Bobby N. Harmon, CPCU, ARM, AAI
Honolulu, Hawaii 96818
January 5, 1997
Mr. John Sinnott, Chairman of the Board
Marsh & McLennan, Incorporated
1166 Avenue of the Americas
New York, NY 10036-277
SUBJECT: Settlement Proposal for Fraud/Misrepresentation Claim
Dear Mr. Sinnott:
The purpose of this letter is to present my claim for damages directly to you and your insurance carriers in an effort to negotiate a fair and reasonable settlement and to avoid the adverse publicity and high cost of a lawsuit.
As background, I was formerly the Risk/Insurance & Safety Manager for the Kamehameha Schools Bishop Estate (KSBE), a tax-exempt charitable organization, and President of P&C Insurance Company, Inc. (P&C), a captive insurance company wholly-owned by Pauahi Holdings Corporation, a for-profit subsidiary of KSBE.
On November 20, 1996, I received my termination notice from KSBE from my superior, Nathan Aipa, who is the General Counsel and Director of the Legal Group for KSBE. The letter states, "This action is being taken in recognition of a fundamental philosophical difference between (1) our teamwork and management approach within the Legal Group, and (2) your view and approach to the management of the risk insurance and safety department."
At the same meeting, Mr. Aipa gave me my termination notice as President of P&C Insurance Company, Inc., in the form of a letter from Henry H. Peters, Chairman of the Board of Directors. This letter gave no reason for the termination.
I consider both terminations to be wrongful and instituted for unreasonable and unjust causes, and I have filed a wrongful termination claim with KSBE and its insurance carriers. My letter of December 29, 1996 to the Trustees details the motives and provides the evidence to support my claim. A copy is enclosed for your information and review.
As you will note throughout my letter to KSBE, the Honolulu offices of Marsh & McLennan, Inc. (MMI) and M&M Insurance Management Services, Inc. (IMS) have been heavily involved in the wrongful actions which resulted in my termination, and it is for these actions that I am bringing this claim against MMI and IMS.
As further background, when I joined KSBE in October, 1988, the local general agent for the estate was Insurance Factors, Ltd. In 1989, I requested proposals for a captive feasibility study from several brokers. I recommended the proposal from MMI to the Trustees, which they approved. MMI's completed study determined that a captive insurance company was feasible and recommended its formation.
In 1990, I placed KSBE's complete insurance program out for competitive bidding. MMI provided what I considered to be the best proposal, with a key element being that MMI had the facilities and capabilities to assist in the formation and on-going management of a captive, which the incumbent agent lacked. The Trustees approved the appointment of MMI as KSBE's broker of record, based upon my recommendation.
The captive formation project was sidelined for a few years mainly due to discussions on tax-related issues. In 1994, however, Trustees gave approval to my recommendations that we proceed with forming a captive.
Peter Lowe, Vice-President of IMS presented a fee proposal on June 7, 1994 (copy enclosed) which was approved by the Trustees. You will note that the Cost of Services for Ongoing Management (page 2) shows a total of $66,500 based on approximated time and expense.
P&C received its charter from the State of Hawaii in September, 1994 and wrote its first policies effective October 1, 1994. As President of P&C, I signed an Insurance Management Agreement between IMS and P&C to provide on-going management services (copy enclosed). The services to be performed by IMS are stated in the Agreement, as well as Compensation and Expense Provisions which state that the fees charged by IMS will be on a time and expense basis and that IMS shall render monthly statements to P&C.
I have had suspicions for several years that something was going on between Rocco Sansone and KSBE management. Even before I was transferred from the Administration Group to the Legal Group, there were private meetings held with Sansone, Aipa and Gil Tam. Later on, there were often private meetings and communications between Sansone, Aipa, Louanne Kam and Henry Peters. When I learned of these meetings and questioned their purpose, Sansone explained them as efforts to assist me in communicating my risk management responsibilities to my superiors and other managers.
It was not until I began to seek alternatives to MMI's property placements, however, that my suspicions of collusion between these individuals were confirmed. My letter to the Trustees details the many issues which involved MMI and IMS; therefore, I will not repeat them all here.
However, the following excerpts from my letter are particularly relevant to my claims against MMI and IMS:
Page 5, which references Exhibit 7:
I consider MMI's actions to be extremely unethical,
unprofessional and costly to KSBE. Their questionable actions
contributed to the delays in final presentation of the staff
report to Trustees, which cost KSBE over $75,000 in premiums.
The fact that we were unable to write the property insurance in
P&C by July 1 or October 1, 1996, cost P&C over $1 million in
gross written premium.
In view of these actions on the part of MMI, my recommendation
was that KSBE place their insurance program and the captive
insurance management contract out to bid for the July 1, 1997
renewals (if not before), and have P&C write the property
program on the same date. It is my belief that this
recommendation contributed significantly to my termination
twelve days later.
Page 7, under "Arms-length Relationships/Conflicts of Interest":
The officers (of P&C) included myself; Peter Lowe, an officer
of M&M Insurance Management Services, Inc., which is a
subsidiary of Marsh & McLennan, Inc.; William Richardson, a
former trustee and current consultant for KSBE; and Nathan
Aipa, General Counsel for KSBE. KSBE has also been involved
with another MMI subsidiary, Guy Carpenter, through its sizable
investments in two Bermuda insurance companies, Centre
Reinsurance and Mid-Ocean Reinsurance.
...Claims committee members included...Rocco Sansone (MMI) and
Pat Onogi (MMI).
...former Treasury Secretary Simon has been the estate's
business partner in several major banking deals both in Hawaii
and in Asia in recent years." (The banking deal in Hawaii was
HONFED, which was later sold to Bank of America. State
Insurance Commissioner Wayne Metcalf took legal action against
Bank of America and Goldman Sachs, along with other brokerage
companies, in connection with the failure of Investors Equity
Life Insurance Company, which had sold annuities through
HONFED. I was advised by Rocco Sansone that Mert
Chillingworth, former president of Marsh & McLennan, Hawaii,
also served on the board of directors of HONFED during the
period they were marketing the Investors Equity annuities.
Another major banking deal with Simon came after this article
was published when KSBE became the majority stockholder in
SOCAL Holdings, which owns Southern California Savings & Loan
Simon also personally invested, along with four estate
trustees and numerous senior estate staffers, in a
Houston-based methane gas drilling project that is now mired in
federal bankruptcy court proceedings.
The estate itself invested some $85 million in the same energy
Goldman Sachs continues to be involved in lawsuits accusing
the firm of illegal dealings. The Star-Bulletin reports in its
December 11, 1996 edition under the headline, "Investors Equity
"A Circuit Court judge has approved a settlement between state
Insurance Commissioner Wayne Metcalf and Gary Vose, the sole
shareholder of Investors Equity's parent company at the time
the insurer was placed into liquidation in June 1994..."
"The state seized the insurance company after its management
ran up a $90 million deficit largely because Vose lost
policyholders' money in highly speculative leveraged
investments known as derivatives, the state charges..."
"Metcalf said the settlement is part of a series of actions
against Bank of America, several brokerage companies
including...Goldman Sachs, accountants and attorneys associated
with the failure of Investors Equity Life..."
"A state lawsuit accused Vose of racketeering, fraud and other
misconduct... The suit alleges that the holding company that
controlled Investors Equity conducted sham real estate deals
and used the insurance firm's assets to pay large fees to Vose
and companies connected with him..."
Bishop Estate and William Simon had other tie-ins with
Investors Equity Life through their HonFed investment. Marsh &
McLennan had a connection with HonFed as their insurance
broker, as well as Mert Chillingworth who sat on HonFed's board
“One wonders about arms-length and other tax issues with many
other deals, such as the one with Benson Forests (now Shelter
Bay Forests). This deal, in which Mark McConoghy also had a
hand, involved a number of partnership transactions with Ben
Benson, which concluded with KSBE buying Benson's remaining
interests in the partnership. During the time Benson was still
a partner, the estate arranged and paid for a life insurance
policy on Benson. The policy was purchased through Marsh &
McLennan. Shortly after Benson sold his interests to Bishop,
he and his wife made a large charitable donation of an island
in the Atlantic to the Kamehameha Schools.
“During the period when the formation of the captive insurance
company was under discussion, I recommended to Mr. Aipa that I
be transferred from KSBE to the captive in large part due to
the arms-length issues. I drafted a staff report for this
transfer which was submitted to Mr. Aipa for review and
approval. The recommendation was that I be transferred to P&C
and that KSBE contract with P&C for risk management services.
The Personnel Division was consulted about the continuation of
benefit programs and other employment issues if this transfer
were made. I included an estimated $200,000 in the initial
budget for P&C to establish and operate a separate office.
This staff report was never presented to trustees by Mr. Aipa.”
“Taxpayer Bill of Rights II - Intermediate Sanctions for
Tax-Exempt Organizations. Under a bill signed July 30, 1996,
Congress enacted rules which allow the IRS to assess penalty
excise taxes on individuals who are involved in transactions
with tax-exempt organizations that constitute private
inurement. The law applies retroactively to ‘excess benefit’
transactions occurring after September 13, 1995.”
“Penalty excise taxes can also be imposed on ‘organization
managers’ (an officer, director, or trustee) who knowingly
permits the organization to engage in an excess benefit
transaction, even if that manager did not personally benefit.”
“Tax-exempt organizations cannot circumvent the rules by causing
a controlled entity to engage in the excess benefit transaction.”
An article entitled, ‘No More Sweetheart Deals’, in the September 23, 1996 issue of Forbes includes the following comments and example:
"Under the new rules, trouble starts if the IRS determines that
there has been a misdeed with an "excess benefit." It could be
fat salary, a sweetheart contract or an embezzlement. If
someone got an excess benefit, the IRS can both fine the
recipient 25% of the benefit and demand that the benefit be
given back to the charity. If the guilty party doesn't pay the
money back, he or she owes twice the excess benefit to Uncle
"Say a board member convinces the president of a college to let
the school's insurance contracts to her firm, even though going
with a rival would save the school $150,000. In turn, the
board member is influential in voting the president a lavish
salary, perhaps $200,000 higher than the norm at comparable
universities. The IRS could force the repayment of both the
$150,000 and the $200,000..."
“What about directors who sit still for this kind of mischief?
They can be fined a collective $10,000, even if they didn't
It would appear to me that the IRS possibly could interpret several transactions between Marsh & McLennan and KSBE/P&C as resulting in "excess benefit". For examples:
1. I obtained a property insurance proposal from Hobbs Group
which was approximately $600,000 less than KSBE was paying for
coverages placed through the incumbent broker, Marsh &
McLennan. MMI's account representative, Rocco Sansone,
represented that M&M could have gotten the same coverages with
the same company at the same price, if only I had let him know
that was what the estate wanted. Nathan Aipa and Louanne Kam
conspired with Sansone to keep MMI on as KSBE's exclusive
broker. They requested that Hobbs extend the proposal deadline
- first to July 15; then to July 31; then to August 31 - in
order to allow MMI time to arrange to take over Hobbs proposal
with the carriers. (The latest Hobbs would extend the proposal
was August 15.) They arranged to have MMI review and give their
opinion of Hobbs' proposal before allowing my staff report to
go to Trustees. I was pressured by Aipa/Kam/Sansone to give
MMI an exclusive broker of record letter to enable them to take
over the Hobbs proposal. This I would not do as I considered
it highly unethical and not in the best interests of the
estate. When MMI was unable to get a resident agent
appointment from Arkwright Insurance Company as Sansone had
represented, or make any other arrangements, MMI's policies
were canceled and the business went to Hobbs. The 45-day
delay in rewriting the policies, however, cost the estate and
its subsidiaries nearly $75,000. MMI benefited not only from
the commissions they received from the $600,000 "overcharge",
but they also received commissions for the extra 45 days their
policies were in force.
2. On June 7, 1994, I received a fee proposal from Peter
Lowe, Vice President of M&M Insurance Management Services,
Inc., (IMS) for services for the formation and ongoing
management of a captive insurance company. Fees were quoted on
a time and expense basis. The total annual estimated fee for
ongoing captive management services was $66,500.
“After the captive was formed, the actual charges made by IMS
for ongoing management services was $60,107 for the first
9-month period ending July 1, 1995. This was in line with
their proposal. MMI, however, had billed an additional
$200,000 flat fee for "brokerage services" which had not been
indicated in the proposal or in the captive management contract
“Outside services required by P&C were almost always contracted
for on a time and expense basis. The notable exception was
Marsh & McLennan, Inc. They billed their services to P&C at a
flat rate of $200,000 annually, invoiced in installments of
$100,000 each. When I received the first of these invoices, I
noted there was no explanation for the invoice and I
questioned IMS about the charges. The answer was that these
were for "broker services" that IMS was not staffed to perform,
such as, policy issuance, billings, claims services, etc. I
was advised that MMI would provide further details about the
services in the future. I never received a satisfactory
explanation and a written agreement was never entered into for
“During the year prior to the captive being formed (1993-94),
Marsh & McLennan, Inc. received $274,928 in brokerage
commissions from KSBE. During the first year of the captive
(1994-95), MMI received $290,443 in brokerage commissions from
KSBE, plus the $200,000 flat charge from P&C. In addition, P&C
paid MMI-affiliated companies IMS and William Mercer, $60,107
and $2,663 respectively. Total income to MMI and affiliates
had gone from $274,928 to $553,213 in one year. (And one of
the purported advantages of forming a captive was reduced costs
by elimination of the "middle-man".) The following year
(1995-96) the total fees and commissions to MMI and its
affiliates increased to $632,714.”
“To budget P&C's expenses for the current fiscal year, on August
28, 1996 I requested a written proposal from MMI on a ‘time and
expense’ basis (Exhibit 21), which they did not provide. Aipa
and Kam strongly pressed me to have P&C continue to pay MMI the
$200,000 annual flat fee. On October 8, 1996, a meeting was
held at the direction of Ms. Kam to discuss MMI's fees.
Attending the meeting were Ms. Kam, Rocco Sansone, Peter Lowe
and Garrett Liu.”
“One of my frequent admonitions to MMI and IMS was that P&C
should always act at arms-length from KSBE and its
subsidiaries. As Mr. Liu's meeting notes indicate, I expressed
my desire to be able to justify MMI's fees for the services
performed, and to keep P&C's costs separate from KSBE's costs.
Rocco expressed his opinion that some of the services provided
to P&C were difficult to unbundle from the services provided to
KSBE, and he suggested that a fee proposal be made for the
entire KSBE account and not just P&C Insurance.”
“Peter Lowe represented that almost all of the captives he dealt
with had a flat fee arrangement with their risk managers and
brokers. Ms. Kam remarked that I had no "bench marks" for
these service fees, and suggested I check my reference
materials and determine what other captives were doing. After
this meeting, I reasoned that the best way to obtain such
‘bench marks’ was to check with other local captive managers to
see what kind of fee arrangements they had with their clients.
In just two five-minute phone calls, I obtained ‘time and
expense’ estimates and sample agreements from two other captive
managers--something which MMI had not been willing to provide
in two years. These competitive cost estimates ran from
$25,000 to $50,000 a year and included all the services being
provided by MMI and IMS at a cost of $287,527.”
“On P&C stationery, and signing the letter as President of P&C,
I responded to Mr. Sansone with my findings and again requested
a service proposal from MMI.”
“Ms. Kam rescinded my letter without any prior notification, and
issued another PERS 9 reprimand dated October 31, 1996. In
this memorandum she states:
"I was shocked to read your letter of October 29, 1996 which
was sent to Mr. Sansone and Mr. Lowe. This letter was not
previously reviewed or approved by either Nathan or myself.
This is a flagrant failure to follow clear and express
directives from your supervisors and amounts to
insubordination. Any further incident in which you fail to
follow directives will be grounds for further disciplinary
action including immediate termination."
“Needless to say, by this time I had strong suspicions that
‘private agreements’ had been made between Nathan Aipa, Louanne
Kam, Rocco Sansone and Peter Lowe to which I had not been a
privileged party. Looking at the income MMI and its affiliates
were receiving from KSBE and P&C, I could definitely see the
opportunity for ‘excess benefit’".
“If my understanding of the Taxpayer Bill of Rights II is
correct, as an officer of P&C I could be fined $10,000 by the
IRS if it were determined that I knowingly permitted the
organization to engage in an excess benefit transaction. But
the main reason for my ‘flagrant failure to follow clear and
express directives from my supervisors’ was that I felt it was
“In my mind, if I ‘looked the other way’ and allowed this
activity to continue, I would be breaching my fiduciary duties
to the organization. I believed that my duties to the estate
were greater than my duties to my supervisors. And I knew that
my conscience would be forever burdened with the thought that I
had stood by and allowed certain unscrupulous individuals to
‘rob’ the true beneficiaries of the estate - the children of
“3) Failure to act in good faith with KSBE's insurance and
bonding companies; fraud; deceptive practices in financial and
regulatory reporting; discrimination; conflicts of interest;
breach of fiduciary responsibilities; non-bid contracts;
political favors; improper actions for personal gain or profit;
and other wrongful acts.”
“In several discussions with Mr. Aipa I was told that I was
always ‘taking the side of the insurance company’ and not
KSBE's side. I responded that I was not taking the insurance
company's side, but was only stating the conditions in the
insurance policies and what the companies required of insureds
in applications for insurance, claims reporting, etc.”
“When I would cite the insurance policy conditions, exclusions,
etc. to him in response to a question, Mr. Aipa would say that
he knew what the policy said - he wanted to know what the
company would actually do in these cases.”
“Having previously been an underwriter for the Hartford and the
Hawaiian Insurance Companies, and a vice-president in charge of
marketing for a local general agency for 17 years, my
philosophy and approach to dealing with the insurance companies
has always been one of acting with honesty and in good faith.
I have seen many situations over the years where failure to
disclose complete underwriting information to the carriers
resulted in cancellations and non-renewals, high audit
premiums, denial of claims, etc.”
“Mr. Aipa's philosphy was that ‘sensitive’ issues, financial
information, etc. should not go outside the company, or even
outside the Legal Group, if possible. Hence the heavy use of
‘Attorney-Client privilege’ memos between the legal group and
other departments within the organization.”
“Therefore, when it came to completing insurance applications
that requested ’sensitive’ information such as financial
statements, knowledge of any pending claims or future potential
claims, this information was often not disclosed to me, or was
provided only after repeated requests.”
“It is apparent that Mr. Aipa found my philosophy of dealing in
good faith with the insurance carriers too ‘open’, and in
complete contrast to his philosophy of keeping everything
‘confidential’. It is also apparent to me that he found
someone between myself and the insurance companies that was
willing to share his philosphy: the broker, Marsh & McLennan,
“I have heard Mr. Aipa and Ms. Kam remark that if you control
the information, you control the case. At KSBE, Mr. Aipa has
gone to great lengths to control the information. Central
Files and Documentary are under his supervision. All staff
reports are reviewed by the Legal Group. Information provided
to the Master is provided by Mr. Aipa. The Tax Department is
under Mr. Aipa. The Risk/Insurance & Safety Department was
transferred from the Administration Group, headed by Gil Tam,
to the Legal Group at the time the McKenzie Methane situation
was heating up.”
“Almost as soon as Ms. Kam joined the Legal Group, which was
shortly after I was transferred, she began to make efforts to
‘control’ the insurance information. She wanted to deal
directly with the insurance brokers, the insurance companies
and the insurance adjusters. She wanted to change the filing
system for insurance policies and claims files, and contacted
MMI directly and instructed them as to how she wanted the
policy files set up. She admonished me for not allowing
Colleen Wong deal directly with the insurance companies on
employment-related liability claims. She frequently ignored
established procedures and involved herself in the claims
process by taking on my responsibilities or the
responsibilities of the independent claims adjusters.”
“Both Aipa and Kam often dealt directly with Rocco Sansone and
Pat Onogi of MMI on specific risk and insurance matters without
my knowledge or participation. Mr. Aipa had Alan Yee work with
MMI to draft a Confidentiality Agreement.”
“Staff reports that were prepared by me were heavily edited and
re-edited by Aipa and Kam, often in private consultation with
Sansone, before they would approve them for presentation to
Trustees. My staff report regarding the Hobbs' Group's
property proposal is a prime example as described in my
response to my performance evaluation (Exhibit 3). This report
went through at least five major revisions as directed by Ms.
Kam, during a period of over a month and a half. (Note: At
this time I was not even in her division or under her
“Each month we delayed in transferring the property program
meant a loss to the estate of over $50,000. Therefore, I
finally gave-in to her directives in order to have the staff
report presented to Trustees. However, what had started out to
be a factual, straight-forward report recommending that KSBE
accept Hobbs' property program, was transformed into a document
designed to mislead Trustees and others into believing that
Marsh & McLennan could be the broker of record for this program
when, in fact, they could not.”
As I stated in response to Aipa's evaluation of my performance:
"Mr. Aipa's comment (3) ‘due diligence review of the
proposed property insurance program by M&M was initiated only
after the insistence of the General Counsel’ totally escapes
me. I do not recall being asked at all to have M&M perform
due diligence. In fact, as I learned much later from Pat
Chalfin, it was Kam who had written to request that M&M
review Hobbs' proposal. And, although her letter indicated
that I was to receive a courtesy copy, I had never seen this
letter before Mr. Chalfin provided me a copy."
"As a personal opinion, I found it very unusual and highly
discomforting that a proposal obtained in good faith from a
broker be given to the incumbent broker for `performing due
diligence.' I believe that comparing competing proposals is
the responsibility and function of the risk manager or, if an
outside opinion is deemed necessary, there are professional
firms such as Tillinghast which can provide this analysis."
"...As to comment (6) `poor drafting of a staff report that
objectively presented to my satisfaction the history and
proposal of the property insurance program', I can only say
that I believe that my original draft presented the most
accurate and complete history of the proposal, and contained
detailed information about the Hobbs Group and Arkwright
Mutual, including the recommendation letters from C. Brewer
and Campbell Estate. It also included the intent that this
program was to be underwritten by P&C Insurance Company, and
was to be reinsured by Arkwright. It also included a letter
from Arkwright which indicated that Hobbs had reserved KSBE
as a prospective account in January, 1996 and that MMI would
not have been able to obtain a quotation or coverages from
them even with an exclusive Agent of Record letter. This
information was removed at Louanne Kam's direction, and other
information of questionable origin and accuracy inserted. I
questioned Ms. Kam on many of the changes, and was told that
unless these changes were made, she would not concur with the
report (which meant to me that the deadline for accepting the
proposal would pass and KSBE would be left with MMI's
Another example is my staff report dated September 23, 1996 regarding the renewal proposals for the remaining property and casualty policies that were due to be renewed on October 1st. Aipa and Kam directed that I remove one of the recommendations to Trustees which stated: "...3) that KSBE's captive, P&C Insurance Company, Inc. (P&C) be requested to provide a Property insurance proposal structured on the basis of P&C being the direct carrier, with Arkwright Mutual Insurance Company (Arkwright) providing the necessary reinsurance."
Sections in the body of the report supporting this recommendation were also ordered removed. Even after these changes were made, and Kam signed her concurrence, it is my understanding that Aipa never submitted the report to Trustees.
Copies of the original and final drafts of this report are enclosed (Exhibit 25).
Staff reports regarding settlements of "sensitive" insurance claims (such as the William Rosehill case) which should have come from my department, instead were written and presented to trustees by attorneys such as Colleen Wong, without my concurrence, and without the knowledge and prior consent of the insurance carriers.
Another example of the collusion between Aipa/Kam and Marsh & McLennan in their ongoing efforts to gain "control" of the claims process, was the attempt to arrange to have all of P&C's policies endorsed with a "Consent to Settle" clause. This scheme was carried out directly between Ms. Kam and Mr. Sansone, as indicated in Mr. Sansone's memorandum of November 7, 1996 (Exhibit 26). This memo, addressed to Ms. Kam, states: "The following proposed endorsement is submitted per our discussions and negotiations with Am-Re. This endorsement provides KSBE with the option of controlling the settlement process subject to the indicated agreements. Based on our discussions, we recommend KSBE accept the proposed wording. Please advise if there are any questions and with your approval to add the endorsement."
This "Consent to Settle" clause would, in effect, take the control of claims settlements away from P&C's independent adjuster and turn it over to KSBE. This clause would also have the effect of exposing both KSBE and P&C to unlimited payments of claims due to the condition: "...If, however, the Insured shall refuse to consent to any settlement recommended by the Company (Am-Re) and acceptable to the claimant and shall elect to contest or continue any proceedings in connection with such claim, the Company's liability for the claim shall not exceed the amount for which the claim could have been settled plus expenses up to the date of such refusal."
This type of "Consent to Settle" clause is frequently used in Professional Liability policies, due to the fact that the insured may not wish to settle the case because it may affect his/her professional reputation. I consider this recommendation by MMI, however, to be highly unusual and totally unnecessary when applied to the General Liability, Workers Compensation, Automobile and Property insurance policies underwritten by P&C. I also consider this recommendation by MMI to be highly irresponsible since it exposes P&C and the estate to significant financial losses if improperly administered.
Mr. Aipa and the Legal Department had demonstrated on previous occasions their strong desire to "control" the insurance claims, especially when it came to choosing the defense attorneys. One prior automobile claim, for example, had raised my concerns as Aipa had directed Alan Yee to contact Pacific Insurance Company and complain about their use of their in-house attorney. At Aipa's direction, Pacific reluctantly transferred the case to Stanford Manuia, an attorney of Mr. Aipa's choosing.
This handling of insurance claims by the attorneys directly with the insurance companies, coupled with the non-disclosure of information to the insurance carriers and to me, often resulted in confusion and delays in settling claims. This also cost the estate and its subsidiaries untold sums of money that would have been paid by the insurance companies had the Legal Group acted in good faith and followed the terms of the policies.
Also, there were often strong indications of conflicts of interest, political influence, opportunities for personal gain, and attempts by our in-house attorneys to "cover-up" evidence of wrongdoing...
The Larry Ching flood damage claim. Larry Ching had flood damage to his home on Kauai after heavy rains. His home is on Bishop Estate leasehold property. Mullen's adjuster, Neal Seamon, thoroughly investigated the case and concluded that this was an "act of God" and not the liability of KSBE and P&C. Ms. Kam actively involved herself in the handling of the claim, reportedly at the request of Trustee Wong.
What was particularly disturbing to me in this case was the blatant manner in which Ms. Kam attempted to breach the arms-length relationships between KSBE and P&C by indicating that we should pay the claim "because Trustee Wong wanted to see it settled".
In a meeting called by Kam with Neal Seamon and Bob Kuroda, of John Mullen & Co.; Kapu Smith; and myself, it was everyone's opinion, except Kam's, that Mullen had taken the correct course of action in denying the claim, and if Mr. Ching wished to bring a lawsuit, KSBE would have a very defensible claim.
Ms. Kam suggested that P&C hire a hydrologist to generate a report to provide an "expert" opinion. The original estimate of Ching's damages were about $7,000; the expert's report might run as high as $10,000. Mr. Seamon logically recommended that we not hire an expert at that time, but wait to see if Ching hired an attorney and they went to the expense of hiring their own expert. If they did, then Mullen could request the findings of that report which would indicate specific allegations of fault, if any. Then we could hire our own expert to determine if those specific allegations were accurate or could be disputed. This report would cost much less than a general report and be much more effective in the event we went to trial.
Kam apparently was not happy with this recommendation and continued to press the issue by contacting Pat Onogi of MMI convincing (or directing?) her to write a letter recommending P&C hire an expert. This letter provided the excuse for Aipa and Kam to call me into a meeting.
This meeting resulted in yet another PERS 9 reprimand from Kam dated November 12,1996. Her memorandum provides another excellent example of how Aipa/Kam attempted to influence and control the claims settlement process to the benefit of third parties, but at the cost of the estate.
This reprimand and my response of November 20, 1996 are enclosed (Exhibit 30).
Politics and political favors. Even before I accepted my position with KSBE, I was advised by Gil Tam that KSBE was "a very political organization." At the time, I had no idea what this really meant. I began to get an inkling when I was "invited" by Tam to attend a political fund-raiser for Milton Holt, a KSBE employee. The fund-raiser was held at Bishop Museum, a non-profit, tax-exempt organization founded by Charles R. Bishop. The trustees for the C.R. Bishop Estate are the same trustees as for Bishop Estate. On another occasion I was "invited" to attend a fund-raiser for Bob Herkes, an employee of KIC. This was also held at Bishop Museum.
On one occasion I was invited by Mr. Tam to "waive signs" for Henry Peters who was running for re-election to the State House of Representatives. Although I was not even a resident of Mr. Peters' district, I "volunteered". Luckily, for me, the demonstration was called off on account of rain.
Rocco Sansone personally met with Mr. Peters reportedly to ask his assistance in getting "wrap-up" insurance legislation passed in the last session. This legislation is expected to greatly benefit the large brokers who are experienced and equipped to handle these large multi-insured programs - at the expense of the small agents who are not so equipped.
According to public records, Milton Holt received political contributions from Gil Tam in the last election. Holt was strongly pushing a pure "no-fault" bill in the last session. The insurance industry, including Marsh & McLennan, was strongly behind this effort as it was believed this would greatly enhance the insurance companies profits.
Non-bid Contracts and Conflicts of Interest. At the time I joined KSBE, the insurance agent was the wife of the Financial Asset Manager. The person responsible for the purchase of insurance at that time was Doyal Davis. Mr. Davis can verify the pressures placed upon him to keep the insurance program with this agent.
Obtaining competitive bids for the insurance program on a periodic basis is considered to be a good risk management practice in order to "keep the broker honest." In 1990, I requested proposals from a number of reputable local general agencies. MMI submitted, and I recommended, a very competitive proposal which improved coverages and reduced the costs of insurance to KSBE. For this I was commended by my supervisor and received an "Outstanding" performance rating with a corresponding increase in pay.
In 1996, I obtained a very competitive proposal from the Hobbs Group which greatly improved property coverages and saved KSBE over $600,000 a year. For this, I was soundly chastised; harassed; demeaned; embarrassed; called unprofessional and insubordinate; relieved of my responsibilities for the property insurance program; received my career-first "below-standard" performance rating, my career-first written reprimands, and my career-first termination of employment. How do you explain
For its 1995-96 fiscal year, P&C made a profit of $1.2 million and had an increase in assets from $4.7 million to $6.6 million. For the current fiscal year budget, I trimmed $150,000 off the "risk management" expense charged by MMI, which resulted in reducing premiums to KSBE and its subsidiaries by this amount. For this, I received my second termination notice on the same day as my first. How do you explain this?
KSBE has, I'm told, a list of contractors who are "approved" to bid on jobs, and a list of contractors who are "not approved". Apparently the same holds true for non-bid contracts.
All bids and contracts, I'm told, must be reviewed and approved KSBE's Budget Director Yukio Takemoto. An article from the Star-Bulletin gives some background on Mr. Takemoto (Exhibit 31).
Likewise, there is a list of "approved" attorneys that Aipa requires for KSBE's and P&C's insurance claims. Aipa and Kam routinely dictate which attorneys are to be used for each case.
Once the designated attorney is engaged for a claim, Aipa, Kam, Anzai or Wong usually "take control" by calling or corresponding directly with the attorney and directing his/her activities. This leads to another conflict of interest situation.
The Legal Group includes in their performance evaluation criteria for their attorneys what is called "billable hours". Under this system, the greater the number of billable hours, the higher the performance evaluation. This, in turn, can mean greater increases in salaries to the attorney. Consequently, it benefits the in-house attorneys who spend more "billable hours" on the phone, in conferences, or corresponding with outside counsel. This activity also benefits the outside counsel who is charging KSBE or P&C by the quarter hour.
Who pays these benefits? KSBE and every entity that pays the insurance premiums; the insurance carriers that pay the claims; the taxpayers; and the beneficiaries of the estate.
In the event we are unable to reach a settlement agreement, the alternative would be a demand for a jury trial. The following would be the potential defendants and witnesses:
Kamehameha Schools Bishop Estate
Richard S. H. Wong
P&C Insurance Company, Inc.
Peter J. Lowe
Marsh & McLennan, Inc.
M&M Insurance Management Services, Inc.
Peter J. Lowe
Dr. Michael Chun
Peter J. Lowe
William E. Simon
In addition to the wrongful termination claim, other claims may include breach of fiduciary duties; fraud; harassment; verbal abuse; libel; slander; coercion to commit illegal acts; violation of the whistle-blower act; discrimination, etc.
The prayer for relief would probably include damages to be determined at trial plus interest; back pay; forward pay; punitive damages; attorney's fees, etc. I would also demand reinstatement as President of P&C. I would not accept a structured settlement.
As with my claims against KSBE and P&C, however, I am submitting the following proposal for settlement to you as an alternative to litigation:
PROPOSAL FOR SETTLEMENT
Claim Against Marsh & McLennan, Inc.
On November 20, 1996, Kamehameha Schools Bishop Estate wrongfully terminated my employment. Rocco Sansone, Sr. Vice-President, Marsh & McLennan, Inc. significantly contributed to this wrongful termination by:
1. Misrepresenting to my employer that MMI could provide the
same property insurance program with Arkwright Insurance
Company as proposed by Hobbs Group if I would give MMI an
exclusive Broker of Record letter;
2. Conspiring with Nathan Aipa and Louanne Kam of Kamehameha
Schools Bishop Estate to defraud the estate and related
entities by overcharging insurance premiums;
3. Conspiring with Nathan Aipa, Louanne Kam and Peter Lowe,
Sr. Vice-President, M&M Insurance Management Services, Inc. to
defraud P&C Insurance Company, Inc. by overcharging service
4. Conspiring with Nathan Aipa, Louanne Kam and Peter Lowe to
deliberately breach "arms-length" rules of the IRS by
permitting Henry Peters, Nathan Aipa and Louanne Kam to manage
and control the daily operations of P&C.
These actions have resulted in financial damages, loss of reputation, mental stress and other emotional injuries to me and my immediate family.
For these injuries and damages, I will accept the sum of one million two hundred fifty thousand dollars ($1,250,000). I will accept this in the form of a structured settlement with an initial payment of one hundred twenty-five thousand dollars ($125,000).
Against M&M Insurance Management Services, Inc.
On November 20, 1996, P&C Insurance Company, Inc. wrongfully terminated me as President. Peter Lowe, Sr. Vice-President, M&M Insurance Management Services, Inc. significantly contributed to this wrongful termination by:
1. Conspiring with Nathan Aipa, Louanne Kam and Rocco Sansone,
Sr. Vice-President, MMI to delay or prevent P&C from writing a
property insurance program with reinsurance provided through a
2. Conspiring with Rocco Sansone to defraud P&C and its
insureds by overcharging service fees and insurance premiums;
3. Deliberately breaching "arms-length" rules of the IRS by
permitting Henry Peters, Nathan Aipa and Louanne Kam to manage
and control P&C's daily operations;
This has resulted in financial damages, loss of reputation, mental stress and other emotional injuries to me and my immediate family.
For these injuries and damages, I am willing to accept the sum of one million two hundred fifty thousand dollars ($1,250,000). I would agree to a structured settlement with an initial payment of one hundred twenty-five thousand dollars ($125,000).
This proposal does not include settlement or release of claims against Kamehameha Schools Bishop Estate, P&C Insurance Company, Inc. and the individual trustees, officers or employees of these entities.
Your claims adjusters or attorneys may contact me by phone at (808) 839-0654, or by mail at the address in the heading of this letter.
This settlement proposal will expire January 31, 1997.
Very truly yours,
Bobby N. Harmon, CPCU, ARM, AAI
# # #
For some more “birds of a feather” that you’ll
also find building nests in this tree...
BUZZARDS OF PARADISE
A CONNECTICUT YANKEE IN KING KAMEHAMEHA’S COURT
CLAIMS BY HARMON
THE FIRING OF EVAN DOBELLE
HARMON’S LETTERS TO THE FBI
HARMON’S LETTER TO THE IRS
KAJIMA: BLOOD, BRIBES & BRUTALITY
HOW TO PLUCK A BILLIONAIRE
THE KAMEHAMEHA SCHOOLS PENSION PLAN
THE NESTS OF CB RICHARD ELLIS
POINTING THE FINGER AT WORLDPOINT
PREDATORS IN PARADISE
RICO IN PARADISE
SUKAMTO SIA: THE INDONESIAN CONNECTION
THE TORCH OF ERIC SHINE
THE VULTURES IN MAUNAWILI VALLEY
THE POOP ON AON
DIRTY MONEY, DIRTY POLITICS & BISHOP ESTATE
Part I - Part II - Part III - Part IV
THE MARSH BIRDS: MARSH & McLENNAN
VULTURES OF THE SANDWICH ISLES
# # #
TO GO TO THE TOP OF THE TREE!
The Catbird Seat
~ o ~
Originally posted January 28, 2001, by The Catbird