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).

Page 18:


...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


Page 20:


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

deal OK'd":


"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

of directors.

Page 25:

         “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.

Page 25:

         “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.”

Page 26:

         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

with IMS.”


“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

these services.”


“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

downright dishonest.”


“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

Hawaiian ancestry.”

Page 35:

                   “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...

Page 50:

         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).

Page 51:

         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.

Page 52:

         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

Henry Peters

Lokelani Lindsey

Gerard Jervis

Oswald Stender

Nathan Aipa

Louanne Kam

Rodney Park

P&C Insurance Company, Inc.

Henry Peters

William Richardson

Gilbert Tam

Peter J. Lowe

Nathan Aipa

Marsh & McLennan, Inc.

Rocco Sansone

Puna Chillingworth

Richard Nakayama

M&M Insurance Management Services, Inc.

Peter J. Lowe


         Myron Thompson

         Matsuo Takabuki

         William Richardson

Yukio Takemoto

         Dr. Michael Chun

         Gilbert Tam

Wally Chin

         Ramona Hinck

         Leeanne Crabbe

Dennis Fern

         Andrea Oshiro

         Gilbert Ishikawa

Myron Mitsuyasu

         Mark McConaghy

         Sam Hata

         Bob Ramsey

         Allen Young

         Michael Lum

Robert Stender

         Stan Hioki

         Edward Tabangay

Rodney Park

         Guido Giacommetti

         Doyal Davis

Neil Hannahs

         John Peterson

         Sydney Keliipuleole

Paul Cathcart

         Guy Gilliland

         Rochelle Arquette

         Charles Maeda

         Daniel Jones

         Richard Wong

         Glenn Hara

         Louis Kau

         Jonathan Kim

Marlene Akau

         Edith Won

         John Rocha

Wallace Tirrell

         Ed Henrickson

         Colleen Wong

Lyn Anzai

         Alan Yee

Philip Chang

Stacy Rezentes

         Shevon Garnett

         David Dunigan

Julie Kawakami

         Linda Jacobson

         Anela Shimizu

Coreene Zablan

         Liz Kilbey

         Daniel Pires

Eric Martinson

         Bruce Nakaoka

         Aaron Au

Sandie Wicklein

         Earlene Garvey

         Carol Koza

Kathie Reis

         Lena Young

         Charlee Kowalski

Maryanne Inouye

         Robert Lindsey

         Milton Holt

Alika Thompson

         Nam Snow

         Rocco Sansone

Puna Chillingworth

         Richard Nakayama

         Bruce Anderson

Anne Anderson

         Adam McDonoughÿ

         Joseph McCullough

Peter J. Lowe

         Garrett Liu

         Christine Lee

Patricia Onogi

         Robert Kuroda

         Gary Gowdy

John McGrath

         Timothy McGrath

         Gerald Takeuchi

Mary Breighner

         Marcia Diver

         Robert Stay

William Stayton

         William Rosehill

         William E. Simon

Robert Rubin

         Michael McKenzie

         Wayne Rogers

Bruce Nelson

         Raymond Pettit

         Frederick Field

Robert Basham

         Benjamin Stone

         Paul Norman

Clay Hamner

         Mitch Gilbert

         Bruce Clark

Stanford Manuia

         Michael Hare

         James Kawashima

David Trask

         Peter Trask

         Cary Okawa

Dennis Tsuhako

         Guy Lamb

         Bruce Marcus

Donald Pang

         B.P. Russell

         James Duffy

Benjamin Matsubara

         Neal Seamon

         Ben Benson

         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:


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

competing broker;


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...

ACT 221




















Part I - Part II - Part III - Part IV



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The Catbird Seat

~ o ~

Originally posted January 28, 2001, by The Catbird