Insurance Claims And Issues

MORE ON "Federal Taxpayers Likely to Lose, Again, on TARP Refunds".

This is an update to the post here on May 19, 2009.

    Attention is being paid.  See Mark Pittman, "TARP Warrants Show Banks May Reap 'Ruthless Bargain' (Update 2)" (Bloomberg.com, Friday, May 22, 2009).

    Mr. Timothy Geithner does not have good negotiation skills.

    Separately and in addition, Mr. Geithner clearly does not have the stomach to negotiate for people making anything less than, say, $500,000 a year.

There is a connected post on this update at www.insuranceclaimsbadfaith.typepad.com.

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Direct Liability to Excess, for Excess, or Not?

    Two cases decided by the same Florida Appellate Court decades apart, leave the existence of a direct duty in doubt from a Primary Liability Carrier to an Excess Liability Carrier.

    In the earlier of the two cases, Florida's First District Court of Appeal held that there is no direct duty to an Excess Carrier from the Policyholder's (or other Insured's) Primary Carrier.  Hartford alleged that it was the Excess Carrier and claimed that The Travelers was the Primary Carrier acting in Bad Faith.  "We further find Hartford's remaining claim that Travelers owes a direct duty to Hartford not cognizable under Florida law."  Download Hartford v. Travelers (Fla. 1st DCA 1989), review denied, (Fla. 1990).

    In 2007, three different distinguished Judges of Florida's First District Court of Appeal reached the opposite conclusion.  "Therefore, [the Primary Carrier] owed [the Excess Carrier in this case] a duty of good faith."  Download Progressive American Insurance Co. v. Nationwide Insurance Co. (Fla. 1st DCA Case No. 1D06-2159, Opinion Filed February 14, 2007). 

   Primary Liability Carriers will have a hard time adjusting their conduct to meet the demands of Florida Insurance Law, until the apparent conflict in the Florida case law is resolved.

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FURTHER THOUGHTS ON "Insurer Regularity Insured by State Regulators".

This post adds to a previous post here on May 21, 2009.

    Insurance operations have not failed.  Life Insurance Companies are the only Insurance Companies known at this time to have applied for Federal Bailout Funds, for example, yet even Life Insurance Company operations are not failures.  Instead, Life Insurance Companies foolishly invested in money-losing schemes like derivatives and their losses on those investments are bringing them down, not their Insurance operations, which are stable and not collapsing.

    Further, even those Insurance Companies which may fail in the Current Collapse do not pose a risk of "systemic" failure.

    State Insurance Commissioners have successfully regulated Insurance Companies even while other corporations fail miserably and require massive infusions of Taxpayer Funds during the Current Collapse.

    Federal Regulators, on the other hand, have exhibited a cluelessness about financing that is amazing, frankly.

    What reason exists, then, to abandon successful State regulation of Insurance in favor of more Federal failure?  See also "Florida Insurance Commissioner Urges Congressional Delegation to Maintain State-Based Regulation of Insurance" Press Release, Thursday, May 21, 2009.

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UPDATE on "AIG Trust Agreement, Feds and Trustees: Who Do They Work For?"

This is an update of a post here on April 21, 2009:  "AIG Trust Agreement, Feds and Trustees:  Who Do They Work For?"

    It is rumored that the three Trustees of AIG, appointees of the New York Fed and ostensibly servants of the Federal Taxpayers, testified before the U.S. House of Representatives Committee on Oversight and Reform on or about Wed., May 13, 2009.  However, trying to locate any substantive news about their actual testimony has not yet resulted in much.  It is as though their testimony was either unimportant in the eyes of newspaper and other media reporters, or perhaps the very important testimony anticipated from the Three Trustees was not easily understandable.  I intend to keep trying to locate and digest whatever it is these three people actually said.

    In the meantime:  The experience base of Trustee Jill Considine has become clearer through this report by Mark Pittman, James Sterngold and Hugh Son, "AIG Trustees Should Answer to Taxpayers, Not Fed, Towns Says" (Bloomberg.com, Wed., May 12, 2009).  Ms. Considine is described in the linked report as "lead director of Ambac Financial Group, Inc., the New York-based bond insurer whose shares have dropped 98 percent from a 2007 peak."

See also www.insuranceclaimsbadfaith.typepad.com, Categories:  "Fiduciary Duty, Market Performance".

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Insurer Regularity Insured by State Regulators.

   Innovation in finance resulted in securitization.  Securitization resulted in the Current Collapse.  Present newspaper reports tell of how the Wall Street failures who brought us securitization are demanding that it, and they, be bailed out.  They must have been successful, the Wall Streeters tell us and the newspapers dutifully report how much money was made on Wall Street because of securitization.  Unfortunately, they spent all that money.  The only people around to bail them out are the Federal Taxpayers.  How is that innovation thing going?

    Innovation in Insurance Regulation is one of the reasons put forward in favor of Federal regulation of Insurance.  The States have regulated Insurance since the Eighteenth Century.  State Insurance Regulators are concerned with consumer protection, with keeping complexity of Insurance to a much lower level than some Insurance Companies would like to market, and with stability.  How is that stability thing going?    See generally Jeff Segal and Dwight Cass, "Breakingviews.com/Insurance Dilemma" p. B2, col. 2 (New York Times Nat'l ed., "Business Day" Section, Tuesday, May 19, 2009); Dwight Cass, "Breakingviews.com/Insurer Oversight Is Not Yet Broken" p. B2, col. 1 (New York Times Nat'l ed., "Business Day" Section, Thursday, April 30, 2009).

     A phenomenon of American life in 2009 is that people who fail are often treated as though they succeeded like they said they succeeded.  That is sad, really.  It can also be dangerous.

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Expert Disclosures in Florida Governed by Courts, Not Statutes.

    Florida Statute Section 57.071(2) used to provide that Expert Witness fees could not be taxed as Costs unless the retaining party provided certain Expert Witness Disclosures within certain timeframes:

        (2)  Expert witness fees may not be awarded as taxable costs unless the party retaining the expert witness furnishes each opposing party with a written report signed by the expert witness which summarizes the expert witness's opinions and the factual basis of the opinions, including documentary evidence and the authorities relied upon in reaching the opinions.  Such report shall be filed at least 5 days prior to the deposition of the expert or at least 20 days prior to discovery cutoff, whichever is sooner, or as otherwise determined by the court.  This subsection does not apply to any action proceeding under the Florida Family Law Rules of Procedure.

Section 57.071(2) was held unconstitutional by a 4-to-3 majority of the Florida Supreme Court:  Download Massey v. David (Fla. Case No. SC07-776, Opinion Filed April 3, 2008).  The facts of that case certainly did not influence the outcome of the decision.  All of the information required to be disclosed under Subsection (2) of the Statute was timely and fully provided in that particular case:

    During both briefing and oral argument, it has been confirmed that all of the information that is required to be in the written report pursuant to section 57.071(2) was actually provided in this case to the parties through expert disclosures, answers to interrogatories, and affidavits and sworn deposition testimony.  This information was provided based upon written court orders with regard to discovery requiring disclosure, and those disclosures occurred within the timeframe contemplated by the statute.  Thus, the spirit of the statute was fulfilled in this case because expert witness information was exchanged.

Id. at 22 in attached slipsheet opinion.  [Emphasis by the Florida Supreme Court.]  The facts of the case did not save the constitutionality of the statute, however:

    In conclusion, we hold that section 57.071(2) impermissibly encroaches on the rulemaking authority of this Court because it imposes procedural requirements with regard to both the discovery of expert witnesses and the taxation of expert witness fees as costs which do not exist under the rules of practice and procedure that have been promulgated by this court.

Id. at 23.  This decision came in a legal malpractice action, but its reach is certainly long enough to include Experts in Insurance Cases and the Disclosures required of them by the Florida Courts.

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Federal Taxpayers Likely to Lose, Again, on TARP Refunds.

This is a Postscript to the post here on May 18, 2009:  "Fiduciaries Avoid Federal Pay Limits, Pay Back Low-Interest Bailouts?"

    As a part of the consideration for making low-interest loans from the Troubled Assets Relief Program to failing corporations, the borrowing corporations sold "warrants" to the Federal Taxpayers.  These particular warrants reportedly convey to Federal Taxpayers the right to buy the borrowers' stock at an agreed price even in the future, "in this case, 10 years."  Eric Dash, "Efforts to Repay Bailouts May Undercut Benefit for Taxpayers" p. B1, col. 1 (New York Times Nat'l ed., Tuesday, May 19, 2009).  Some borrowers of Federal TARP money want to pay it back early and are making low bids to pay off the warrants.  See id.  It is also reported that there is confusion about how to value the warrants.

    One of the few banks which has paid back TARP loans including warrants succeeded with a lowball offer.  The borrowing bank recently held its annual shareholders meeting.  The news that the bank's lowball bid had been accepted by the current Federal government was reportedly greeted with applause.  See id.

    Clearly the Federal Taxpayers did not attend that meeting.

    As far as finding a mechanism to put a value on the warrants that TARP borrowers sold to the Federal Taxpayers, what reason exists for being afraid to put the warrants up for sale and let the market forces determine their value?

See a related post at www.insuranceclaimsbadfaith.typepad.com, Categories:  "Fiduciary Duty," "Market Performance".

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Fiduciaries Avoid Federal Pay Limits, Pay Back Low-Interest Bailout?

    Now that some Life Insurance Companies have received approval to apply for Federal TARP or Bailout funds, it is worthwhile to address some questions raised by the behavior of some large Corporations that have already received TARP funds.

    TARP funds are loaned at lower interest rates than corporations can obtain anywhere else.  "For starters, it's cheap capital."  Antony Currie and Dwight Cass, "Breakviews.com/Shareholders Hurt in Bailout Payback" p. B2, col. 1 (New York Times Nat'l ed., Wed., May 13, 2009).  Paying back TARP funds by issuing new shares can however have the effect of diluting the value of the existing shares held by the existing shareholders.  Id.

    The only apparent reasons for paying TARP funds back at this time are (1) limits on bonus payments to executives, officers and directors of the borrower and (2) the fear that other, unknown, unspecified limitations might be imposed on TARP loans in the future.  See id.

    Are these reasons enough to require Fiduciaries to pay back low-interest loans that cannot be obtained anywhere else, weighing the interests of the shareholders against the interests of the Fiduciaries, i.e., the executives, officers and directors?

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Lifeline and Mr. Liddy: Federal Taxpayers Bail Out Allstate Too.

    Six Life Insurance Companies which applied for Federal TARP or Taxpayer Bailout Funds, have reportedly received preliminary approval for the Taxpayer money.  Jeremy Hobson, "Life Insurers Get a Piece of the Bailout," Friday, May 15, 2009, available online in print or broadcast form at Marketplace on National Public Radio.

    Life Insurance Companies have been robustly applying for the Bailout money for months.  "Life insurers have clamored for six months to get into a program that the nation's biggest banks are trying to flee to avoid governmental restrictions."  Andrew Frye and Rebecca Christie, "Prudential Among Insurers Cleared for U.S. Bailout (Update 2)" (Bloomberg.com, Friday, May 15, 2009).  Credit Default Swaps are the major reason for the clamor by Life Insurance Companies for Federal Bailout money.  As was previously posted here several times, Life Insurance Companies literally made poor bets with Credit Default Swaps and their share prices fell accordingly.

    One of the few surprises in today's announcement is that Allstate is among the applicants.   See also Eric Dash and Diana B. Henriques, "Six Insurers Named to Get Taxpayer Aid" p. B1, col. 1 (New York Times Nat'l Ed., "Business Day" Section, Friday, May 15, 2009)(identifying the qualifying Life Insurance Companies but not noting that they are all Life Insurance Companies nor why these Life Insurance Companies applied for the money).  It was not previously reported, or at least not widely reported, that Allstate had even applied.  They apparently did so because of their Life Insurance operations.  See Andrew Frye and Rebecca Christie, supra, reporting that since October, 2008, "Allstate cut its dividend by 50 percent, halted share buybacks and announced plans to cut 1,000 jobs at its money-losing life insurance unit."

    Allstate advertises Life Insurance products at Allstate Financial online.

    Mr. Edward Lilly is famous, at the present time, for receiving "only" $1.00 for heading up AIG during its current time of trial.  AIG is apparently forced to use mostly Taxpayer Bailout money in its budget at the present time.  (Federal Taxpayers own 79.9 percent of the shares of AIG at this point.)  It is very well known that Mr. Liddy previously headed up Allstate until he came out of retirement to head up AIG.

    Allstate reportedly declined to say how much money it stands to receive, but there is no doubt that the amount is much more than "$1.00".  The Hartford reportedly announced that it alone could now receive $3.4 Billion of Federal Taxpayer money.  Eric Dash and Diana B. Henriques, supra.  Another qualifying applicant, Lincoln National, "said it may receive $2.5 billion."  Andrew Frye and Rebecca Christie, supra.

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Can You Write "LIFE" Insurers Seek TARP Funds?

    Property and Casualty Insurance Companies give every evidence of solvency.  They are not the Insurance Companies which are seeking TARP Funds or Bailouts using Federal Taxpayer Funds.

    Instead, the Insurance Companies which are seeking Federal Taxpayer Funds are all Life Insurance Companies.  A couple of the newspaper reporters who have gotten this are David S. Hilzenrath and Brady Dennis, in "Treasury Weighs Investment in Life Insurers" (Washington Post Online, Thursday, April 9, 2009).  Compare, for example, Robert Cryan and Jeffrey Goldfarb, "Breakingviews.com/Little Rationale to Aid Insurers" p.B2, col. 1 (New York Times Nat'l Ed., "Business Day" Section, Thursday, April 23, 2009)(a report which does not report that the "insurers" seeking the "aid" are all life insurers).

    Why are Life Insurance Companies seeking a Bailout while Property and Casualty Insurance Companies are not?  Life Insurance Companies, unlike Property and Casualty insurers, foolishly invested heavy amounts of their shareholders' funds in securitized financial products such as Credit Default Swaps (read:  AIG financial techniques practiced by companies with other names).

    Sadly, the shareholders of these Life Insurance Companies suffered great losses.  Their sadness is no reason for shifting that sadness or that liability to Federal Taxpayers.

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