acts of fraud, conspiracy and racketeering, then I can supply hundreds of pages of additional information. However, it would be helpful in limiting the volume of this information, if you would answer my letters and indicate exactly what information would be required in order for you to take action to correct this situation and bring about the final settlement of this case. This should include the issuance by Kamehameha Schools of IRS Forms W-2 and 1099-R for the year 2000, that I have requested numerous times.
Your prompt reply to this letter will be greatly appreciated.
Very truly yours,
Bobby N. Harmon
cc: Janet S. Hughes, Mgr., Employee Plans & Exempt Organizations, IRS
(VIA fax @ 303-844-3596)
Billy Beaver, Pension & Welfare Benefit Administration
(VIA fax @ 626-229-1098)
Attorney General Earl I. Anzai,
State of Hawaii
(VIA fax @ 808-586-1239)
Benjamin M. Matsubara, Esq.
Kamehameha Schools Master
888 Mililani St., 8th Floor
Honolulu, HI 96813-2918
Gerard Jervis, Lokelani Lindsey, Henry Peters, Oswald Stender, Richard Wong
c/o Kenneth B. Hipp, Marr, Hipp, Jones & Pepper
(VIA fax @ 808-536-6700)
Trustees, Kamehameha Schools
c/o Matt Tsukazaki, Torkildson, Katz, Fonseca, Jaffe, Moore & Hetherington
(VIA fax @ 808-523-6001)
Torkildson, Katz, Fonseca, Jaffe, Moore & Hetherington
(VIA fax @ 808-523-6001)
P&C Insurance Company., Inc., c/o Ayabe Chong Nishimoto Sia & Nakamura
(VIA fax @ 808-526-3491)
P&C Insurance Company, Inc., c/o Aon Insurance Managers
(VIA fax @ 808-540-4301)
Hamilton McCubbin, CEO, Kamehameha Schools
c/o Rush Moore Craven Sutton Morry & Beh
(VIA fax @ 808-521-0597)
John Mullen & Co., c/o James V. Myhre
(VIA fax @ 808-524-2556)
Marsh & McLennan Companies, Inc.,
c/o Robert F. Miller, Esq.
735 Bishop Street, Suite 320
Honolulu, HI 96813
Federal Insurance Company, c/o Lissa H. Andrews, Esq.,
(VIA fax @ 808-523-8051)
PricewaterhouseCoopers, LLP, c/o Warren Price, III
(VIA fax @ 808-533-0549)
T.M. Kittredge, Morgan, Lewis & Bockius
(VIA fax @ 215-963-5299)
Miller & Chevalier
(VIA fax @ 202-628-0858)
Robert P. Richards, Master
(VIA fax @ 808-536-5117)
Mr. Cliff Rones, Esq., U.S. Dept. of Justice, Criminal Div., Fraud Section
(VIA fax @ 202-514-7021)
Mr. Tai K. Lee, Special Agent, U.S. Dept. of the Treasury
(VIA fax @ 808-539-2810)
Dr. Randy Roth, University of Hawaii
(VIA fax @ 808-956-5569)
John Goemans, Esq.
(VIA fax @ 808-887-1099)
Arnold T. Phillips, Esq.
(VIA fax @ 808-528-5006)
Roy F. Hughes, Esq.
(VIA fax @ 808-521-7489)
Bradley R. Tamm, Esq.
(VIA fax @ 808-524-4844)
This is a leaf from
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