Bobby N. Harmon, CPCU, ARM
10951 Southgate Manor Dr. #4 Tel & Fax No. (502) 964-0694
Louisville, Kentucky 40229-1655
September 27, 2004
VIA fax only @ (808) 539-9738
Mr. Casimer Fidele
Tradewind Insurance Company, Ltd.
P.O. Box 1520
Honolulu, Hawaii
Re: Notice of Claim Against Island Insurance Company, Inc.; Roy F. Hughes, et al.
Ref: Mary Lou Woo, Demand for Arbitration - 74 166 00491 03 JAFA
Pol. No.: THB 2951831
Dear Mr Fidele:
Based upon recently obtained information regarding the referenced case, this letter supplements my claim letter to you dated September 23, 2004.
In your declination letter to me dated June 2, 2003, you conclude by stating, “If you have any questions regarding the foregoing, please do not hesitate to contact the undersigned or our coverage counsel, Michael N. Tanoue, of The Pacific Law Group, at (808) 523-2999.” You sent a courtesy copy of this letter to Mr. Tanoue.
Upon further research, I find that Michael Tanoue was the attorney appointed by Probate Judge Kevin Chang as Special Master to review the insurance coverages of Kamehameha Schools Bishop Estate in the state’s suit for removal of the former trustees. For your information, I quote pertinent excerpts from the following news stories:
June 12, 2000
Insurance disputes hit Bishop trust
Companies threaten to reject coverage if the estate
takes a role in a suit against former trustees
By Rick Daysog, Star-Bulletin
The insurance companies for the Kamehameha Schools are threatening to reject up to $75 million in coverage, in a development that could have far-reaching consequences on the litigation surrounding the $6 billion charitable trust.
In court papers filed on Friday, the estate’s interim board of trustees said that Federal Insurance Co. is reserving its right to deny $25 million in coverages if the trust takes an active role in the attorney general’s surcharge lawsuit against former trustees Henry Peters, Richard “Dickie” Wong, Lokelani Lindsey, Oswald Stender and Gerard Jervis.
Separately, Bermuda-based XL Insurance Co. also is reserving its right to deny $50 million in reinsurance coverage purchased by the trust’s captive insurance subsidiary, P&C Insurance Co. over a dispute over warranties provided by the estate, several people close to the trust said.
The insurance is supposed to protect the estate from damages such as alleged in the state’s lawsuit. In that suit, the state is trying to show that the former trustees took excessive compensation, mismanaged the Kamehameha Schools’ educational programs and incurred more than $200 million in investment losses during their tenures.
Denial of the insurance coverage could mean the trust gets stuck with millions of dollars in legal costs arising from the attorney general’s surcharge suit, which is set to go to trial on Sept. 18. It also could affect the size of any potential settlement in the case.
Federal Insurance, which has been paying for the legal defenses of the embattled former trustees, is taking the position that unless the former board members take part in court-mandated mediation in the surcharge proceeding, any role in that mediation effort by the current interim board could be a basis for denying coverage, the trust said.
The trust’s policy with XL has a similar clause that allows the reinsurer to deny coverage for legal actions against the trust’s former trust’s former trustees if the Kamehameha Schools interim board actively participates in the case, the estate said.
However, XL put the trust on notice that it may pull its coverage more than two years ago, people familiar with the estate said. XL, which collected $3.9 million in premiums from the trust during the past several years, told the trust back in February 1998 that it was reserving its right to deny coverage due to an August 1997 warranty by a P&C official.
The warranty – which is a statement by the insured customer that a certain condition or risk exists – noted that the trust was not a subject of any significant claims.
At the time the warranty was made, the attorney general’s office and the Internal Revenue Service had already launched their separate investigations of the estate’s former board members while retired Judge Patrick Yim had begun his encyclopedic fact-finding investigation of the Kamehameha Schools.
XL is a unit of Hamilton, Bermuda-based Exel Ltd., which previously had financial ties with the estate. Back in 1998, Exel merged with Mid Ocean Ltd., a reinsurance company in which the estate was a co-founder and once held a 5 percent stake.
Elizabeth Pitrof, XL’s Chicago-based attorney, declined response.
A trust spokesman, the attorney general’s office and the court-appointed special master for the trust’s insurance matters, attorney Michael Tanoue, also had no comment of the XL dispute, citing a protective order issued by the probate court.
As for its court filing on Friday, the estate’s interim board is asking Probate Judge Kevin Chang for guidance on its insurance matters, saying the state’s legal action places them in a bind.
While the trust would benefit from the attorney general’s surcharge suit, the estate’s involvement in such a suit could void their insurance coverages, the interim board said.
In particular, the estate’s interim board is asking Judge Chang whether they must take part in the court-mandated mediation for the surcharge proceeding or whether they must assist the attorney general in preparing their case against the former trustees.
Deputy Attorney General Hugh Jones said the interim board’s obligations in this case are crystal clear: It’s their fiduciary duty to pursue the former trustees for alleged breaches of trust or assist the state’s case even if their insurance policies won’t pay for those costs.
Just because an insurance policy doesn’t cover potential surcharges against the former trustees doesn’t discharge the board from its unabiding duty, said Jones, who recently asked for a one-year delay for the surcharge trial due to the interim board’s alleged delays in turning over pertinent documents.
“An insurance policy should not dictate a trustee’s fiduciary duty,” Jones said.
www.starbulletin.com/2000/06/12/news/story1.html
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 [e]states’ 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.
www.starbulletin.com/2000/07/11/news/story1.html
< END OF QUOTATIONS >
To update and expand upon the above news articles, it appears that XL Insurance Co. was successful in denying coverages in this case, resulting in a $50 million loss in available insurance coverages to Kamehameha Schools. The persons who would have been responsible for the “breach of warranty” described in these articles, would have been Rodney Park (then-president of P&C Insurance Co.), Nathan Aipa and Louanne Kam, all of whom were defendants in my RICO lawsuit – the Case Statement for which can be found at the following Web address:
www.the-catbird-seat.net/RICO-BH.htm
As I stated in this RICO lawsuit, and as I have testified to Deputy Attorneys General Hugh Jones and Dorothy Sellers in their case to remove the former trustees (EQ2048), the failure of these individuals to report “sensitive” claims to the insurance carriers resulted in losses of hundreds of millions of dollars that might have otherwise been paid by the insurance companies. A prime example of this was the McKenzie Methane case, which is described in more detail at:
www.the-catbird-seat.net/Methane.htm
From all indications, Kamehameha Schools attorneys in this case followed the same fraudulent path in the handling of my wrongful termination and RICO lawsuits – electing to handle these claims themselves rather than simply reporting the claims to the insurance company and allowing them to proceed with their claims administration. This resulted in other breaches of the policy conditions which required PRIOR APPROVAL from the insurance companies – including the appointment of outside attorneys; assuming claims-adjusting responsibilities (such as investigating the claim, deposing witnesses, communicating with the claimant, setting legal claims reserves, reporting to the reinsurance company, making settlement offers, etc). Of particular importance in my case with Island Insurance, those responsibilities would have included participation in the settlement negotiations with Roy Hughes, Arnold Phillips, and Steven Guttman, and would have certainly required Federal Insurance Company’s PRIOR APPROVAL before the Settlement Agreement was presented to me for signature. This clearly was not the case in my situation, since Federal Insurance did not sign the Settlement Agreement until June 29, 2000, over five months after I had signed it – and over three months AFTER U.S. Bankruptcy Judge Lloyd King had approved an incomplete Settlement Agreement (not signed by all parties and Exhibit 5 missing). I believe that the EXHIBIT “5" would also provide irrefutable evidence that neither Federal Insurance Company, or XL Insurance Company, gave their prior approval to the settlement.
Another MAJOR problem that occurred, and one which was a key arbitration issue, was the question of the treatment of the settlement as wages. By wrongly assuming the role of the claims adjuster in this case, Matt Tsukazaki, Esq. not only misrepresented to Trustee Mary Lou Woo, the Court, the creditors, my attorneys, and others, that he had the authority from the insurance companies to negotiate a global settlement in this case, but he also assumed the responsibility for drafting and executing the Settlement Agreement – again without the prior approval of the insurance companies. By assuming this responsibility, however, he and his firm also assumed the risk of liability should any problems, or errors or omissions, arise in connection with the interpretation or enforcement of the agreement. Thus when I began questioning such items as which of the trustees signed the Agreement (since the signatures were illegible), or when would I be receiving my IRS form W-2 and 1099-4, the answers to these questions were not coming from the insurance company, or their independent adjuster – but, rather, from either Kamehameha Schools’ in-house attorneys or Matt Tsukazaki. Or, worse yet, from Steven Guttman who was not the attorney for any of these parties.
Given the above information, it is clear that Island Insurance Company was negligent and acted in bad faith in the settlement of the original lawsuits, and in their declination of the tender of defense in the resultant arbitration, for the following reasons:
1. Roy Hughes failed to determine the identity of Federal Insurance Company’s authorized, independent claims adjuster in this case - and to deal directly with that adjuster to obtain such insurance documents and essential information, such as, copies of insurance policies; Claims Numbers, Policy Numbers, Date of Loss, etc.
2. Roy Hughes failed to obtain evidence (i.e., Attorney of Record letters, insurance carrier authorization letters, etc.) that KSBE’s purported attorneys in this case legally represented these entities, and were authorized to negotiate settlement of the claims on behalf of the insurance companies.
3. Roy Hughes failed to obtain a copy of the Directors & Officers Indemnity Agreement that I signed with P&C Insurance Company, which was key evidence in the original lawsuits as well as the arbitration.
4. Roy Hughes failed to diligently pursue – as my attorney – the questions of the settlement proceeds as wages, the illegible signatures on the Settlement Agreement, and the possibilities that other fraudulent acts had been committed.
5. Roy Hughes’ office improperly released information and documents to David A. Nakashima, Esq., an attorney with the law firm of Alston Hunt Floyd & Ing, which has represented KSBE, and with which the Arbitrator in this case, Judith Neustadter Fuqua, was previously associated. (See my letter dated September 23, 2004)
6. Roy Hughes, in a breach of attorney-client privilege, improperly communicated directly with Steven Guttman regarding the arbitration proceedings. (See my letter dated September 23, 2004)
7. Island Insurance Co. improperly engaged Michael N. Tanoue, Esq. to interpret coverages in this arbitration case, knowing that he was conflicted due to his serving as a Special Master for Kamehameha Schools to specifically review the insurance coverages of the trust and P&C Insurance Company in EQ 2048.
Please feel free to contact me if you have any questions or comments. Your prompt response will be appreciated.
Very truly yours,
Bobby N. Harmon, CPCU, ARM
cc: Mary Lou Woo, c/o Steven Guttman, Kessner Duca Umebayashi, et al.
(via fax only @ 808-529-7177)
James B. Farris, Senior Case Manager, American Arbitration Association
(via fax only @ 559-490-1919)
Dee Jay Mailer, CEO, Kamehameha Schools
(via fax only @ 808-523-6313)
President, P&C Insurance Co., Inc.
(via fax only @ 808-523-6313)
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