Confessions of a Whistleblower
August 21, 2006
FINAL JUDGMENT
KESSNER DUCA UMEBAYASHI BAIN & MATSUNAGA
Attorneys at Law A Law Corporation
STEVEN GUTTMAN 220 South King Street,
19th Floor Honolulu, Hawaii 96813
Email: sguttman@kdubm.com
United States District Court For the District of Hawaii
JAMES B. NICHOLSON SUCCESSOR TRUSTEE, Plaintiff
vs. Bobby N. Harmon, Defendant
JUDGE: The Honorable David Alan Ezra
FINAL JUDGMENT
Judgment is hereby entered under which Defendant Bobby N. Harmon shall within ten (10 days) from the date of entry of this Final Judgment permanently and forever remove and/or delete from any web-site owned, managed or operated by Defendant Harmon all offensive materials which contains any reference to “Protected Subject Matters”, as that term is described and defined in the Arbitration Award dated October 6, 2004.
Defendant Harmon is also ordered to provide the Court with written confirmation, a copy of which shall be served on Plaintiff, that all offensive materials have been removed and/or deleted from any web-site owned, managed or operated by Defendant Harmon.
“Post-judgment interest runs on the total Judgment amount of FOUR HUNDRED TWENTY-TWO THOUSAND NINE HUNDRED SEVENTYDOLLARS AND 54/100 ($422,970.54) at the legal rate of ten percent (10%) per annum on the unpaid principal balance, or $115.88 per day, from the date of entry of this judgment until the judgment is fully satisfied....”
The website that was found to contain such outrageously “offensive materials” to warrant such drastic punishment was THIS WEBSITE which was SHUT DOWN by THE UNITED STATES DEPARTMENT OF JUSTICE, OFFICE OF THE UNITED STATES TRUSTEE, JAMES B. NICHOLSON, SUCCESSOR TRUSTEE, by Order of Judge David A. Ezra.
SAMPLE “OFFENSIVE” MATERIALS???
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
President
enclosures
cc: Insurance Commissioner, State of Hawaii (w/encls)
* * * * *
May 17, 1999
Federal Bureau of Investigation
Prince Kuhio Federal Building, Rm. 4307
300 Ala Moana Blvd.
Honolulu, Hawaii 96850
Re: Racketeer Influenced & Corrupt Organizations Act (RICO) Lawsuit: Civil No. CV 99 00304 - U. S. District Court for the District of Hawaii - Bobby N. Harmon vs. Federal Insurance Company; P&C Insurance Company; Marsh & McLennan Companies; PriceWaterhouse, Coopers & Lybrand; Trustees of Bishop Estate; Nathan Aipa, et al.
Gentlemen:
On September 19, 1998, I wrote to your office requesting that an investigation be made into apparent racketeering activities of Federal Insurance Company, the trustees of the Bishop Estate, et al. The purpose of this letter is to inform you that on April 27, 1999, I filed a civil lawsuit against a number of these entities. A copy of this lawsuit is being provided to you in hopes that this information will assist you in any criminal investigations that your office may be conducting with respect to alleged racketeering activities involving these organizations.
Please feel free to contact me at the address shown above if I can be of any further assistance in this matter.
Very truly yours,
Bobby N. Harmon, CPCU, ARM
encls.
cc: Internal Revenue Service
Office of the Attorney General, State of Hawaii
Colbert Matsumoto, Esq., Master, KSBE
* * * * *
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
Forbes
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:
http://www.kycbs.net/Claims-By-Harmon.htm
http://www.kycbs.net/Claims-Branch-Kamehameha.htm
http://www.kycbs.net/Claims-Branch-Marsh-McLennan.htm
http://www.kycbs.net/ACE.htm
http://www.kycbs.net/ChubbGroup.htm
http://www.kycbs.net/MarshBirds.htm
http://www.kycbs.net/Bishop4.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)
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