Tracking the ...
Hawaiian Insurance Companies
Sightings from The Catbird Seat
~ o ~
Excerpts from...
LAND AND POWER IN HAWAII
by George Cooper, Gavan Daws
... Not only did legislative leaders get extensively involved in development, but in their land business and their other enterprises they crossed lines of political party, political faction, and social class.
The 15 men listed in Table 4 below were all Democratic legislative leaders. The business associations listed occurred while they were legislative leaders. Most though not all associations involved land.
----------------------------------------- TABLE 4 ---------------------------------------
ARIYOSHI, GEORGE R. - ... Elected director 1966 Hawaiian Insurance & Guaranty Co., Ltd., wholly-owned subsidiary of C. Brewer. As attorney represented Brewer 1967 before Honolulu City Council re improvement district matters involving Brewer downtown Honolulu property....
July 1, 2006
Regulators take over
property insurer
A buyer is sought for
Hawaiian Insurance & Guaranty Co. Ltd.
By Stewart Yerton, Star-Bulletin
Hawaii's fourth-largest homeowners insurance company has been taken over by state insurance regulators, who are working with counterparts in other states to find a buyer for the Hawaii firm and several of its sister insurance companies.
The move by Hawaii Insurance Commissioner J.P. Schmidt will enable the state to oversee a sale of Hawaiian Insurance & Guaranty Co. Ltd., said Ernest Fukeda, president of HIG.
HIG has suffered from a rash of customer defections following financial troubles suffered by its Alabama-based parent company, Vesta Insurance Group, which was beset by hurricane-related losses in the Gulf South. In March, rating agencies downgraded Vesta's bond rating to C+, a rating for extremely risky bonds that is considered too low to meet some mortgage lending requirements.
Although Fukeda said HIG is financially sound, its parent's rating dragged down the local subsidiary, causing concerns among several major mortgage lenders. In May, First Hawaiian Bank, American Savings Bank and Central Pacific Bank instructed HIG-insured mortgage borrowers to meet with their insurance agents to discuss the downgrade. Bank of Hawaii went a step further, telling HIG policyholders to seek another insurer. [Good reasons why the BANKS should never have been allowed to get into the INSURANCE business!].
Although HIG has "more than adequate funds to continue to pay claims" and recently secured the backing of AA-rated reinsurers, Fukeda said the company has lost about 11 percent of its customers so far this year. The company has about 29,000 policyholders, he said....
The question appears to be whether a buyer can be found before HIG suffers more defections, causing its business to deteriorate further. Schmidt said he is working with his counterparts in Alabama, California, Florida and Texas to close a deal with a prospective buyer group interested in acquiring the Vesta affiliates in those states, as well as the Hawaii business.
Schmidt declined to identify the prospective buyer group....
Read the full story at...
http://starbulletin.com/2006/07/01/news/story05.html
July 5, 2006
Hawaiian Insurance & Guaranty's
parent is in default
Associated Press, Star-Bulletin
BIRMINGHAM, Ala. » Vesta Insurance Group is in default on loan agreements and officials say Texas regulators have taken over six of the Birmingham company's subsidiaries.
Regulators have also seized control of Vesta companies in Hawaii and Florida, which, according to the company's last annual report, would mean eight of the company's 10 subsidiaries have been seized.
Six insurers owned by Vesta will be operated by the Texas Commissioner of Insurance as part of a court-ordered rehabilitation, the company announced Monday. Such steps are usually taken when a company is losing customers at a rapid pace, suffered a disastrous loss or might not be able to pay claims....
Vesta was once one of the state's most valuable publicly traded companies, with stocks selling for about $53 in June 1998. The company's shares fell 4.5 cents to 4.5 cents Monday....
Vesta, which lost $318 million from 2001 through 2004, hasn't filed Securities and Exchange Commission financial documents in two years. Its shares have been removed from the New York Stock Exchange.
The company's troubles began June 2, 1998 when the company began examining accounting irregularities. Chief Executive Robert Huffman resigned. The company erased $49 million of profit reported for 1993 to 1997. Vesta said $29 million of profit came from premiums improperly reported as income....
Read the full story at...
http://starbulletin.com/2006/07/05/business/story02.html
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report
October 27, 2005
VESTA INSURANCE GROUP, INC.
3760 River Run Drive
Birmingham, Alabama 35243
Item 4.01 Changes in Registrant’s Certifying Accountant
On October 27, 2005, PricewaterhouseCoopers LLP (“PwC”) notified the Chairman of the Audit Committee of the Board of Directors of Vesta Insurance Group, Inc. (the “Company”) that it would decline to stand for re-election as the Company’s independent registered public accounting firm after the completion of the following: (i) procedures regarding the financial statements of the Company as of December 31, 2004 and 2003 and for each of the three years in the period ended December 31, 2004 and the Form 10-K in which such financial statements will be included and (ii) procedures regarding the unaudited interim financial statements of the Company as of September 30, 2004 and for the quarter and nine-month periods then ended and the Form 10-Q in which such unaudited interim financial statements will be included. PwC has advised the Company that its reports on the Company’s consolidated financial statements for the fiscal years ended December 31, 2003 and 2002 and for all prior periods have been withdrawn, and the Company disclosed that its previously issued financial statements may not be reliable pursuant to an Item 4.02 Form 8-K filed with the United States Securities and Exchange Commission on November 19, 2004. The Audit Committee did not recommend or approve PwC’s decision to decline to stand for re-election....
As previously disclosed, the Company has identified material weaknesses in the effectiveness of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2004, management identified the following material weaknesses in the Company’s internal control over financial reporting:
1. As of December 31, 2004, the Company did not maintain an effective control environment. Specifically, the organizational structure was not adequate to support the size, complexity and operating activities of the Company. Further, the company did not maintain effective anti-fraud programs and controls. Specifically, the Company did not have a consistent process for conducting background checks of newly hired employees which resulted in an alleged fraud having been perpetrated by a member of senior management discussed in 3 below....
2. The Company did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and training to support the size and complexity of the Company’s current organizational structure and financial reporting requirements...
3. We did not maintain effective controls over vendor setup in our accounts payable system. Specifically, we did not maintain a process to independently verify the validity of vendors prior to set up for payment in our accounts payable system. This control deficiency contributed to alleged frauds that were material to the financial statements being perpetrated by the Vice President-Chief Information Officer of Vesta Fire Insurance Corporation and an individual within the claims department....
4. We did not maintain effective controls over the completeness and accuracy of our financial reporting and close processes relating to financial statement consolidations, inter-company eliminations and reconciliations of subledger to general ledger balances....
5. We did not maintain effective controls over our periodic evaluation of the carrying amount of goodwill....
6. We did not maintain effective review and monitoring controls over the accuracy of ceded reinsurance balances that are manually input into our general ledger....
7. We did not maintain effective controls over the review of our aged ceded reinsurance balances....
8. We did not maintain effective controls over the accounting for reinsurance contracts at our life insurance subsidiary. Specifically, we did not maintain effective controls over the accounting for certain third party investments held by the Company under a funds held reinsurance agreement. As a result, the Company recorded realized gains and losses in its statements of operations related to the sale of investments that belonged to a third party....
9. We did not maintain effective controls over establishing and monitoring gross insurance reserve amounts related to certain discontinued product lines....
The Company’s Audit Committee of the Board of Directors has discussed these material weaknesses with PwC. The Company and its Audit Committee have authorized PwC to respond fully to the inquiries of the successor accountant concerning these material weaknesses....
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
Dated as of November 2, 2005.
VESTA INSURANCE GROUP, INC.
By:
/s/ Donald W. Thornton
Its: Senior Vice President —
General Counsel and Secretary
Exhibit 16.1
November 2, 2005
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Commissioners:
We have read the statements made by Vesta Insurance Group, Inc. (copy attached), which we understand will be filed with the United States Securities and Exchange Commission, pursuant to Item 4.01 of Form 8-K, as part of the Form 8-K report of Vesta Insurance Group, Inc. dated October 27, 2005. We agree with the statements concerning our Firm in such Form 8-K. However, we make no comment whatsoever regarding the current status of the material weaknesses disclosed in the Item 4.01 Form 8-K of the Company or with respect to any remedial actions taken with respect to such material weaknesses.
Very truly yours,
/s/ PricewaterhouseCoopers LLP, Birmingham, Alabama
For more, GO TO > > > Vampires in the Vesta Insurance Group; What Price Waterhouse?
January 2, 2006
Ex-Vesta Insurance Adjuster
Accused of Fraud in Ala.
A former Vesta Insurance adjuster has been indicted on forgery and mail fraud charges alleging that she made fictitious claims for more than $220,000, the U.S. attorney's office in Alabama said.
Felicia Michelle McKinzy, 36, of Birmingham was charged in a 41-count indictment that alleged she made the claims in 2001 and 2002.
"Fraud of this magnitude by an insider at an insurance company not only costs that company, but its policyholders and consumers,'' Alice Martin, U.S. attorney for the Northern District of Alabama, said in a news release.
McKinzy is accused of causing Vesta to issue checks to a fictitious customer and mail them to a private mailbox. She is accused of depositing the checks into a corporate account she had established under the same fictitious name.
The indictment also said she forged claims by legitimate policyholders and deposited resulting insurance checks into the corporate account she had established.
www.insurancejournal.com/news/southeast/2006/01/02/63645.htm
March 17, 2005
VIA fax @ 808-586-2806
and e-mail: insurance@dcca.hawaii.gov
J.P. Schmidt, Esq.
Hawaii Insurance Commissioner
335 Merchant Street, 2nd Floor, Rm 213
Honolulu, Hawaii 96813
Re: Complaint Against: Ace Ltd.; Marsh & McLennan; Chubb Group; XL Insurance
Their Insured: Kamehameha Schools; P&C Insurance Co., et al.
Dear Commissioner Schmidt:
Due to new information regarding Ace Ltd. and the other companies listed above, this is to file an amended complaint against these companies for fraud, racketeering, bid-rigging, price fixing, unfair competition, and unfair claims settlement practices. I quote some of the latest information from a Forbes article dated March 16, 2005:
Ace Ltd. Slammed by 43 Subpoenas
Ace Ltd., the property and casualty insurer recently implicated in a probe of insurance industry practices, on Wednesday said it received 43 subpoenas and legal inquiries regarding its involvement in bid rigging and price fixing.
The Bermuda-based company said in a filing with the Securities and Exchange Commission it received subpoenas and other inquiries from 9 state attorneys general and one from Washington, D.C. Further, insurance commissioners and other regulators from 10 states also launched some form of legal action.
In addition, Ace said the SEC and New York Attorney General Eliot Spitzer have issued subpoenas for information relating to “non-traditional or loss mitigating insurance products.” The insurer said it will continue to cooperate with such requests, and is also conducting its own internal investigation.
Ace was one of four insurers implicated, but not formally charged, in an investigation of brokerage Marsh & McLennan Co. launched in October by Spitzer. Spitzer filed a lawsuit against the nation’s largest insurance broker accusing it of bid rigging, price fixing, and demanding incentive fees from insurance companies in exchange for sending more business their way....
ACE said Chief Executive Evan Greenberg received a $1 million salary in 2004, with a $2.7 million bonus. He is scheduled to get a raise of $25,000 this year, according to the SEC filing.
Greenberg is the son of Maurice Greenberg, who stepped down this week as CEO of American International Group Inc. Greenberg’s older brother, Jeffrey, was CEO of Marsh & McLennan before being ousted in the wake of Spitzer’s investigation. The insurer said it has received legal inquiries from attorneys general in Connecticut, Florida, Massachusetts, Minnesota, New York, Ohio, Pennsylvania, Texas and West Virginia.
Insurance commissioners and other regulators from California, Florida, Illinois, Maryland, Michigan, Minnesota, New York, North Carolina, Pennsylvania and Texas have also contacted Ace....
< END OF QUOTATION >
You will, no doubt, recall that in 1992, Hawaiian Insurance & Guaranty Co. was declared insolvent largely due to Hurricane Iniki losses, and that the company was later sold to Vesta Insurance Group. In 1998, Vesta was involved in a financial scandal which was reported by the Honolulu Star-Bulletin on June 2, 1998, as follows:
Hawaii insurer’s parent pounded on Wall St.
Vesta Group, which owns Hawaiian Insurance & Guaranty,
reports 'accounting irregularities'
NEW YORK -- Vesta Insurance Group Inc., which owns a major Hawaii insurer, saw it shares plunge 47 percent today, a day after the parent company said "possible accounting irregularities" will force it to restate earnings for the last two quarters.
Vesta's president and chief executive officer, Robert Y. Huffman, also has resigned.
However, the company's Hawaii operation, Hawaiian Insurance & Guaranty Co., said it has not been affected by the changes at the Birmingham, Ala.-based parent.
"I expect no impact whatsoever on HIG's operations," said Pete Grimes, HIG general manager. HIG had been declared insolvent in 1992 after Hurricane Iniki losses. It was later rehabilitated by the state insurance division and was sold to Vesta in 1995 for $35 million....
* * *
To show you the connection between these entities and Kamehameha Schools, their for-profit captive, P&C Insurance Co., Ltd., and Chubb Group, I quote the following from Vesta Insurance Group’s Form 8-K, dated July 18, 2001:
On July 10, 2001, Vesta Fire Insurance Corporation, an Illinois corporation ("Vesta Fire") and a wholly owned subsidiary of Vesta Insurance Group, Inc. completed its acquisition of 100% of the outstanding shares of capital stock of Florida Select Insurance Holdings, Inc. for approximately $64.5 million in cash. Vesta Fire acquired the stock of FSIH from FSIH's four stockholders - Centre Solutions (Bermuda) Limited, Mynd Corporation, Orienta Point Group, L.L.C., and Kamehameha Schools Bernice Pauahi Bishop Estate....
* * *
Vesta Insurance Group, Inc.
Notes to Consolidated Financial Statements
Securities Litigation
Subsequent to the filing of our quarterly report on Form 10-Q for the period ended March 31, 1998 with the U.S. Securities and Exchange Commission (“SEC” or “Commission”), we commenced an internal investigation to determine the exact scope and amount of certain reductions of reserves and overstatement of premium income in our reinsurance assumed business that had been recorded in the fourth quarter of 1997 and the first quarter of 1998. This investigation concluded that inappropriate amounts had, in fact, been recorded and we determined that we should restate our previously issued 1997 financial statements and first quarter 1998 Form 10-Q....
We restated our previously issued financial statements for 1995, 1996, and 1997 and our first quarter 1998 Form 10-Q for the above items by issuance of a current report on Form 8-K dated August 19, 1998. These restatements resulted in a cumulative decrease to stockholders’ equity of approximately $75.2 million through March 31, 1998. Commencing in June 1998, we and several of our current and former officers and directors were named as defendants in several purported class action lawsuits filed in the United States District Court for the Northern District of Alabama. Several of our officers and directors also have been named in a derivative action lawsuit in the Circuit Court of Jefferson County, Alabama, in which Vesta is a nominal defendant. In addition, we received various inquiries and requests for information from various state departments of insurance and other regulatory authorities, including a subpoena issued to Vesta on August 24, 1998 by the 34 Commission as part of a formal, non-public order of investigation....
We have several layers of directors’ and officers’ liability insurance coverage (“D&O insurance”), the terms of which may cover all or a portion of the damages or settlement costs of the class action. These policies provide up to $100 million in D&O insurance to cover damages or settlement costs and an additional policy provides another layer of $10 million D&O insurance to cover any damages awarded by a court in these actions. Cincinnati Insurance Company (“Cincinnati”) issued the primary policy that provides the first $25 million of D&O insurance.
Federal Insurance Company (The Chubb Group) issued an excess D&O insurance policy which provides coverage for the second $25 million in losses, if necessary. The balance of the coverage is provided by a group of insurers and was purchased after the class actions comprising the consolidated class action were filed....
In September 1998, after these actions were filed, Cincinnati, which provides the primary insurance policy, filed a lawsuit in the United States District Court for the Northern District of Alabama seeking to rescind the policy and avoid the coverage....
A dispute has also arisen with CIGNA Property and Casualty Insurance Company (“CIGNA”) (now ACE USA) under a personal lines insurance quota share reinsurance agreement, whereby we assumed certain risks from CIGNA. During September 2000, CIGNA filed for arbitration under the reinsurance agreement, seeking payment of the balances that CIGNA claims are due under the terms of the treaty. In addition, during the fourth quarter, the treaty was terminated on a cut-off basis. Vesta is seeking recoupment of all improper claims payments and excessive expense allocations and charges from CIGNA. This arbitration is in its early stages and the ultimate outcome cannot be determined at this time....
< END OF QUOTATION>
In previous complaints to your office, and in my RICO lawsuit, I have already detailed many of my allegations against Marsh & McLennan, Inc. and Federal Insurance Company. However, since this news related to Ace Ltd. has just been released, and as Ace Ltd. was one of the insurance carriers used by Marsh & McLennan for the insurance programs of Kamehameha Schools and P&C, I am now requesting that you add Ace Ltd. to the list of companies which I have submitted for your investigation.
More information regarding these matters can be found at the following Internet addresses:
www.kycbs.net/Claims-By-Harmon.htm
www.kycbs.net/Claims-Branch-Kamehameha.htm
www.kycbs.net/Claims-Branch-Marsh-McLennan.htm
Due to these recent revelations, I would also strongly encourage your office to join with the Insurance Commissioners of the other states named in the above article, to pursue recovery of overcharges and other damages from these insurance companies and their agents and brokers, for the benefit of Hawaii’s taxpayers and consumers.
Please feel free to contact me if you have any questions or if I can provide any other information which may be helpful in your investigation of this complaint. Thank you very much for your consideration in this extremely serious matter.
Very truly yours,
< Name Withheld >, CPCU, ARM
cc: Fraud Branch, Insurance Division, Dept of Consumer Affairs
(via e-mail: insfraud@dcca.hawaii.gov)
Captive Insurance Branch, Insurance Division, Dept of Consumer Affairs
(via e-mail: captiveins@dcca.hawaii.gov)
National Association of Insurance Commissioners
(via e-mail: www.external-apps.naic.org/fraud)
Michael G. Cherkasky, President and Chief Executive Officer
Marsh & McLennan Companies, Inc. (via fax @ 212-345-4838)
John D. Finnegan, President and Chief Executive Officer
The Chubb Corporation (via fax @ 908-903-2027 and info@chubb.com)
William K. Slate II, President/CEO, American Arbitration Association
(via fax @ 212-716-5905 and Websitemail@adr.org)
Mark Appel, Senior Vice President, International Centre for Dispute Resolution
(via e-mail: AppelM@adr.org)
Harry Kaminsky, Vice President, Neutrals’ Services, Phoenix, AZ
(via e-mail: KaminskyH@adr.org)
James B. Farris, Senior Case Manager, American Arbitration Association
(via fax @ 559-490-1919 and e-mail: Farrisj@adr.org)
Mary Lou Woo, c/o Steven Guttman, Kessner Duca Umebayashi, et al.
(via fax @ 808-529-7177 and e-mail: sguttman@kdubm.com)
Mark Bennett, Attorney General, State of Hawaii
(via fax @ 808- 586-1239 and e-mail: hawaiiag@hawaii.gov )
Dee Jay Mailer, CEO, Kamehameha Schools (via fax @ 808-523-6313)
Board of Directors, P&C Insurance Co., Inc. (via fax @ 808-523-6313)
Matt A. Tsukazaki, Esq., Torkildson Katz Fonseca Jaffe Moore & Hetherington
(via fax @ 808-523-6001 and e-mail: mat@torkildson.com)
Governor Linda Lingle, State of Hawaii (via fax @ 808-586-0006)
Hugh Jones, Deputy Attorney General (via fax @ 808-586-1477)
Janet Hughes, Internal Revenue Service (via fax @ 303-844-3596)
Billy Beaver, Pension & Welfare Benefit Admin. (via fax @ 626-229-1098)
Ralph F. Boyd, Jr., U.S. Dept. of Justice (via fax @ 202-514-1116)
Lyn Flanigan Anzai, Hawaii State Bar Association (via e-mail: lanzai@hsba.org)
Susan Tius, Esq., c/o Rush Moore Craven Sutton Morry & Beh
(via fax @ 808-521-0597)
Gerard Jervis, Lokelani Lindsey, Henry Peters, Oswald Stender, and Richard Wong, c/o Kenneth Hipp, Esq., Marr Hipp Jones & Pepper
(via fax @ 808-536-6700)
Jeffrey H.K. Sia, Esq., Ayabe Chong Nishimoto Sia & Nakamura
(via fax @ 808-526-3491)
Robert S. Tameler, ALPS, Claims Admin for Bradley Tamm and Greg Dunn
(via fax @ 406-728-7416)
Mike Coulter, Deputy Managing Director, Aon Insurance Managers
(via fax @ 808-540-4301 and e-mail: mike_coulter@agl.aon.com)
Casimer Fidele, Tradewind Insurance Company
(via fax @ 808-521-7489)
Colbert Matsumoto, CEO, Island Insurance Co.
(via fax @ 808-564-8456)
Roy F. Hughes, Esq. (via e-mail: hthughes@hawaii.rr.com)
PricewaterhouseCoopers, c/o Warren Price III, Esq.
(via fax @ 808-533-0549)
Terry Mullen, CEO/Pres., John Mullen & Co. (via fax @ 808-531-0053)
National Association of Consumer Advocates (www.naca.net)
(via e-mail: info@naca.net)
Public Citizen (via e-mail through website: www.citizen.org)
U.S. Public Interest Research Group (www.uspirg.org)
(vis e-mail: uspirg@pirg.org)
First Amendment Center (www.firstamendmentcenter.org)
(via e-mail: info@fac.org)
Trial Lawyers for Public Justice, National Headquarters (www.tlpj.org)
(via fax @ 202-232-7203)
Consumer Action (via e-mail through their website: www.consumer-action.org)
Consumers Union, DC Office (www.consumersunion.org)
(via fax @ 202-265-9548)
Honolulu Community-Media Council (via e-mail: hc-mc@verizon.net)
Mark Burch, University of Hawaii (via e-mail: burch@hawaii.edu)
CPCU Society (www.cpcusociety.org)
(via e-mail: membercenter@cpcusociety.org)
Hawaii Chapter, CPCU (www.hawaii.cpcusociety.org)
(Joseph Hu, CPCU, President: Josephh@servco.com)
(Jeff Bronaugh, CPCU, President Elect: Jeff@kingneel.com)
(Wayne Hikida, CPCU, V.P.: fax: 808-564-8456)
(Ann Donohue, CPCU, Sec.: Ann.donohue@ace-ina.com)
(Janet Ng, CPCU, Treas.: fax: 808-540-4301)
(Marian Brown, CPCU, Past Pres.: Mbrown@atlasinsurance.com)
(Gloria Sumitani, CPCU, Past Pres.: SumitaniGs@aol.com)
(Bruce McEwan, CPCU, Education Chairperson: bmcewan@htbyb.com)
(Greg Tsuda, CPCU, Membership Chairperson: gregt@nogins.com)
Risk and Insurance Management Society, Inc.
(via e-mail through their website: www.rims.org)
Risk and Insurance Management Society, Inc., Hawaii Chapter
(Nahua Maunakea, ARM, President: via fax @ 808-921-6505)
(Bruce McEwan, ARM, CPCU, Director: via fax @ 808-543-9458)
(Denice Goto, CPA, RIMS Delegate: via fax @ 808-836-4795)
www.kycbs.net/Complaint-HI-Ins-Comm-3-17-5.htm
October 22, 2003
Takayama denies knowing of theft
The former insurance commissioner's ex-partner
is accused of stealing $12 million
By Bruce Dunford, Associated Press, Star-Bulletin
Former state Insurance Commissioner Linda Chu Takayama said yesterday she has no knowledge about the alleged theft of $12 million from two liquidated insurance companies by her former law partner.
And she said she will cooperate with the state's investigations into the matter.
Takayama, a top Democratic Party insider, issued a written statement in response to questions raised by Senate Republican Minority Leader Fred Hemmings and current Insurance Commissioner J. P. Schmidt about her role, after she left office, in the liquidation of the bankrupt insurance companies following Hurricane Iniki.
Schmidt, appointed by Republican Gov. Linda Lingle, said he was concerned about his predecessor's role, even though the liquidation was unusually successful and the state stands to gain a windfall of up to $15 million.
The final liquidation work was handled by Jerrold Chun, a Honolulu attorney who was arrested last week on three counts of felony theft with allegations that he diverted more than $12 million from insurance claims and creditor settlements resulting from the 1992 hurricane that devastated Kauai.
Schmidt said Chun does not dispute that he received $12 million, but claims former Insurance Commissioner Wayne Metcalf had verbally approved it as a "success fee" to be paid on top of his hourly rate for negotiating smaller settlements to creditors.
Takayama, as insurance commissioner, recommended in 1993 to the Circuit Court that liquidation of Hawaiian Underwriters Insurance Co. (HUI) and United National Insurance Co. (UNICO) be handled by the law firm McCorriston Miho Miller Mukai, where Chun was among attorneys assigned the case. (The two companies are subsidiaries of Hawaiian Electric Industries subsidiary The Hawaiian Insurance Group (HIG).)
When Chun left the law firm, he took with him what remained of the HUI/UNICO liquidation work, according to William McCorriston, lead partner of McCorriston Miho.
Takayama, an attorney, resigned in 1994 as insurance commissioner to become deputy director of the Department of Commerce and Consumer Affairs. She later left the state job to join Chun as a partner in the law firm Chun Chipchase Takayama Nagatani, which was then handling the remaining liquidation.
Takayama said the state Judiciary's Office of Disciplinary Counsel found no conflict of interest when it considered her situation several years ago....
"Jerry (Chun) was once my partner, but we have not been on good terms since my departure from the firm in 1999," she said....
"He left our firm in the early '90s and the proposition was put to us that he and Linda Chu Takayama would be taking the HUI/UNICO case with them," he said.
"I understand politics and I understand that Mr. Metcalf may have had a number of reasons to do that," he said, referring to then-Insurance Commissioner Wayne Metcalf....
Schmidt said that because of the criminal case against Chun, many of the records on the liquidation have been sealed, but said Takayama's becoming a law partner with Chun and then being appointed by the court as the state's deputy liquidator in the case "raises some questions."
Based on the findings in the Chun investigation, Schmidt recently terminated Takayama's role as deputy liquidator and will look at whether that relationship was proper once he can look at the files, he said.
Takayama said in her statement that after Iniki, HIG was unable to pay more than $300 million in claims.
She said she "created a novel restructuring, rehabilitation and eventual sale of HIG and the satisfaction of virtually all outstanding claims through the affiliated companies of HUI and UNICO under the supervision of the Circuit Court."
Chun has been released on $150,000 bail, pending a preliminary hearing Nov. 10. Chun has made no public comment on the allegations and a call to his attorney yesterday was not returned.
Read the entire story at...
http://starbulletin.com/2003/10/22/news/story14.html
From Findlaw:
McCorriston Miller Mukai MacKinnon
Insurance Defense and Insurance Law
The Firm represents several major insurers. It has developed a discrete practice in the defense of actions against insurance companies for bad faith and extra-contractual damages, as well as cases involving personal injury, property damage, contracts, products liability, construction, employment discrimination, and professional, directors' and fiduciary liability. A considerable part of the practice in this area is devoted to insurance coverage issues, both on behalf of insurers and insureds.
Additionally, the Firm has represented the Insurance Commissioner of the State of Hawaii in the highly specialized field of rehabilitating and/or liquidating insolvent insurance companies. Recently, the Firm acted as counsel to the Rehabilitator and Special Deputy Rehabilitator to the Hawaiian Insurance Group, a troubled insurer of Hawaii residential and commercial property, with respect to the restructuring and eventual sale of this insurer to a major U.S. insurance company. During this representation, the Firm negotiated a $32,000,000 settlement in favor of the Rehabilitator.
http://pview.findlaw.com/view/2036815_1
For more on McCorriston, GO TO > > > Dirty Money, Dirty Politics & Bishop Estate
December 14, 2004
Lawyer gets 10 years
for $7.9M client theft
Chun diverted money from firms he was helping to liquidate
By Debra Barayuga, Star-Bulletin
A Honolulu attorney was sentenced to 10 years in prison yesterday for stealing $7.9 million from insurance companies in liquidation after Hurricane Iniki struck Kauai in 1992.
Jerrold Chun, 56, pleaded no contest in August to three counts of first-degree theft, unlawful ownership or operation of a business and 10 counts of money laundering.
He was accused of diverting the $7.9 million to himself on three occasions in June and July 2003 from HUI/UNICO in Liquidation Inc., two insurance companies that were taken over and merged by the Insurance Commissioner after claims exceeded their available funds....
Defense attorney Brook Hart argued that Chun believed he was entitled to the money as a bonus for the work he had done for HUI/UNICO, taking the companies from a $70 million deficit over a 10-year period to a point where they showed a $20 million surplus....
Chun was also diagnosed with a bipolar disorder in 1999 that affected his ability to judge between right and wrong and contributed to his belief that he was entitled to the money, Hart said.
But state prosecutors said Chun had no authority to take a success fee or bonus and that his acts were deliberate and deceptive.
"The defendant himself is a sophisticated individual who had it all and wanted more," said deputy attorney general Mark Miyahira, who opposed Chun's request for a deferral or probation....
According to state prosecutors, Chun orchestrated the scheme by requesting more money than was needed from HUI/UNICO to pay off claims, and kept the surplus. "He was biting the very hand supporting his lifestyle," Miyahira said.
In one case, he settled an insurance claim for more than $2.5 million but requested that HUI/UNICO transfer to his firm's client trust account $5.7 million to cover the settlement and related obligations. He never mentioned a success fee, which was never authorized, Miyahira said.
Of the $2.3 million surplus, Chun wrote a check to himself for $1.36 million; to George Oda, chief operating officer and president of HUI/UNICO, for $769,740; and a little more than $1 million to Michael Chong of Adjusting Services of Hawaii for "consulting fees," Miyahira said.
In another instance he requested $3.9 million to resolve a case that had been actually settled for a little more than $247,000. The remainder was transferred into his law firm's operating account. He then wrote a check to himself for $1.4 million, a check for $894,000 to Oda and $1.3 million to Adjusting Services.
To settle HUI/UNICO's outstanding tax liabilities, Chun requested $1.2 million from the company, when only $229,564 was owed. After the taxes were paid, he wrote a check to himself for $408,554. Another $239,000 went to Oda and $350,000 to Adjusting Services.
Chun apologized to the court and expressed the shame and humiliation he has gone through because of his actions.
The worst part is knowing it's all my fault," he said. "I'm sorry. I'm very sorry."
Circuit Judge Derrick Chan rejected the defense's request that Chun begin serving his sentence beginning in January and ordered that he be taken into custody immediately.
Neither Chong nor Oda has been charged in this case.
Read the complete article at...
http://starbulletin.com/2004/12/14/news/index6.html
March 17, 2005
J.P. Schmidt, Esq., Hawaii Insurance Commissioner
335 Merchant Street, 2nd Floor, Rm 213
Honolulu, Hawaii 96813
Re: Complaint Against: Ace Ltd.; Marsh & McLennan; Chubb Group; XL Insurance
Their Insured: Kamehameha Schools; P&C Insurance Co., et al.
Dear Commissioner Schmidt:
Due to new information regarding Ace Ltd. and the other companies listed above, this is to file an amended complaint against these companies for fraud, racketeering, bid-rigging, price fixing, unfair competition, and unfair claims settlement practices.
I quote some of the latest information from a Forbes article dated March 16, 2005:
Ace Ltd. Slammed by 43 Subpoenas
Ace Ltd., the property and casualty insurer recently implicated in a probe of insurance industry practices, on Wednesday said it received 43 subpoenas and legal inquiries regarding its involvement in bid rigging and price fixing.
The Bermuda-based company said in a filing with the Securities and Exchange Commission it received subpoenas and other inquiries from 9 state attorneys general and one from Washington, D.C. Further, insurance commissioners and other regulators from 10 states also launched some form of legal action.
In addition, Ace said the SEC and New York Attorney General Eliot Spitzer have issued subpoenas for information relating to “non-traditional or loss mitigating insurance products.” The insurer said it will continue to cooperate with such requests, and is also conducting its own internal investigation.
Ace was one of four insurers implicated, but not formally charged, in an investigation of brokerage Marsh & McLennan Co. launched in October by Spitzer. Spitzer filed a lawsuit against the nation’s largest insurance broker accusing it of bid rigging, price fixing, and demanding incentive fees from insurance companies in exchange for sending more business their way....
Ace said Chief Executive Evan Greenberg received a $1 million salary in 2004, with a $2.7 million bonus. He is scheduled to get a raise of $25,000 this year, according to the SEC filing.
Greenberg is the son of Maurice Greenberg, who stepped down this week as CEO of American International Group Inc. Greenberg’s older brother, Jeffrey, was CEO of Marsh & McLennan before being ousted in the wake of Spitzer’s investigation. The insurer said it has received legal inquiries from attorneys general in Connecticut, Florida, Massachusetts, Minnesota, New York, Ohio, Pennsylvania, Texas and West Virginia.
Insurance commissioners and other regulators from California, Florida, Illinois, Maryland, Michigan, Minnesota, New York, North Carolina, Pennsylvania and Texas have also contacted Ace....
< END OF QUOTATION >
You will, no doubt, recall that in 1992, Hawaiian Insurance & Guaranty Co. was declared insolvent largely due to Hurricane Iniki losses, and that the company was later sold to Vesta Insurance Group. In 1998, Vesta was involved in a financial scandal which was reported by the Honolulu Star-Bulletin on June 2, 1998, as follows:
Hawaii insurer’s parent pounded on Wall St.
Vesta Group, which owns Hawaiian Insurance & Guaranty,
reports 'accounting irregularities'
NEW YORK -- Vesta Insurance Group Inc., which owns a major Hawaii insurer, saw it shares plunge 47 percent today, a day after the parent company said "possible accounting irregularities" will force it to restate earnings for the last two quarters.
Vesta's president and chief executive officer, Robert Y. Huffman, also has resigned.
However, the company's Hawaii operation, Hawaiian Insurance & Guaranty Co., said it has not been affected by the changes at the Birmingham, Ala.-based parent.
"I expect no impact whatsoever on HIG's operations," said Pete Grimes, HIG general manager. HIG had been declared insolvent in 1992 after Hurricane Iniki losses. It was later rehabilitated by the state insurance division and was sold to Vesta in 1995 for $35 million....
< END OF QUOTATION >
To show you the connection between these entities and Kamehameha Schools, their for-profit captive, P&C Insurance Co., Ltd., and Chubb Group, I quote the following from Vesta Insurance Group’s Form 8-K, dated July 18, 2001:
On July 10, 2001, Vesta Fire Insurance Corporation, an Illinois corporation ("Vesta Fire") and a wholly owned subsidiary of Vesta Insurance Group, Inc. completed its acquisition of 100% of the outstanding shares of capital stock of Florida Select Insurance Holdings, Inc. for approximately $64.5 million in cash. Vesta Fire acquired the stock of FSIH from FSIH's four stockholders - Centre Solutions (Bermuda) Limited, Mynd Corporation, Orienta Point Group, L.L.C., and Kamehameha Schools Bernice Pauahi Bishop Estate....
* * *
Vesta Insurance Group, Inc.
Notes to Consolidated Financial Statements
Securities Litigation
Subsequent to the filing of our quarterly report on Form 10-Q for the period ended March 31, 1998 with the U.S. Securities and Exchange Commission (“SEC” or “Commission”), we commenced an internal investigation to determine the exact scope and amount of certain reductions of reserves and overstatement of premium income in our reinsurance assumed business that had been recorded in the fourth quarter of 1997 and the first quarter of 1998. This investigation concluded that inappropriate amounts had, in fact, been recorded and we determined that we should restate our previously issued 1997 financial statements and first quarter 1998 Form 10-Q....
We restated our previously issued financial statements for 1995, 1996, and 1997 and our first quarter 1998 Form 10-Q for the above items by issuance of a current report on Form 8-K dated August 19, 1998. These restatements resulted in a cumulative decrease to stockholders’ equity of approximately $75.2 million through March 31, 1998. Commencing in June 1998, we and several of our current and former officers and directors were named as defendants in several purported class action lawsuits filed in the United States District Court for the Northern District of Alabama. Several of our officers and directors also have been named in a derivative action lawsuit in the Circuit Court of Jefferson County, Alabama, in which Vesta is a nominal defendant. In addition, we received various inquiries and requests for information from various state departments of insurance and other regulatory authorities, including a subpoena issued to Vesta on August 24, 1998 by the 34 Commission as part of a formal, non-public order of investigation....
We have several layers of directors’ and officers’ liability insurance coverage (“D&O insurance”), the terms of which may cover all or a portion of the damages or settlement costs of the class action. These policies provide up to $100 million in D&O insurance to cover damages or settlement costs and an additional policy provides another layer of $10 million D&O insurance to cover any damages awarded by a court in these actions. Cincinnati Insurance Company (“Cincinnati”) issued the primary policy that provides the first $25 million of D&O insurance.
Federal Insurance Company (The Chubb Group) issued an excess D&O insurance policy which provides coverage for the second $25 million in losses, if necessary. The balance of the coverage is provided by a group of insurers and was purchased after the class actions comprising the consolidated class action were filed....
In September 1998, after these actions were filed, Cincinnati, which provides the primary insurance policy, filed a lawsuit in the United States District Court for the Northern District of Alabama seeking to rescind the policy and avoid the coverage....
A dispute has also arisen with CIGNA Property and Casualty Insurance Company (“CIGNA”) (now ACE USA) under a personal lines insurance quota share reinsurance agreement, whereby we assumed certain risks from CIGNA. During September 2000, CIGNA filed for arbitration under the reinsurance agreement, seeking payment of the balances that CIGNA claims are due under the terms of the treaty. In addition, during the fourth quarter, the treaty was terminated on a cut-off basis. Vesta is seeking recoupment of all improper claims payments and excessive expense allocations and charges from CIGNA. This arbitration is in its early stages and the ultimate outcome cannot be determined at this time....
< END OF QUOTATION>
In previous complaints to your office, and in my RICO lawsuit, I have already detailed many of my allegations against Marsh & McLennan, Inc. and Federal Insurance Company. However, since this news related to Ace Ltd. has just been released, and as Ace Ltd. was one of the insurance carriers used by Marsh & McLennan for the insurance programs of Kamehameha Schools and P&C, I am now requesting that you add ACE Ltd. to the list of companies which I have submitted for your investigation.
More information regarding these matters can be found at the following Internet addresses:
www.kycbs.net/Claims-By-Harmon.htm
www.kycbs.net/Claims-Branch-Kamehameha.htm
www.kycbs.net/Claims-Branch-Marsh-McLennan.htm
Due to these recent revelations, I would also strongly encourage your office to join with the Insurance Commissioners of the other states named in the above article, to pursue recovery of overcharges and other damages from these insurance companies and their agents and brokers, for the benefit of Hawaii’s taxpayers and consumers.
Please feel free to contact me if you have any questions or if I can provide any other information which may be helpful in your investigation of this complaint. Thank you very much for your consideration in this extremely serious matter.
Very truly yours,
Bobby N. Harmon, CPCU, ARM
cc: Fraud Branch, Insurance Division, Dept of Consumer Affairs (via e-mail: insfraud@dcca.hawaii.gov)
Captive Insurance Branch, Insurance Division, Dept of Consumer Affairs (via e-mail: captiveins@dcca.hawaii.gov)
National Association of Insurance Commissioners (via e-mail: www.external-apps.naic.org/fraud)
Michael G. Cherkasky, President and Chief Executive Officer, Marsh & McLennan Companies, Inc. (via fax @ 212-345-4838)
John D. Finnegan, President and Chief Executive Officer, The Chubb Corporation (via fax @ 908-903-2027 and info@chubb.com)
William K. Slate II, President/CEO, American Arbitration Association, (via fax @ 212-716-5905 and Websitemail@adr.org)
Mark Appel, Senior Vice President, International Centre for Dispute Resolution, (via e-mail: AppelM@adr.org)
Harry Kaminsky, Vice President, Neutrals’ Services, Phoenix, AZ , (via e-mail: KaminskyH@adr.org)
James B. Farris, Senior Case Manager, American Arbitration Association, (via fax @ 559-490-1919 and e-mail: Farrisj@adr.org)
Mary Lou Woo, c/o Steven Guttman, Kessner Duca Umebayashi, et al., (via fax @ 808-529-7177 and e-mail: sguttman@kdubm.com)
Mark Bennett, Attorney General, State of Hawaii, (via fax @ 808- 586-1239 and e-mail: hawaiiag@hawaii.gov )
Dee Jay Mailer, CEO, Kamehameha Schools (via fax @ 808-523-6313)
Board of Directors, P&C Insurance Co., Inc. (via fax @ 808-523-6313)
Matt A. Tsukazaki, Esq., Torkildson Katz Fonseca Jaffe Moore & Hetherington, (via fax @ 808-523-6001 and e-mail: mat@torkildson.com)
Governor Linda Lingle, State of Hawaii (via fax @ 808-586-0006)
Hugh Jones, Deputy Attorney General (via fax @ 808-586-1477)
Janet Hughes, Internal Revenue Service (via fax @ 303-844-3596)
Billy Beaver, Pension & Welfare Benefit Admin. (via fax @ 626-229-1098)
Ralph F. Boyd, Jr., U.S. Dept. of Justice (via fax @ 202-514-1116)
Lyn Flanigan Anzai, Hawaii State Bar Association (via e-mail: lanzai@hsba.org)
Susan Tius, Esq., c/o Rush Moore Craven Sutton Morry & Beh (via fax @ 808-521-0597)
Gerard Jervis, Lokelani Lindsey, Henry Peters, Oswald Stender, and Richard Wong, c/o Kenneth Hipp, Esq., Marr Hipp Jones & Pepper (via fax @ 808-536-6700)
Jeffrey H.K. Sia, Esq., Ayabe Chong Nishimoto Sia & Nakamura (via fax @ 808-526-3491)
Robert S. Tameler, ALPS, Claims Admin for Bradley Tamm and Greg Dunn (via fax @ 406-728-7416)
Mike Coulter, Deputy Managing Director, Aon Insurance Managers (via fax @ 808-540-4301 and e-mail: mike_coulter@agl.aon.com)
Casimer Fidele, Tradewind Insurance Company (via fax @ 808-521-7489)
Colbert Matsumoto, CEO, Island Insurance Co. (via fax @ 808-564-8456)
Roy F. Hughes, Esq. (via e-mail: hthughes@hawaii.rr.com)
PricewaterhouseCoopers, c/o Warren Price III, Esq. (via fax @ 808-533-0549)
Terry Mullen, CEO/Pres., John Mullen & Co. (via fax @ 808-531-0053)
National Association of Consumer Advocates www.naca.net (via e-mail: info@naca.net)
Public Citizen (via e-mail through website: www.citizen.org)
U.S. Public Interest Research Group www.uspirg.org (via e-mail: uspirg@pirg.org)
First Amendment Center www.firstamendmentcenter.org (via e-mail: info@fac.org)
Trial Lawyers for Public Justice, National Headquarters (www.tlpj.org) (via fax @ 202-232-7203)
Consumer Action (via e-mail through their website: www.consumer-action.org)
Consumers Union, DC Office (www.consumersunion.org) (via fax @ 202-265-9548)
Honolulu Community-Media Council (via e-mail: hc-mc@verizon.net)
Mark Burch, University of Hawaii (via e-mail: burch@hawaii.edu)
CPCU Society, www.cpcusociety.org (via e-mail: membercenter@cpcusociety.org)
Hawaii Chapter, CPCU www.hawaii.cpcusociety.org, (Joseph Hu, CPCU, President: Josephh@servco.com); (Jeff Bronaugh, CPCU, President Elect: Jeff@kingneel.com); (Wayne Hikida, CPCU, V.P.: fax: 808-564-8456); (Ann Donohue, CPCU, Sec.: Ann.donohue@ace-ina.com) (Janet Ng, CPCU, Treas.: fax: 808-540-4301); (Marian Brown, CPCU, Past Pres.: Mbrown@atlasinsurance.com); (Gloria Sumitani, CPCU, Past Pres.: SumitaniGs@aol.com); (Bruce McEwan, CPCU, Education Chairperson: bmcewan@htbyb.com); (Greg Tsuda, CPCU, Membership Chairperson: gregt@nogins.com)
Risk and Insurance Management Society, Inc. (via e-mail through their website: www.rims.org)
Risk and Insurance Management Society, Inc., Hawaii Chapter (Nahua Maunakea, ARM, President: via fax @ 808-921-6505); (Bruce McEwan, ARM, CPCU, Director: via fax @ 808-543-9458); (Denice Goto, CPA, RIMS Delegate: via fax @ 808-836-4795)
< < < FLASHBACK < < <
October 21, 2003
Ex-state insurance
official targeted
By Bruce Dunford, Associated Press
Senate Minority Leader Fred Hemmings says answers are needed to "serious questions" about the role former state insurance commissioner Linda Chu Takayama, a Democratic Party insider, played in the liquidation of two bankrupt insurance companies following Hurricane 'Iniki.
J.P. Schmidt, the insurance commissioner under the new Republican administration of Gov. Linda Lingle, agrees, even though the liquidation was unusually successful and the state stands to gain a windfall of up to $15 million.
The liquidation was handled by Honolulu attorney Jerrold Y. Chun, who last week was arrested on three counts of felony theft and allegations that he diverted more than $12 million from insurance claims and creditor settlements resulting from the 1992 hurricane that devastated Kaua'i.
Takayama, as insurance commissioner, won court approval in 1993 to assign the liquidation of Hawaiian Underwriters Insurance Co. and United National Insurance Co., subsidiaries of Hawaiian Electric Industries' subsidiary the Hawaiian Insurance Group (HIG), to the McCorriston Miho Miller Mukai law firm, where Chun was assigned to handle the case, said Hemmings (R-Lanikai-Waimanalo).
Takayama, an attorney, in 1994 resigned as insurance commissioner to become deputy director of the Department of Commerce and Consumer Affairs.
She later joined Chun to start their own law firm, Chun Chipchase Takayama Nagatani, taking the liquidation case with them, said Schmidt, who has filed a civil claim against Chun, seeking the $12 million for the state. That case doesn't name Takayama....
At some point, private attorney Takayama, with the court's approval and probably because of her familiarity with the case, was appointed as a "deputy liquidator," serving "up until we uncovered these misappropriations and what have you, at which time I removed her and Chun and the other folks involved and appointed my own deputy liquidator," Schmidt said yesterday.
"It raises some questions," he said. "Until we get the files and look at it, I'm not sure whether it's improper. If it was improper, then we need to know whether it then led to any improprieties because of the conflict or not."
A deputy liquidator is responsible to the judge overseeing liquidation and is paid out of funds from the liquidated company, Schmidt said.
Schmidt said that the files with details on the HUI/UNICO liquidation have been subpoenaed in the criminal case against Chun and are now sealed.
"We are working to get access for these documents," he said.
"A question that has to be asked is during the tenure of Linda Chu Takayama's partnership with Chun, was she a beneficiary of the business she assigned to him, directly or indirectly," Hemmings said on Friday. "She can claim 'I never collected a direct commission,' but what did she collect?"
However, "if you connect all the dots, there's a lot of politics and conflicts of interest in it," he said. "I'm confident the attorney general and insurance commissioner are going to do what should have been done a long time ago regarding the improprieties in the insurance industry."
Takayama, who is closely allied to U.S. Sen. Daniel Inouye, D-Hawai'i, is a former top aide in the office of the U.S. Senate sergeant at arms. She is also a member of the board of governors of the East-West Center and is chairwoman of the Hawaii Foodbank. Her husband, Gregg Takayama , is a reporter for KHON television news in Honolulu and served for 12 years as Inouye's press secretary, followed by three years as press secretary for then-Lt. Gov. Ben Cayetano.
In 1999, she was named to a four-year term as one of 78 public interest directors of the Federal Home Loan Banks and is registered with the state as a lobbyist for Abbott Laboratories Inc., Hawaii Pacific Health, Hawaii Psychological Association and Pfizer Inc.
The attorney general's office launched a criminal investigation of the HUI/UNICO liquidation after an internal investigation by Schmidt's office found that Chun negotiated substantially lower payouts for three claims and then kept the difference from the original claim amount.
After Hurricane Iniki hit on Sept. 11, 1992, homeowners and property owners flooded the two companies with claims that overwhelmed their reserves, at which time HEI said it would not provide additional capital, which resulted in a Circuit Court order granting Takayama's motion for the state to take possession of the companies and their assets.
In April 1993, Takayama, then the insurance commissioner, filed a complaint against HEI on behalf of creditors and policyholders, alleging the company had misled the public about its financial support of HIG and had mismanaged and drained HIG's financial assets.
In February 1994, HEI agreed to pay a $32 million settlement to reduce the anticipated $73 million deficit faced by its HIG subsidiary.
Schmidt said Chun did such a good job in liquidating the assets of HUI/UNICO that not only will the policyholders will get their claims, the state general fund could end up with a potential windfall of $10 million to $15 million.
"This liquidation is very unusual and will be able to pay 100 percent of policyholders' claims," he said. "Sometimes they only get 10 to 20 cents on the dollar."
Schmidt said Chun doesn't dispute that he received $12 million, but claims former insurance commissioner Wayne Metcalf had verbally approved it as a "success fee" to be paid on top of his hourly rate for negotiating smaller settlements to creditors.
While Schmidt isn't involved in the criminal case, he said defense attorneys may be looking for some kind of "global settlement" involving both the criminal and civil claims, something that would be up to the attorney general's office.
"The fact is, if all the money returns, it does not mean that a crime has not been committed and does not mean from a civil perspective the state has not suffered damages that need to be recompensed," he said.
IN THE SUPREME COURT OF THE STATE OF HAWAI`I
---o0o---
FOUR STAR INSURANCE AGENCY, INC.; J.D. JENKINS & CO., INC.; INSURANCE HAWAII, INC.; BIG ISLAND INSURANCE AGENCY, INC.; and PYRAMID INSURANCE, Plaintiffs-Appellants, v. HAWAIIAN ELECTRIC INDUSTRIES, INC.; HEI DIVERSIFIED, INC.; THE HAWAIIAN INSURANCE & GUARANTY COMPANY, LIMITED; UNITED NATIONAL INSURANCE COMPANY, LIMITED; HAWAIIAN UNDERWRITERS INSURANCE CO., LTD.; ROBERT F. CLARKE; EDWARD J. BLACKBURN; THOMAS S. ADAMS; GARY L. KIRBY; DAVID L. WARD; NEAL H. KUNDE; ROBERT F. MOUGEOT; REYNALDO D. GRAULTY, only in his capacity as Insurance Commissioner of the State of Hawai`i and Rehabilitator and/or Liquidator of Hawaiian Insurance & Guaranty Company, Limited, United National Insurance Company, Ltd. and Hawaiian Underwriters Insurance Co., Ltd., Defendants-Appellees, and DOES 1 through 100, Defendants
NO. 20710
APPEAL FROM THE FIRST CIRCUIT COURT
(CIV. NO. 94-4555-12)
MOON, CJ, KLEIN, LEVINSON, NAKAYAMA, AND RAMIL, JJ.
OPINION OF THE COURT BY RAMIL, J.
This appeal arises from the rehabilitation of defendant-appellee The Hawaiian Insurance & Guaranty Company, Ltd. (HIGC), and the liquidation of defendants-appellees Hawaiian Underwriters Insurance Co., Ltd. (HUI) and United National Insurance Company, Limited (UNICO). Shortly after the insolvency of HIGC, HUI, and UNICO, the Insurance Commissioner (the Commissioner) seized the assets of HIGC, HUI, and UNICO, and eventually settled all claims against HIGC, HUI, UNICO. The Commissioner also obtained a thirty-two million dollar cash settlement against defendant-appellee Hawaiian Electric Industries, Inc. (HEI), the parent company of HIGC, HUI, and UNICO. Thereafter, plaintiffs-appellants Four Star Insurance Agency, Inc., et al. (collectively, Plaintiffs) brought their own action against HIGC, HUI, UNICO, HEI, and various directors and officers (collectively, Defendants) for alleged unpaid commissions. The circuit court granted Defendants' motions for summary judgment and entered judgment in favor of Defendants.
From this judgment, Plaintiffs appealed.
On appeal, Plaintiffs contend, inter alia, that the Commissioner did not have authority to settle their claims because: (1) the claims were "unique and personal" to Plaintiffs; and (2) the unpaid commissions were held "in trust" for Plaintiffs. Because we hold that the Commissioner had exclusive standing to assert Plaintiffs' claims arising out of the insolvency of HIGC, HUI, and UNICO, we affirm the circuit court's judgment filed April 25, 1997.
I. BACKGROUND
A. The Parties
Defendants HIG, HUI, and UNICO were insurance companies in Hawai`i that sold property insurance, vehicle insurance, general casualty insurance, and other types of insurance policies. Defendants HIGC, HUI, and UNICO operated collectively as The Hawaiian Insurance Group (HIG). HIGC, HUI, and UNICO were wholly owned subsidiaries of defendant-appellee HEI Diversified, Inc. (HEIDI). In turn, HEIDI was a wholly owned subsidiary of HEI.(2)
Plaintiffs are independent insurance agents that serviced HIG's customers.(3) Plaintiffs had a "direct billing" arrangement with HIG. Under this arrangement, Plaintiffs would sell HIG's policies. HIG would then bill its customers directly and collect premiums accordingly. In turn, HIG would then pay Plaintiffs a specified percentage of the collected premiums as Plaintiffs' earned commissions.
B. Hurricane Iniki
On September 11, 1992, Hurricane Iniki caused major property damage to the Island of Kaua`i and parts of O`ahu. As a result of the hurricane, homeowners and property owners flooded HIG and other insurance companies with hurricane-related damage claims. Eventually, the claims overwhelmed HIG's financial resources. In response to these damage claims, on December 3, 1992, HEI announced that it would not contribute additional capital to HIG.
C. The HIG Lawsuit & the Reorganization/Liquidation Plan
On December 18, 1992, the circuit court granted then-Insurance Commissioner Linda Chu Takayama's (the Commissioner) motion to take possession and control of all of HIG's assets. On December 24, 1992, the circuit court placed HIG in rehabilitation and appointed the Commissioner as rehabilitator. As rehabilitator, the Commissioner was directed to take possession of and administer HIG's assets under the court's supervision.
On April 12, 1993, the Commissioner, in her capacity as rehabilitator, filed a motion for approval of a plan for reorganization of HIGC and for liquidation of UNICO and HUI (the plan) in a special proceeding entitled Takayama v. The Hawaiian Insurance & Guaranty Company, Ltd., et al. (the HIG lawsuit). The circuit court approved the plan, which set forth an exclusive procedure whereby policyholders, claimants and creditors of HIG could file proofs of claim for resolution and payment of any monies allegedly due.
The plan gave creditors three options. Under the first option, the creditor would participate in the plan and be entitled to receive twenty-five percent of its claim within ninety days after filing a claim form. The balance of the claim would be paid if and when such sums became available. Under the second option, the creditor would participate in the plan and be entitled to receive fifty percent of its claim within 90 days after filing a claim form. This payment would be paid "in full satisfaction of all sums due such creditor." Under the third option, the creditor would not participate in the plan and be entitled to receive a pro-rata payment only from such sums as may become available in the future.
All of the Plaintiffs elected to participate in the plan by selecting either the first or second option. None of the Plaintiffs selected the third option. Accordingly, each Plaintiff was paid at least fifty percent of the amount claimed.
In addition to the three creditor payment options, the plan stated that the Commissioner would commence and pursue a lawsuit against HEI, HEIDI, and some or all of the officers and directors of HIGC. The plan also stated that the Commissioner could settle such a lawsuit upon terms the Commissioner deemed appropriate, subject to court approval.
D. The HEI Lawsuit
On April 12, 1993, the Commissioner, in her capacity as rehabilitator/liquidator, filed a complaint entitled Takayama v. Hawaiian Electric Industries, Inc., et al. (the HEI lawsuit). The Commissioner subsequently amended the HEI lawsuit to reflect that the action was brought on behalf of all creditors, potential creditors, policyholders, and claimants of HIG.
The HEI lawsuit consisted of thirteen causes of action and alleged, in relevant part, that HEI, HEIDI, and a number of their corporate officers (the HEI defendants) had: (1) misled HIG's creditors, policyholders and the public regarding HEI's and HEIDI's financial support of HIG; and (2) mismanaged and drained financial assets from HIG.
On February 10, 1994, the Commissioner and the HEI defendants signed a global settlement agreement and general release. Under this settlement, HEI agreed to immediately pay thirty-two million dollars in cash to the Commissioner. The payment was intended to help reduce an anticipated seventy million dollar deficit facing HIG. In effect, the payment would be available for distribution to HIG's policyholders, creditors, and claimants in accordance with the plan's claims settlement procedure. In exchange for the immediate cash payment, the Commissioner, in her capacity as rehabilitator/liquidator and on behalf of all the policyholders, claimants and creditors of the HIG Group, agreed to release and discharge each of the HEI defendants.
On March 3, 1994, Insurance Commissioner Lawrence M. Reifurth, who succeeded Commissioner Takayama, filed a motion for approval of the settlement agreement. Prior to the hearing on the motion, notice of the court hearing on the settlement agreement was addressed and sent to all known policyholders, claimants and creditors of HIG, including Plaintiffs.(4) The notice stated that approval of the settlement agreement would result in a release "of any and all claims held by the Commissioner/Rehabilitator/Liquidator and by HIG in their representative capacities" on behalf of the policyholders, claimants and creditors of HIG. On April 6, 1994, having received no objections from Plaintiffs and there being no appearance by Plaintiffs at the hearing, the circuit court granted Reifurth's motion for approval of the settlement agreement finding that it was fair and reasonable. The court also found that [t]he Settlement Agreement has been entered into in good faith, represents the compromise of disputed claims, and the terms thereof are fair, reasonable and in the respective best interests of the public, the past, present and future policyholders, claimants and creditors . . . .
Consequently, the HEI lawsuit was later dismissed with prejudice.
E. Plaintiffs' Lawsuit Against The HEI Defendants
On December 2, 1994, after the HEI lawsuit had been settled and dismissed, Plaintiffs filed a complaint against HEI, HEIDI, HIGC, UNICO, HUI, various officers and directors of HIGC and HEI, and Insurance Commissioners Takayama and Reifurth (Plaintiffs' lawsuit). Like the HEI lawsuit, Plaintiffs' lawsuit alleged, inter alia, that the HEI Defendants had: (1) misled Plaintiffs regarding HEI's and HEIDI's financial support of HIG; and (2) mismanaged and drained financial assets from HIG.
Defendants brought various motions for summary judgment. The circuit court granted summary judgment in favor of all defendants named in Plaintiffs' suit and entered judgment in favor of all defendants. From this judgment, Plaintiffs filed a timely appeal.
II. STANDARDS OF REVIEW
A. Summary Judgment
We review [a] circuit court's award of summary judgment de novo under the same standard applied by the circuit court. Amfac, Inc. v. Waikiki Beachcomber Inv. Co., 74 Haw. 85, 104, 839 P.2d 10, 22, reconsideration denied, 74 Haw. 650, 843 P.2d 144 (1992) (citation omitted). As we have often articulated:
[s]ummary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law....
III. DISCUSSION
Defendants contend that the Commissioner, as liquidator under HRS § 431:15-310, had exclusive standing to assert common claims on behalf of HIG, its policyholders and creditors against third parties. We agree.
A. Applicable Rules of Statutory Construction
Although we obtain the intention of the legislature primarily from the language of the statute itself, we have rejected an approach to statutory construction which limits us to the words of a statute, for when aid to construction of the meaning of words, as used in the statute, is available, there certainly can be no rule of law which forbids its use, however clear the words may appear on superficial examination. Thus, the plain language rule of statutory construction, does not preclude an examination of sources other than the language of the statute itself even when the language appears clear upon perfunctory review. Were this not the case, a court may be unable to adequately discern the underlying policy which the legislature seeks to promulgate and, thus, would be unable to determine if a literal construction would produce an absurd or unjust result, inconsistent with the policies of the statute....
B. Scope of Insurance Commissioner's Authority
HRS § 431:15-310 is part of the Insurers Supervision, Rehabilitation and Liquidation Act (ISRLA). See HRS ch. 431:15 (1993). HRS § 431:15-310(a) provides in relevant part:
The liquidator shall have the power to:
. . . .
(13) Prosecute any action which may exist on behalf of the creditors, members, policyholders or shareholders of the insurer against any officer of the insurer, or any other person;
. . . .
(19) Exercise and enforce all the rights, remedies, and powers of any creditor, shareholder, policyholder, or member, including any power to avoid any transfer or lien that may be given by the general law and that is not included with section 431:15-315 through section 431:15-317; [and]
. . . .
(22) Exercise all powers now held or hereafter conferred upon receivers by the laws of this State not inconsistent with the provisions of this article.
(Emphases added.) Likewise, HRS § 431:15-313(b) (1993) provides in relevant part:
The liquidator may, upon or after an order for liquidation, within two years or such time in addition to two years as applicable law may permit, institute an action or proceeding on behalf of the estate of the insurer upon any cause of action against which the period of limitation fixed by applicable law has not expired at the time of the filing of the petition upon which such order is entered.
(Emphases added.) Based upon the plain language of HRS §§ 431:15-310 and 431:15-313, the Commissioner, as liquidator of an insurer undergoing liquidation, has the power to prosecute any and all lawsuits on behalf of the insurer and all creditors, shareholders, policyholders, or members of the insurer....
Given the factual similarity between this case and Corcoran, we hold as a matter of law that the Commissioner in this case had exclusive standing to assert all claims arising out of HIG's liquidation and rehabilitation on behalf of not only HIG, but also its creditors, including Plaintiffs.(9) Because Defendants were entitled to judgment as a matter of law and there being no genuine issues of material fact, the circuit court properly granted summary judgment in favor of Defendants.
IV. CONCLUSION
For the reasons discussed above, we affirm the circuit court's judgment filed April 25, 1997.
On the briefs:
David K. Lum and Keith S.
Agena, of Char, Sakamoto,
Ishii, Lum & Ching; Philip
Borowsky, pro hac vice, of
San Francisco; Jani Iwamoto,
pro hac vice, of San Francisco
for Plaintiffs-Appellants
Inc.; J.D. Jenkins & Co., Inc.;
Insurance Hawaii, Inc.; Big
Island Insurance Agency, Inc.;
Mitchell C. Sockett, of Cades
Defendants-Appellees Hawaiian
Diversified, Inc.; Robert F.
Clarke and Robert F. Mougeot
Clifford K. Higa, Joseph N.
Kiyose, Rod S. Aoki, John A.
Kodachi, of Kobayashi, Sugita
& Goda, for Defendants-
Appellees United National
George W. Playdon, Jr. and
Kelvin H. Kaneshiro, of
Reinwald, O'Connor & Playdon,
for Defendants-Appellees
Thomas S. Adams, Gary L. Kirby,
David L. Ward, and Neal H. Kunde
Deborah Day Emerson and
David A. Webber, Deputy
Attorneys General, for
Defendant-Appellee Reynaldo D.
Graulty, only in his capacity
Jerrold Y. Chun, of Chun
Chipchase Takayama Nagatani,
for Defendants-Appellees
Lawrence M. Reifurth, in their
respective capacities as
Rehabilitators and/or
Liquidators of the Hawaiian
Insurance & Guaranty Company,
Limited, United National
Insurance Company, Ltd., and
Hawaiian Underwriters Insurance
Co., Ltd, join answering brief
of Defendants-Appellees United
National Insurance Company,
Limited and Hawaiian Underwriters
Insurance Co., Ltd.
1. Linda Chu Takayama and Lawrence M. Reifurth are no longer in the position of Insurance Commisioner, Department of Commerce and Consumer Affairs of the State of Hawai`i. Pursuant to Hawai`i Rules of Appellate Procedure (HRAP) Rule 43(c)(1), Reynaldo D. Graulty has been substituted automatically in this case.
2. In addition to HIGC, HUI, UNICO, HEIDI, and HEI, the other defendants in this case are Robert Clarke, Robert Mougeot, Thomas Adams, Gary Kirby, David Ward, and Neal Kunde. Robert Clarke is the president and CEO of HEI and was HIGC's former chairman and director. Robert Mougeot is HEI's Financial Vice-President and was a former HIGC director. Thomas Adams, Gary Kirby, David Ward, and Neal Kunde were former HIGC officers.
3. The Plaintiffs in this appeal are: (1) Four Star Insurance Agency, (2) J.D. Jenkins & Company, Insurance Hawaii, (3) Big Island Insurance Agency, and (4) Pyramid Insurance Agency.
4. Although Plaintiffs contend that they never received notice of the hearing on the Commissioner's motion for approval of the settlement agreement, the circuit court specifically found that appropriate notices were mailed to all policyholders, claimants, and creditors of HIG. In addition, notice of the hearing was published in a newspaper of general circulation....
8. Plaintiffs assert that the Commissioner had no authority to retain the "earned" commissions that were "vested" in Plaintiffs and held in "trust" by the Commissioner. Plaintiffs assertion is without merit and is not relevant to the issue of whether Plaintiffs had standing to bring an action against the parent company of HIG.
HRS § 431:15-103(a)(8) defines "general assets" as "all property, real, personal, or otherwise, not specifically mortgaged, pledged, deposited, or otherwise encumbered for the security or benefit of specified persons or classes of persons." (Emphasis added.) In this case, the record indicates that the premiums paid by the insureds were paid directly to HIG and were the property of HIG. In turn, HIG would pay Plaintiffs a commission based on a percentage of the amount of premiums collected. Because the premiums collected by HIG were not specifically set aside (i.e., encumbered) for the benefit of the Plaintiffs, the commissions collected were part of HIG's general assets. In addition, Plaintiffs have not cited to any section of HRS ch. 431:15 that would support their contention that earned commissions of agents are to be treated differently from general assets. Therefore, inasmuch as the Commissioner takes possession of the assets of the insurer and administers them under the general supervision of the court once the liquidation order is filed, we reject Plaintiffs' contention that part of the premiums collected by HIG were earned commissions held in trust for the benefit of Plaintiffs.
9. In addition, Plaintiffs argue that the Commissioner did not have authority to settle their claims against HEI because: (1) the Commissioner lacked authority to file Plaintiffs' alter ego claims against the HEI defendants; and (2) the Commissioner had authority to prosecute and settle only "common" claims, as opposed to "unique and personal" claims. However, inasmuch as the plain language of HRS §§ 431:15-310(a)(13) and (19) expressly state that the liquidator has the power to "[p]rosecute any action which may exist on behalf of the creditors" and "exercise and enforce all the rights, remedies, and powers of any creditor," we reject Plaintiffs' argument that the Commissioner did not have authority to file alter ego claims against the HEI. HRS §§ 431:15-310(a)(13) and (19) (emphases added). In addition, because all of Plaintiffs' claims against HEI stem from the insolvency of HIG, we reject Plaintiffs' contention that their claims against HEI were "unique and personal" as compared to the claims of other HIG creditors.
http://www.state.hi.us/jud/20710.htm
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MORE TO COME
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CITIGROUP: VAMPIRES IN THE CITY
CONFESSIONS OF A WHISTLEBLOWER
A CONNECTICUT YANKEE IN KING KAMEHAMEHA’S COURT
DIRTY MONEY, DIRTY POLITICS & BISHOP ESTATE
KAJIMA: BLOOD, BRIBES & BRUTALITY
THE KAMEHAMEHA SCHOOLS PENSION PLAN
MARSH & McLENNAN: THE MARSH BIRDS
MARSH & McLENNAN’S GUY CARPENTER
NESTS OF THE INSURANCE VAMPIRES
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THE PRUDENTIAL: A NEST ON SHAKY GROUND
THE SILENCE OF THE WHISTLEBLOWERS
SUKAMTO SIA: THE INDONESIAN CONNECTION
THE VULTURES IN MAUNAWILI VALLEY
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Part I - Part II - Part III - Part IV
TRANSYLVANIA TRAVELERS IN ST. PAUL
VAMPIRES IN THE VESTA INSURANCE GROUP
VULTURES OF THE SANDWICH ISLES
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