Scampering With...
Kemper Insurance
Companies
Sightings from The Catbird Seat
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August 4, 2004
Kemper Insurance Companies
From Hoovers Online
The Kemper Companies should be called The Scamper Companies since recent hard times have the company reeling.
No longer writing new policies, the once-proud Kemper Insurance Companies has traditionally offered a wide array of personal, risk management, and commercial property & casualty products, mostly through its flagship Lumbermens brand.
But the axe has come down on its service platform (sold to Platinum Equity), many of its mid-market lines such as worker’s compensation and auto (sold to The St. Paul Travelers Companies), and much of its reinsurance arrangement with Berkshire Hathaway....
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March 6, 2004
Church suit accuses an insurer of fraud
By Shelley Murphy, Boston Globe
The Roman Catholic Archdiocese of Boston filed a federal lawsuit yesterday accusing one of its insurance carriers of fraud and breach of contract for failing to cover settlement payments totaling millions of dollars to victims of clergy sexual abuse.
After the archdiocese agreed last September to pay up to $84,250,000 to 552 victims, Lumbermens Mutual Casualty Co. sent a letter to Archbishop Sean P. O'Malley stating for the first time its position that the settlement offer constituted a "voluntary payment" and that the insurance company was therefore under no obligation to contribute to the settlement, according to the suit.
Catbird Note: H-m-m-m. This sounds suspiciously like the “lawyer-controlled” claims of the University of Hawaii and Kamehameha Schools. Fly over to Claims By Harmon; Firing Dobelle; Harmon’s Letters to Insurance Commissioners; Harmon’s Claim Letter to Steven Guttman; Harmon’s Letter to Hamilton McCubbin; The Myth & The Methane; Zurich Financial Services, and RICO in Paradise to see what I mean.
By the archdiocese's calculation, $59.3 million of the settlement relates to policy periods when Lumbermens, the lead underwriting company of the Illinois-based Kemper Insurance Cos. group, was the church's sole insurer. An additional $7.7 million arises out of policy periods when Lumbermens' coverage overlapped with that of another insurer.
"Largely as a result of [Lumbermens'] denial of coverage, the RCAB [Roman Catholic Archbishop of Boston] was forced to borrow money to fund the settlement and to offer certain valuable property for sale," the suit says....
The suit charges that the insurance company "has refused to make a reasonable offer of settlement and still even refuses to acknowledge that there are no aggregate limits applicable to the claims at issue."
The suit asks a judge to find that Lumbermens had a duty to defend and indemnify the archdiocese for sexual abuse claims beginning no later than 1964 and continuing until March 31, 1983, with no limit on the total, or aggregate, that could be paid out each year.
The suit chronicles a dispute with Lumbermens over coverage that dates back to 1993, when the archdiocese notified the company that it had received several claims by individuals who alleged they had been molested by priests between 1954 and 1983.
The company denied coverage in those cases on a variety of grounds, and the archdiocese paid approximately $2 million of its own funds between 1993 and 1996 to settle the claims, according to the suit, filed by Boston atttorney Paul B. Galvani of Ropes & Gray.
Yet in June 1995, representatives from Lumbermens said that a further review had led them to discover that the archdiocese was entitled to coverage for some of the claims and reimbursed the church for some of the money it had paid to victims. But, Lumbermens insisted it could not locate old insurance policies it held with the archdiocese dating back to 1968 and believed there was a cap on the aggregate amount the company would pay to victims in any single year up until 1983, according to the suit.
The dispute over coverage continued as more victims came forward alleging they had been sexually abused by priests. By late 2002, the church was facing claims from more than 500 victims.
While the archdiocese was involved in intensive mediation efforts with the victims' lawyers, according to the suit, Lumbermens "continued to refuse to participate in the negotiations and continued to assert falsely that the primary policies had been exhausted, thus seeking to limit drastically the available coverage."
But in February 2003, according to the suit, representatives from Lumbermens came to Boston to discuss coverage issues and "at long last confessed" that there were no applicable aggregate limits on the amounts that could be paid to victims each year.
The suit alleges that a lawyer for Lumbermens suggested that the archdiocese should agree that there would be aggregate limits because it "would help limit the [archbishop's] payments to the victims as well as avoid opening a "can of worms."
The suit says Lumbermens' "ploy of attempting to insert aggregates where none existed would have limited fraudulently its coverage by tens of millions of dollars."
The church's lawyers sent a letter to the mediators and victims' lawyers alerting them that although the archdiocese had been led to believe that the policies from 1964 to 1977 had been exhausted, it no longer believed that to be true, according to the suit.
The archdiocese announced in December that it planned to sell 27.6 acres in Brighton, including the mansion that once housed Boston's cardinals, as well as to mortgage St. John's Seminary and the Cathedral of the Holy Cross to raise the money to pay victims of clergy sexual abuse....
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May 29, 2000
A Hard Sell for the CDI
By Sky Barnhart, Insurance Journal
Although the California Department of Insurance (CDI) is still tied up in the defense of its insurance Commissioner, the sale of Superior National Insurance Co. remains a high priority item on the department’s “To Do” list.
After the CDI seized Superior’s four California-domiciled units on March 3, citing the workers’ comp carrier’s dangerous financial position, the case was assigned to the CDI’s Conservation & Liquidation Office.
Chief reinsurer John Horner has reportedly stated that he anticipates no problems selling Superior. However, the package is none too appealing to buyers thus far.
A request for proposals
On May 3, the CDI issued a request for proposals (RFP) for the book of business and related assets to all “parties interested in financial participation in a Superior National Insurance Companies rehabilitation plan.”...
Marsh & McLennan Securities (MMSC) is acting as financial advisor on the RFP....
Kemper stepping up
The rumble in the industry is that Kemper is the front-runner for purchasing honors, but Linda Kingman, vice president of corporate communications for The Kemper Insurance Companies in Long Grove, Ill., said that Kemper has not yet submitted a bid (as of May 24).
“We are currently reviewing the Request for Proposals and determining whether to make a bid,” Kingman said....
Taking it to court
The holding company, Superior National Insurance Group (SNIG), filed for Chapter 11 protection on April 26....
According to SEC Form 8-K, filed March 21, 2000: “The Company is in default on numerous covenants associated with its bank debt and trust preferred securities, and will default on interest and principal payments for the foreseeable future.”
U.S. Bankruptcy Court granted an emergency petition to assure the salaries and benefits of employees of SNIG, Business Insurance Group, SN Insurance Services, and SN Insurance Administrators.
SNIG threw another log onto the fire by announcing its intention to file a $585-million lawsuit against Foundation Health Corp., a subsidiary of Foundation Health Systems (FHS). The suit charges that Superior was misled about solvency issues when it purchased Business Insurance Group (BIG), its workers’ comp operations, from FHS in 1988. The acquisition made Superior California’s largest private sector workers’ comp provider.
“We will vigorously defend ourselves,” said Lisa Haines, spokeswoman for FHS in Woodland Hills, Calif. Haines described the lawsuit as “entirely without merit.”...
The causes of Superior’s woes are many, but California’s turbulent marketplace does play a major role in its downfall, S&P analyst Darin Feldman pointed out in his analysis, titled “The Unraveling of an Insurance Franchise.”
“With more that 75 percent of the company’s premium based in California, Superior was obviously subject to the vagaries of the competitive, regulatory, legislative and economic risks of the state,” Feldman stated.
However, Feldman pointed out one bright spot in the drama.
“The failure of Superior, which had a highly visible profile, makes the premium increase an easier sale for the agent. If it is easier for the agent to sell, carriers will find it easier to continue raising rates.”...
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July 7, 2000
Failed Workers’ Comp Insurer
Gets New Life
By Kelly Johnson, Sacramento Business Journal
Kemper Insurance Cos. has submitted the winning – and only – bid for the business and assets of the five insolvent workers’ compensation companies once operated by Superior National Insurance Group Inc.
Kemper will pay state conservators $2.25 million and keep half of Superior’s 1,100 workers, as well as its Rancho Cordova office.
Based in Long Grove, Ill., Kemper has 8,300 employees. The insurer intends to keep the Rancho Cordova office open at existing staffing levels, a spokeswoman said Wednesday. When Superior National was seized in March, the local office employed 215.
But Kemper’s purchase price won’t be enough to cover claims, leaving a state guarantee association [a.k.a. US Taxpayers] to pick up the tab for much of Superior National’s $300 million deficit....
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May 22, 2003
An insider blows the whistle
on Kemper Insurance
By Steve Stanek, The Illinois Leader
“Dave Mathis has ruined everything he’s ever touched.”
I was working in the corporate communications department of Kemper Insurance Companies in Long Grove when a fellow Kemper employee – an officer in the company – astounded me with that statement. He was appalled that Mathis was about to become Kemper’s next board chairman and chief executive officer.
This was 1996, and the corporate officer (whom I will not identify to protect his career) was predicting big trouble ahead. The past few months have proved him right. Kemper Insurance is collapsing, 91 years after a young man named James S. Kemper created a mutual insurance company in Chicago to provide workers compensation coverage to lumberyards. So far this year the company has announced it would default on $700 million of bonds, lay off more than 1,000 workers and stop underwriting insurance.
Kemper had grown to become an insurance powerhouse. When Mathis took over seven years ago it was the 15th largest property-casualty insurance organization in America, a member of the Chicago Business Hall of Fame and a behind-the-scenes political powerbroker in Illinois. Its current board of directors includes former Illinois Governor Jim Edgar and former Congressman John Porter.
Kemper’s collapse has done more that bring down an important Illinois-based company. It has also helped end whatever political aspirations Edgar may have had.
To be fair, Edgar did not join Kemper’s board until February 1999, three years after Mathis took charge and turned over much of the operations to William Smith, whom he hired to be president and chief operating officer.
On the other hand, it was also just seven weeks after Edgar signed a bill largely written by Kemper to help it partially “demutalize” to raise money through the stock markets. That was one of Edgar’s last acts as governor....
Having spent nearly 11 years in Kemper’s communications department, writing speeches for executives and annual reports, among other things, I saw and heard much more than typical Kemper employees. I wasn’t part of management, but I often talked to managers, some of whom told me things in private they never would have said for the record.
I left Kemper in March 1997, immediately after writing the 1996 annual report, 1996 being the year Mathis and Smith took over....
In the years since leaving Kemper, I have followed it in the insurance and general press and through friends who still work there or have recently left. By putting together what I saw and heard with what I have read and been told by others at Kemper, I believe the following factors may help explain how this once-powerful insurance organization was crippled....
Arrogance
For instance, after Mathis and Smith took over, they decided the company need a corporate jet. To say they used that perk as a plaything may go too far, but there is the cat-flight diversion story, notorious within certain Kemper home office circles.
One day Smith and other home office staffers flew to a meeting with branch office staff in Ohio. As they prepared to return to Illinois, Smith ordered the pilot to fly to Baltimore, even though this was not on the flight plan. Waiting for them at the Baltimore airport was Smith’s wife and her cat. Smith apparently cared nothing about the cost of running an air shuttle service for his wife and her cat or for the inconvenience the unscheduled errand cause the other employees, who had to cancel business meetings or arrange for others to look after their children until they returned home.
This incident may have been symptomatic of an apparent disregard for controls on executive spending. One story whispered through the home office halls shortly after Smith arrived concerned the controllers department, which allegedly was told not to review the expenses of Smith or Mathis. That order allegedly came down after the controllers department had the audacity to question one of Smith’s expense account items....
Bad Investments
Kemper’s “surplus” was a source of concern. Surplus is invested until needed to pay claims. Kemper invested much of it in stocks, because stocks in the 1990s were doing well. However, stocks are more risky that high-quality bonds, and insurance rating agencies and state insurance departments don’t like to see large amounts of risk in investment portfolios. Insurance rating agency A.M. Best Co. told Kemper to diversify its investments or face a rating downgrade....
The timing of the move was good. The execution of the move was bad. Much of the money went into telecom bonds, most of which have become nearly worthless because of the telecom industry collapse....
Divided loyalties
Here’s where the Kemper Corporation connection comes into play. Stick with me on this.
The flagship company of Kemper Insurance Companies is Lumbermens Mutual. Lumbermens and Kemper Corporation used to share boards of directors, and, for a time, executive management teams. Lumbermens in the 1980s owned almost half of Kemper Corporation. In 1989 there occurred the first of several transfers of Kemper Corporation stock from Lumbermens in return for certain Kemper Corporation businesses. Each of those deals favored Kemper Corporation.
In 1993, for instance, Lumbermens transferred more than $600 million of Kemper Corporation stock in exchange for two businesses, Kemper Reinsurance Company and National Loss Control Service Corporation. Mathis was then chairman and chief executive of Kemper Corporation, which at that time shared five directors with Lumbermens....
After acquiring Kemper Re, Lumbermens realized the company was indeed under-reserved and spent $400 million to shore it up. In 1998 Lumbermens sold Kemper Re to General Electric for $500 million, only $100 million more than it spent to boost Kemper Re’s reserves and after overpaying for the company in the first place. Also, by 1996, when Zurich bought Kemper Corporation, the shares that Lumbermens traded for that deal would have been worth about $1 billion. So it lost out on the added value of those shares....
Mathis and other Kemper Corporation directors and officers had strong incentives to make better deals for the corporation (where they owned stock) than for Lumbermens (where there was no stock for them to own.)
Isn’t it an amazing coincidence that Kemper Corporation, which shared directors with Lumbermens, came out so far on top in its dealings with Lumbermens!...
For more, GO TO > > > Zeroing In On Zurich Financial Services
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June 4, 2003
Kemper employees talk
OPINION – Many current and former employees have responded to the two part expose on the collapse of Kemper Insurance published in Illinois Leader on May 22 and 23.
These responses provide additional insights into the demise of the company. They also paint small, sad portraits of innocent employees who have been hurt by the company’s failure....
Employees discarded like garbage
On behalf of all the former long-term Kemper employees who Dave Mathis, Bill Smith and their hand-picked assassins drove out of the company, thank you for this article!
I was in a key management position at the branch level and observed first-hand Mr. Smith’s arrogance and excessive spending. He’d insist on the branches hosting a lavish reception for him when he visited... ice sculptures, fine wines, expensive settings....
Kemper employees were discarded like garbage in order for Mathis and Smith to pay six digit signing bonuses to hire “intellectual capital”... industry specialists who could support Smith’s number one business objective... competing for high-hazard lines with AIG, the company he left because he knew he’d never get the top job.
He had actuarial projections revised to justify running off business in Kemper’s traditional lines, and then reallocated surplus to the high-hazard business he wanted to grow.
In 1998, he had the workers compensation loss development projections revised in order to lower or eliminate entirely the policyholder dividend payments. Agencies who were forced to move business were terminated.
Kemper was personal piggy bank
Steve, you have no idea how many people have read your articles. I give you a lot of credit for taking on Mathis, Smith and the board. They did use Kemper as their personal piggy bank. I worked there more than 20 years and left [deleted] years ago because I was at the point that I refused to put one more dime in Mathis and Smith’s pockets.
I would desperately love to get more details that could result in a class action suit and go after these guys, but anyone who knew anything is not talking. I tried to track the ownership on Nekema because I recall someone in IT grumbling about “conflict of interest” as Smith was part owner, but yet Kemper was partnering with them – in fact, I believe Kemper threw $80,000,000 at Nekema before they walked away.
[Editor’s note: Nekema was a business-to-business e-commerce platform for property-casualty insurance agencies and carriers founded in 1999 by Kemper and Madison Consulting Group of Jersey City, New Jersey.]
I did find out that they gave Dennis Kane a $1,000,000 severance bonus, in addition to his $900,000 severance salary.
The $1,000,000 severance bonus offset the $1,000,000 corporate loan Kane had with Kemper....
[Editor’s note: Kane was president and CEO of Kemper Casualty Company, a unit of Kemper Insurance.]
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June 16, 2003
More Kemper employees tell more
Former stockbroker cites “overt deception”
As a former stockbroker, I had seen the overt deception in the exchange of Kemper Corporation stock for Kemper Re, and was amazed at the lack of concern about it....
But as a mutual company, there were no stockholders to sound the alarm, the policyholder/owners had no real stake in Kemper’s future, the regulators were asleep, the directors were apparently in cahoots or on left field, and frankly, few rank and file employees had the financial background to understand what those guys were pulling off, even when they had to boost Kemper Re’s finances by $400 million dollars....
“A clever way to move millions”
Kemper started selling Claims services through NATLSCO... The loss control was just a cover ... the real money was selling Kemper Claims....
All indications were that NATLSCO purchased these services far below Lumbermens cost ... sold them to large companies ... with the profit going to Kemper Corporation ... a clever way to move millions from Lumbermens to Kemper Corporation. Of course many top execs in Kemper Corp. as well as Lumbermens benefitted from this ... as they owned large blocks of stock. This went back many years before Mathis became head of Lumbermens.
No loss prevention
I was never in the position to see the big picture but I knew my part of the company was making money in 1997 when I was herded into a room with 100 colleagues and offered “The best severance package ever.”
S&M (Smith and Mathis) (pun intended) took two more years to kill the line of business that I was specialized in. Now I know they cooked the books to run the lines out of Kemper to transfer the business to the high hazard crap.
What always amazed me was that (I was) a Loss Control Engineer and we never did any engineering in the new high hazard lines of business. Now I see why. The risks they took never would have withstood the light of an analysis by Loss Prevention Engineering.
Why couldn’t the board see?
As someone else pointed out, everyone at the branch I work in knew the first time Smith came to our office (the infamous “Bill & Dave Road Show”) that he would ride Kemper right into the ground. My question is, if we all could see it, why couldn’t the Board, and what was Mathis thinking?
...Smith was out to prove he was better than Hank Greenberg, the president of AIG, where he had been before coming to Kemper, and set out to remake Kemper in AIG’s image.... Kemper had always been a conservative company, and knew how to do what it did well. In order to fulfill his personal obsession with bettering Greenberg and AIG, he ran off every – EVERY – long-time Kemper employee who knew that what Smith was doing was wrong.
Your articles mention the “Shoot the Lights Out” campaign to write as much business as possible, even bad risks. The joke around the office was soon we’d be writing fireworks factories, too....
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Consumer complaints about
Pro-Line Hair Care Products
www.consumeraffairs.com/cosmetics/proline.html
Marion of Hayward, CA, writes:
On 7/17/99 I used a Pro-Line product – do-it-yourself hair relaxer kit – on my hair which resulted in severe hair loss and scalp injury. I required immediate medical attention. I contacted the company the following business day (after the injury) and was verbally promised by Human Resources to be reimbursed for costs incurred seeking medical treatment, beauty salon treatments, and purchase of wigs.
Upon receipt of my letter and receipts I was contacted by Kemper Insurance (Concord, CA) that Pro-Line Corporation was their client and requested to provide a sample of the product, which I did. My telephone statement of what occurred when using the product was taken (tape recorded) and to submit additional receipts, etc. My costs totaled over $2000.
Kemper Insurance offered to settle my claim for $500. This is unacceptable. I want to pursue small claims against Pro-Line Corporation. I have exhausted attempts to find the Agent for Service of Process in California for Proline Corporation. The Secretary of state has no record of the company doing business in California. The Corporation is listed as Suspended by FTB (Fed. Tax Board).
I need the help of consumer affairs to locate the name of Pro-Line Corporation dba possibly another name....
First of all, Pro-Line Corp. is located at 2121 Panoramic Circle, Dallas, TX 75222. Their phone number is 214 920-2648 ... Marion can check with the Clerk of the Court in Alameda County to find out how best to file service on a Texas company.
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MORE TO COME
MEANWHILE, FOR MORE VAMPIRE NESTS...
GO TO:
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NESTS OF THE INSURANCE VAMPIRES
AIG: THE UN-AMERICAN INSURANCE GROUP
DIRTY MONEY, DIRTY POLITICS & BISHOP ESTATE
MARSH & McLENNAN: THE MARSH BIRDS
TRANSYLVANIA TRAVELERS AT ST. PAUL
ZEROING IN ON ZURICH FINANCIAL SERVICES
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Last Update June 11, 2007, by The Catbird