P&C INSURANCE COMPANY, INC.
P.O. Box 38
Honolulu, HI 96810
November 20, 1996
Mr. Cary M. Okawa, C.P.A.
Coopers & Lybrand L.L.P.
2500 Pacific Tower
1001 Bishop Street
Honolulu, Hawaii 96813-3668
SUBJECT: P&C Insurance Company, Inc. - Annual Financial Report
Dear Mr. Okawa:
This is to provide further information regarding issues discussed in my meeting with you and Mr. Dennis Tsuhako in my office on October 18, 1996, regarding P&C Insurance Company’s (P&C) annual financial report.
As you will recall, we discussed my concerns with respect to “arms-length” issues between Kamehameha Schools Bishop Estate (KSBE) and P&C, as they related to what I believed were efforts to direct and control the operations of P&C by my superior, Nathan Aipa, Esq., by Louanne Kam, Esq. and by Henry H. Peters, who is a Trustee of Bishop Estate, as well as Chairman of the Board of Directors for P&C.
As examples, we discussed the blocking of my efforts to have P&C write the blanket property insurance program with reinsurance provided through the Hobbs Group, rather than by Marsh & McLennan, Inc. Also, I commented on what I considered to be excessive fees being charged by Marsh & McLennan, Inc. (MMI), and their failure to provide a satisfactory explanation for the services included in their flat fee of $200,000.
Finally, I related to you and Mr. Tsuhako my concerns regarding attempts being made by individuals at KSBE to direct and control the settlement of P&C’s claims. In addition to the example we discussed, I have recently received a copy of the attached memo from Rocco Sansone dated 11/7/96, regarding a proposed “Consent to Settle (P&C Insurance)” endorsement.
This memo addressed to Louanne Kam, Kamehameha Schools Bishop Estate, states: “The following proposed endorsement is submitted per our discussions and negotiations with Am-Re. This endorsement provides KSBE with the option of controlling the settlement process subject to the indicated agreements. Based on our discussions, we recommend KSBE accept the proposed wording. Please advise if there are any questions and with your approval to add the endorsement.”
This “Consent to Settle Clause” would, in effect, take the control of claims settlements away from P&C’s independent adjuster and turn it over to KSBE. P&C and KSBE would also be exposed to uninsured and unlimited payments of claims due to the condition, “If, however, the Insured shall refuse to consent to any settlement recommended by the Company and acceptable to the claimant and shall elect to contest or continue any proceedings in connection with such claim, the Company’s liability for the claim shall not exceed the amount for which the claim could have been settled plus expenses up to the date of such refusal.”
This recommendation by MMI is, in my opinion, highly unusual and one which could result in significant financial loss to P&C and KSBE. The enclosed documents (some written before our meeting and others afterwards) will provide further examples of what I consider to be improper and deceptive business practices by Marsh & McLennan, Inc. and M&M Insurance Management Services, Inc.
It is due to the fact that these issues have not been resolved, that I am declining to sign my concurrence to P&C’s Annual Financial Report for the fiscal year 1995-96.
Thank you very much for your understanding and concern.
Very truly yours,
Bobby N. Harmon, CPCU, ARM, AAI
cc: Insurance Commissioner, State of Hawaii (w/encls)