Insurance Claims And Issues

UPDATE: Cancer, Chemotherapy, Cancellation and Punitive Damages in California Arbitration.

    A previous post in this space addressed an Arbitration Award in a California Arbitration.  The Arbitration of the Insurance issues apparently including Good Faith and Fair Dealing or not, was demanded by the Health Insurance Company, Health Net Inc.  The agreed Arbitrator is a retired California Judge.  The California Arbitration resulted in an Award of over $9.4 Million, $8.4 Million of which was a Punitive Damages assessment against Health Net.  See the post here, on February 25, 2008.

    On February 28, 2008, a follow up newspaper report published in the Los Angeles Times Online seems to call into question what remedies or options, if any, Health Net and its Attorneys may have to appeal or even question the Arbitration Award:  Lisa Girion, "Penalty Cuts Insurer Profit/Health Net Lowers Its Earnings After a Judge Awards $9.4 Million to a Cancer Patient Whose Policy Was Canceled" (Los Angeles Times Online, Thursday, Feb. 28, 2008).

    As the linked newspaper report's headline reflects, Health Net is filing documents with the Securities and Exchange Commission reflecting that the Arbitration Award has lowered its reportable net income for 4Q 2007, from $123.4 Million to $116.9 Million.

    The newspaper also reports that the California Arbitrator has awarded the Policyholder her Attorney's Fees, in an amount to be determined.

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Autism Costs, Insurance Considered.

        This post updates "And A Little Child With Autism, Shall Lead Them":
                See posts here on September 26, 2007 and December 30, 2007.   

    The costs of therapy for autism reportedly range between $40,000.00 and $80,000.00 in a year.  Jason Parsley, "Mother of Autistic Son Shares Her Story to Help Others" (South Florida Sun-Sentinel.com, Wed., Feb. 27, 2008).   A bill to provide Insurance Coverage for some or all of these costs is pending in the Florida Legislature.  It has the reported backing of Autism Speaks, described as an advocacy group, and of Mr. Donald Trump.

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Foreclosures, Credit Flameout: Federal Role Alternative to Bond Insurance Risk?

    Vague suggestions of the current Federal Government taking some kind of positive action as an alternative to State Bonds being put at risk and to increasing State interest payments, are being floated by Governors of various States including New Jersey, New York and the State of Washington.  Their unformed suggestions for positive Federal action of some kind are prompted by the concerns of diverse bond-issuing authorities in local governments including universities, hospitals, Municipalities, Counties, and even The Bay Area Toll Authority that is responsible for financing seven toll bridges in the City of San Francisco, California.  James Tyson & William Selway, "States May Seek Congress's Aid as Subprime Fallout Boosts Costs (Update 1)" (Bloomberg.com, Tuesday, February 26, 2008).

    In the Great Depression, a different Federal Government brought a specific proposal to reality -- and made it turn a profit.  The Home Owners' Loan Corporation was a public corporation with a public purpose.  It existed from June, 1933 until 1951.  During that time, its charter was to assist in preventing home foreclosures "by replacing mortgages that were in or near default with new ones that homeowners could afford.  It did so by buying old mortgages from banks -- many of which were delighted to trade them in for safe government bonds -- and then issuing new loans to homeowners."    In the end, it accomplished its purpose and turned a profit.   Alan S. Blinder, "From The New Deal, a Way Out of a Mess" p. 6, col. 1 "Sunday Business" Section (New York Times Natl' Ed., Sunday, February 24, 2008).

   The proposed, pending Foreclosure Prevention Act of 2008 has several features.  One proposed provision would reportedly "[g]ive local housing agencies more power to issue bonds to raise money for refinancing of sub-prime mortgages."  "Taking Aim at Foreclosures" (Los Angeles Times Online, Tuesday, February 26, 2008).

    Specifics exist.  Alternatives are available.  Positive action is required.  Soon.  Very soon.

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Foreclosures, Credit Inferno: More Alternatives to Bond Insurance at Risk.

    So-called "bailouts" of homeowners by local governments take different forms.  Some are not "bailouts" at all.  In the absence of positive action by the current Federal Government (remember Katrina?  and Rita?), other governments such as the City of Seattle and the States of Maryland, Massachusetts, North Carolina and Ohio already have various programs underway in the face of the present credit inferno.

    Some of these programs use taxpayer dollars and others are authorized to issue Bonds for revenue without the involvement of taxpayer dollars.  Some programs offer conditional financial assistance to homeowners who are about to lose their homes.  Other programs pay for mortgage counselors to provide suggestions and advice for refinancing.

    These local government alternatives are reported by William Yardley, "Foreclosure Aid Rising Locally, As Is Dissent" p. A1, col. 3 (New York Times Nat'l Ed., Tuesday, February 26, 2008).  See also Lisa Prevost, "Confronting The Home-Loan Pain" p. 19, col. 1 "Sunday Business" Section (New York Times Nat'l Ed., Sunday, February 24, 2008).   None of the alternatives reported in the linked newspaper articles extend to banks, Bond Insurance Companies, or other financial institutions mixed up in the credit meltdown.

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Continued Creative Alternatives to Bond Insurance At Risk.

    Bond Insurance Companies are losing high credit ratings reportedly because they foolishly signed on to insure or guarantee subprime mortgage loans and other credit creatures they obviously did not understand very well.  Taking the teeth from foreclosures will increase market confidence.  The credit ratings of Bond Insurance Companies should increase along with the increase in market confidence.

    Yet another available alternative to placing or keeping Bond Insurance at risk involves Judges.  And Senators and Members of Congress.  Lending institutions have failed to modify loan provisions enough to stem the record cascade of home foreclosures, that is an indisputable fact.  The subject alternative is therefore to amend the Bankruptcy Law so that Bankruptcy Judges can modify loan provisions enough to stem the record cascade of home foreclosures -- including halting or lowering the adjustable rates of mortgages taken by lenders from borrowers who could not pay those rates.

    Lenders reportedly are opposed.  They threaten to raise interest rates on new mortgages.  This threat may be as empty as a borrower's wallet.  The problem is that very, very few people are interested in signing up for new mortgages in the current market.   Jonathan Peterson, "Aid on Home Loans Sought" (Los Angeles Times Online, Tuesday, February 26, 2008).

    Fanning the flames of the credit inferno is not an option.  Turning off the fuel that fuels the credit inferno, by using the best tool or tools at hand to stem the fire, is ultimately the ONLY alternative to Bond Insurance at risk.

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Credit Inferno Engulfs Bond Insurance Ratings, Changes in the Making.

    Credit concerns may not have begun with Bond Insurance Companies.  But credit concerns have surely spread to them.  The concerns are a result of the Bond Insurance Companies dabbling far afield from Municipal Bonds, for which the Bond Insurance Companies came into existence.  These Companies have strayed into subprime mortgages and Collateralized Debt Obligations and other complex financing arrangements that nobody -- including the Bond Insurance Companies -- understand very well.

    With the number of mortgage defaults  and other unpaid debts increasing precipitously, investors and credit rating agencies have looked at the collateral that Bond Insurance Companies have taken in exchange for good money, and they "have begun to question whether guarantors have enough reserves to pay claims on their insurance contracts, particularly those backing mortgage-related securities."  Vikas Bajaj, "Bond Insurer Plans to Split to Protect Its Ratings" p. B1, col. 6 in Business Day Section (New York Times Nat'l Ed., Saturday, February 23, 2006).

    Actually, investors and perhaps credit raters too, are now certain that insurance contracts and any kind of guarantee of "mortgage-related securities" are bad investments and credit risks.  That is the reason why Ambac, and other Bond Insurance Companies, are trying to split themselves in two, one corporation to insurance Municipal Bonds -- and perhaps salvage a high credit rating, and the other corporation to corral the toxic mortgage-related securities in the credit pits.

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Credit Woes Worsen, Debt Deepens, Capital Outgo ... Goes Out.

    Apropos of the dawning realization that the current credit woes go way beyond Bond and other Insurance Companies and subprime mortgages, it is reported that the average first mortgage debt now exceeds the average price of a home.

    It is also reported that there was one other time in the recent history of the United States that such a large part of its population owed more on their homes than their homes are worth.

    That was in the Great Depression.  Edmund L. Andrews & Louis Uchitelle, "Rescues Weighed as Homeowners Wallow in Debt/Efforts in Washington/Mortgage Exceeds Value of Home for 10.3% of Nation's Owners" p. A1, col. 6 (New York Times Nat'l Ed., Friday, February 22, 2008). 

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"Review Insurance Policies Now" Says Orlando Newspaper.

   Good advice with related links in this newspaper article published in the Orlando Sentinel, February 22, 2008, by Greg Groeller, "Review Insurance Policies Now".  Every Policyholder and their Agents and Brokers holding every kind of Insurance Policy can benefit from following the good advice published by this linked newspaper article.

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Another Homeowner's Insurance Company "Leaves" Florida.

    It is reported that the largest "private" Property Insurance Company in the State of Florida, State Farm, has told the Florida Office of Insurance Regulation that it will not issue new Homeowner's Insurance Policies.

    State Farm will apparently remain on the risk to the thousands of Floridians from whom it collects Automobile Insurance Premiums, in addition to soliciting new Automobile Insurance business in Florida.

    These decisions are certain to catch the notice of the members of the Florida Legislature, who will meet in early March for the 2008 Florida Legislative Session.  It is unknown what actions if any will result.  Julie Patel, "State Farm to Stop Selling Homeowner Policies in Florida" (South Florida Sun-Sentinel.com, Sunday, February 24, 2008).

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Cancer, Chemotherapy and Cancellation = Punitive Damages in California.

    In an Arbitration in California last week, an Award was entered against a Health Insurance Company for  over $9 Million.  $8.4 Million of the award is an assessment for Punitive Damages.

  The Health Insurance Company, Health Net Inc., canceled a Policyholder while she was receiving expensive chemotherapy treatments.  Health Net Inc. reportedly insisted on resolving the dispute only by Arbitration.

    The Arbitrator was a retired California Judge.  At the Arbitration, there was apparently a lot of evidence to the effect that the expense of chemotherapy was the motivation for cancellation.

  Documents generated by Health Net itself were made available to the Arbitrator.  The documents showed that Health Net paid bonuses to employees who met "a cancellation quota and for the amount of money saved."

    This practice did not sit well with the Arbitrator, who wrote:  "'It's difficult to imagine a policy more reprehensible than tying bonuses to encourage the rescission of health insurance that keeps the public well and alive.'" Quoted in "Health Net Ordered to Pay $9 Million After Canceling Cancer Patient's Policy/The Punitive Damage Award is the First of its Kind and has Prompted the Giant Medical Insurer to Scrap Practices That Have Recently Come Under Fire" by Lisa Girion (Los Angeles Times Online, Saturday, February 23, 2008).

    In the same newspaper article it is reported that other Health Insurers are about to change their own practices in this regard.

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