No. 152: Captive Reinsurers—A Brief Released by the Office of Financial Research in the U.S. Department of the Treasury

In No. 135 (posted December 28, 2015), I discussed the first Financial Stability Report issued by the Office of Financial Research (OFR), an independent bureau within the U.S. Department of the Treasury. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established the OFR, which issues periodic reports. The OFR also issues "briefs" on various topics.

Brief No. 16-02
On March 17, 2016, the OFR issued Brief No. 16-02 entitled "Mind the Gaps: What Do New Disclosures Tell Us About Life Insurers' Use of Off-Balance-Sheet Captives?" The authors of the brief are four members of the OFR staff: Jill Cetina, Arthur Fliegelman, Jonathan Glicoes, and Ruth Leung. Here is the abstract of the ten-page brief:

Some U.S. life insurance companies use wholly owned captive reinsurers to transfer risk and reduce regulatory requirements. Since 2002, such transfers have increased rapidly, and they now exceed $200 billion in reserve credit. This brief discusses recent policy measures and the data that insurers began reporting in 2015 about their captive transactions. Publicly available data are insufficient to analyze fully the risks from captives and the impact on insurers' financial condition. Regulators have revised reporting standards to improve the public data, but gaps remain. Because life insurers are a material part of the financial system, these gaps may mask financial stability vulnerabilities.

Background
The authors of the brief explain that the ceding of reserve liabilities to captive reinsurers to reduce the liabilities of the parent ceding companies began about 15 years ago, after state insurance regulators had increased reserve requirements for term life policies and for universal life policies with secondary guarantees (ULSG). The problem is that the captive reinsurers are permitted by some state insurance regulators to treat as admitted assets what the authors of the brief refer to as "nontraditional" items such as letters of credit and parental guarantees, despite the fact that accounting rules adopted by the National Association of Insurance Commissioners do not permit such items to be treated as admitted assets.

Some of the Data
The brief contains a considerable amount of information based on year-end 2014 data. (Year-end 2015 data were not available when the brief was being prepared.) The 2014 data show that the use of captives by U.S. life insurers totaled $213.4 billion in reserve credit. The authors of the brief point out that, because of exemptions, ceding insurers disclosed the quality of the assets for only 55 percent of the assets of term life and ULSG captives. The authors of the brief also point out that, for the 2014 data, there were no requirements for disclosure of the impact of the use of captives on the risk-based capital ratios of the ceding insurers.

General Observations
This is not the first time OFR has expressed concern about captive reinsurers. Earlier expressions of concern were in OFR's 2014 Annual Report and 2015 Financial Stability Report. I think the recent OFR brief should be studied carefully by persons interested in the welfare of life insurance companies and policyholders.

Perhaps the most detailed official expression of concern about captive reinsurers was a 24-page report entitled "Shining a Light on Shadow Insurance." The report was issued in June 2013 by the New York Department of Financial Services (NYDFS) during the tenure of Benjamin M. Lawsky, the former NYDFS superintendent.

Today, almost three years after issuance of the NYDFS report, we still have very little disclosure of the details of captive reinsurance transactions. In my view, the central problem is the secrecy surrounding what the authors of the OFR brief refer to as "nontraditional" admitted assets carried on the balance sheets of captive reinsurers. I think of those assets as "toxic," and I have referred to their use as a "shell game" that would collapse if the details of those assets were clearly disclosed.

Available Material
I am making available two complimentary PDFs. One is the recent ten-page OFR brief. The other is the 24-page NYDFS report released in 2013. Email jmbelth@gmail.com and ask for the March 2016 OFR brief and/or the June 2013 NYDFS report on shadow insurance.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 151: Life Partners—Trustee Moran Files 17 Adversary Proceedings in the Bankruptcy Case

H. Thomas Moran II is the chapter 11 trustee in the Life Partners Holdings Inc. (LPHI) bankruptcy case. On March 5, 2016, as I reported in No. 150 (posted March 16), Moran filed an extensive report describing the results of his investigation of the allegedly fraudulent business conduct that preceded the January 2015 bankruptcy filing. (See In re LPHI, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-40289.)

Adversary Proceedings
During the period from March 11 to March 13, a week after filing his extensive report, Moran filed 17 adversary proceedings. As I explained in Nos. 117 and 126 (posted September 21 and November 12, 2015), an "adversary proceeding" is a lawsuit filed within a bankruptcy case and assigned its own case number. In the above 2015 posts, I mentioned a pair of adversary proceedings that Moran had filed earlier: one against Brian D. Pardo, former chief executive officer and controlling shareholder of LPHI, and one against former licensees.

The 17 new adversary proceedings include several complaints against former licensees, a complaint against the former outside directors of LPHI, a complaint against former LPHI life expectancy estimator Dr. Donald T. Cassidy, a complaint against former shareholders who received dividends from LPHI, a complaint against former LPHI employees, several complaints against transferees who received funds from LPHI, and several complaints against local and national charities that received donations from Pardo. Here is a list, in numerical order, showing case numbers, abbreviated case names, and types of defendants:

16-04022: Moran v. A. Chris Ostler (Licensees)
16-04024: Moran v. Happy Endings Dog Rescue (Charity)
16-04025: Moran v. Jonathan Brooks (Licensee)
16-04026: Moran v. Argentus Securities LLC (Licensees)
16-04027: Moran v. ESP Communications Inc. (Transferee)
16-04028: Moran v. American Heart Association (Charities)
16-04029: Moran v. Funds for Life Ministries (Charities)
16-04030: Moran v. Andrea Atwell (Employees)
16-04031: Moran v. Blanc & Otus (Transferees)
16-04032: Moran v. Averitt & Associates (Transferees)
16-04033: Moran v. Donald T. Cassidy (Life Expectancy Estimator)
16-04034: Moran v. Robin Rock Ltd. (Transferees)
16-04035: Moran v. 72 Vest Level Three LLC (Licensees)
16-04036: Moran v. James Alexander (Shareholders)
16-04037: Moran v. Garnet F. Coleman (Transferees)
16-04038: Moran v. A Roger O. Whitley Group Inc. (Licensees)
16-04039: Moran v. Tad Ballantyne (Outside Directors)

Complaint against Ballantyne
As an example of the 17 complaints, I selected the complaint against the outside members of LPHI's board of directors: Tad M. Ballantyne (Racine, WI), Fred Dewald (Woodway, TX), and Harold E. Rafuse (Crawford, TX). The "Factual Background" section describes the procedural history of the bankruptcy case, the overall scheme to defraud, and LPHI's insolvency. That section also includes a 23-page, 19-part description of the involvement of the three outside directors.

The complaint contains 12 counts: one count of breaches of fiduciary duty, three counts of violations of securities laws, two counts of actual fraudulent transfers, two counts of constructive fraudulent transfers, one count of preferences, one count of unjust enrichment and constructive trust, one count of disallowance of defendants' claims, and one count of equitable subordination. The concluding section of the complaint reads:

WHEREFORE, the Plaintiffs request that the Outside Directors each be ordered to return all funds received from Life Partners to the Debtor's Estate as a result of the conduct described herein, and that judgment be entered against them and in favor of Plaintiffs for the total amount transferred to Defendants. Plaintiffs request actual and consequential damages as determined at a trial on the merits, as well as exemplary damages where warranted. In the case that the funds were spent to acquire any real or personal property, Plaintiffs request that a constructive trust be imposed upon the property, and an order that such property must immediately be turned over to Plaintiffs. Plaintiffs ask for pre-judgment and post-judgment interest at the highest rates allowed by law. Further, Plaintiffs request recovery of their attorneys' fees and costs, and that they be granted any other relief, both special and general, to which they may be justly entitled.

General Observations
Through these adversary proceedings, Moran is attempting to claw back as much money as possible for the benefit of those victimized by allegedly fraudulent business conduct over the years, especially for the benefit of investors in fractional interests in life settlements marketed by LPHI. He has cast a wide net; however, to what extent he will succeed in the effort remains to be seen. I plan to continue watching the progress of the case and reporting significant developments.

Available Material
I am making available as a complimentary 46-page PDF the complaint against the three former outside members of LPHI's board of directors. Email jmbelth@gmail.com and ask for the March 2016 Moran complaint against Ballantyne.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 150: Life Partners—The Trustee's Report on Allegedly Fraudulent Business Conduct Preceding the Bankruptcy Filing

Life Partners Holdings, Inc. (LPHI), led by controlling shareholder and chief executive officer Brian D. Pardo, participated for many years in the secondary market for life insurance. On January 20, 2015, the Waco, Texas-based company filed for protection under chapter 11 of the federal bankruptcy law. On March 19, 2015, the bankruptcy court judge approved the appointment of H. Thomas Moran II as chapter 11 trustee. On May 20, 2015, Moran reported the preliminary results of his investigation of the allegedly fraudulent business conduct that preceded LPHI's bankruptcy filing. On March 5, 2016, Moran filed a follow-up report on the results of his investigation. (See In re LPHI, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-40289, Document No. 1584.)

The Recent Moran Report

The text of the recent Moran report consists of 89 pages. The report has ten attachments showing 158 exhibits and covering 2,048 pages. The exhibits include internal emails, deposition transcripts, and other documents that are now in the public domain. Among the transcripts, for example, are excerpts from depositions given by Pardo in April 2011 and May 2015, by longtime LPHI executive R. Scott Peden in April 2011, and by longtime LPHI life expectancy estimator Dr. Donald T. Cassidy in September 2012. The attorneys involved in the preparation of the report were David M. Bennett, Richard Roper, Katharine Battaia Clark, and Jennifer R. Eklund of the Dallas firm of Thompson & Knight LLP. The concluding section of the text of the report reads:

Life Partners, Pardo, and others acting in concert, executed a wide-ranging, long-term scheme to defraud Investors, which (as described in detail above) occurred in a number of ways, including but not limited to the following:

• Use of unreasonably short LEs [life expectancies] in the sale of its so-called "fractional" investments;
• Material misrepresentation of the returns Investors could expect;
• Misrepresentations regarding whether policies had lapsed and resale of lapsed positions;
• Charging massive, undisclosed fees and commissions, the total amount of which, in many cases, exceeded the purchase price of the policies themselves;
• Repeated misrepresentation of Life Partners' business practices in order to maneuver around securities regulatory regimes;
• Egregious and continuous self dealing by insiders and their accomplices;
• Failure to disclose cash surrender value;
• Forcing Investors to abandon contract positions, many of which were then resold for personal gain;
• Systematic financial mismanagement, including improper payment of dividends;
• Faulty and inconsistent record keeping, including with respect to the escrow companies and purported "trusts";
• Commingling and unauthorized use of Investor monies;
• The offer and sale of unregistered securities; and
• Implying the investment structure was a permissible investment for an IRA [individual retirement account], and failing to disclose the risks if it was not.

In 2004, in an attempt to sell Life Partners and its underwriting compared to others in the business, Brian Pardo stated: "What you have to do is explain that there is never a good defense against fraud." Ironically, Pardo and his company committed the same violations of trust he evidently ascribed to others in the business, misleading his Investors at every turn and seeking to profit himself and his family above all else. As a result of Pardo's fraud, thousands of individual Investors lost hundreds of millions of dollars.

And when the scheme as originally conceived and implemented began to collapse, they simply morphed their conduct and found new ways to reap a profit on the backs of their Investors. One fraud was layered upon another.

The financial devastation as of the bankruptcy petition date to the Investors was massive and continuing to grow. It will be decades before all of the policies in the Life Partners portfolio mature, and tens of millions of dollars in additional premiums will have to be expended in that time to preserve those policies. The Life Partners fraud deserves a place in Texas history as one of the largest and longest-standing fraud schemes ever perpetrated in this State. The scheme has already cost thousands of innocent Investors hundreds of millions of dollars, which in many cases represented a material portion of, or their entire, life savings.

General Observations

Earlier documents filed by the Securities and Exchange Commission (SEC), by the federal district court judge who handled the recent SEC lawsuit against Life Partners, and by Moran also contained criticism of the pre-bankruptcy business conduct of Life Partners, Pardo, and others. The recent Moran report, however, is more powerful. The text is carefully written, the language is strong, and the attachments provide a huge amount of material that had not been easily available. I think the report is devastating for Life Partners and Pardo.

Most of the so-called responses by Pardo and others to the criticism leveled at them have been ad hominem attacks on Moran, on the SEC attorneys, and on the federal district court judge. Stated another way, Pardo and others have criticized those individuals personally rather than addressing the concerns expressed. I think the Moran report undercuts such personal attacks.

Available Material

I am making available a complimentary 96-page PDF. It contains the 89-page text of the Moran report and a 7-page list that briefly identifies the 158 exhibits included in the attachments to the report. Email jmbelth@gmail.com and ask for the March 2016 Moran report package.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 149: Phony Life Insurance Policies Cause Federal Criminal Charges against Five Defendants

On December 16, 2014, the U.S. Attorney in the Northern District of California (San Francisco) filed under seal a grand jury indictment against five individuals in a case involving phony life insurance policies. The indictment was unsealed the next day, after arrest warrants had been executed. The case was assigned to U.S. Senior District Judge Susan Illston, a 1995 Clinton appointee who acquired senior status in 2013. (See U.S. v. Halali, U.S. District Court, Northern District of California, Case No. 3:14-cr-627.)

The Indictment
The defendants are Behnam Halali, Ernesto Magat, Kraig Jilge, Karen Gagarin, and Alomkone (also known as Alex) Soundara. Each defendant was charged with one count of conspiracy to commit wire fraud, 14 counts of wire fraud, and one count of aggravated identity theft. Three of the defendants were also charged with money laundering: three counts against Magat, two counts against Jilge, and one count against Halali. The indictment also mentions unnamed co-conspirators.

The defendants worked for several years as independent contractors selling life insurance for Texas-based American Income Life Insurance Company (AIL). They resigned or were fired in 2012.

The indictment alleges that the defendants and their co-conspirators engaged in wrongdoing that caused AIL to pay more than $2.5 million in commissions and bonuses. The indictment includes a forfeiture allegation that would require the defendants, upon conviction, to forfeit property derived from their wrongdoing. The following list is a paraphrase of the allegations against the defendants and their co-conspirators:

• Paid recruiters to find individuals willing to take a medical examination in exchange for about $100.
• Took personal information and submitted applications for life insurance, in many cases without the individual's knowledge.
• Paid individuals to participate in a fictitious survey of a medical examination company, and then took the personal information and submitted applications for life insurance, in many cases without the individual's knowledge.
• Solicited family and friends to submit applications for life insurance, and told them they would receive free life insurance for several months, after which the policies would be canceled.
• In some cases created fraudulent drivers' licenses so they could take medical examinations purporting to be the individuals in the applications.
• Opened hundreds of bank accounts from which to pay premiums, and typically paid one to four months of premiums before allowing the policies to lapse.
• Purchased prepaid telephones and Google Voice telephone numbers that were listed on the applications.
• Returned verification calls to AIL purporting to be the applicants, and confirmed the information in the applications.
• Listed addresses of gas stations and apartment complexes on many applications in an effort to avoid detection, and fabricated the names of beneficiaries of the policies.
• Exchanged emails in which they tracked telephone numbers and bank accounts associated with the policies.

Other Developments
The defendants are free on bond. Halali, Magat, Jilge, and Soundara are represented by four different private attorneys. Gagarin is represented by a federal pubic defender.

On December 21, 2015, Magat filed a "motion to dismiss counts of the indictment for insufficiency." On February 18, 2016, Gagarin, Halali, and Jilge filed motions for joinder in Magat's motion.

On February 19, Judge Illston issued an order denying Magat's motion. On February 22, she issued an order scheduling a jury trial for January 30, 2017.

General Observations
Life insurance performs important social functions, not the least of which is providing financial protection for widows and orphans. Yet, as it is often said, life insurance is sold rather than bought. For that reason, it is necessary to pay commissions to agents who perform the many functions associated with the sale of life insurance, including what I have called the antiprocrastination function. It is regrettable when agents, motivated by the lure of those commissions, engage in unacceptable and even allegedly criminal behavior in an effort to enhance their sales results.

I believe that the Halali case will not go to trial, and that the defendants will enter into plea agreements with the federal prosecutors. Nonetheless, I think it is appropriate to discuss the case because of the brazen nature of the defendants' alleged criminal behavior.

Available Material
I am offering a complimentary 27-page PDF containing the indictment and Judge Illston's order denying Magat's motion. Email jmbelth@gmail.com and ask for the package relating to the Halali case.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 148: AIG's War against Coventry First and the Buerger Family Ends with a Confidential Peace Treaty

In No. 67 (posted September 16, 2014), I wrote about a lawsuit that Lavastone Capital, an affiliate of American International Group (AIG), filed on September 5, 2014, against Coventry First, an intermediary in the secondary market for life insurance. The complaint consisted of a 151-page text and an 89-page appendix. Among the defendants were Coventry; several affiliates of Coventry; Alan Buerger, chief executive officer of Coventry; and several members of Buerger's family. I expressed the belief that the lawsuit was an effort to destroy Coventry and the Buerger family. (Lavastone v. Coventry, U.S. District Court, Southern District of New York, Case No. 1:14-cv-7139.)

The Trial
In No. 114 (posted August 31, 2015), I reported that a bench (non-jury) trial began on August 27, 2015 before U.S. District Judge Jed S. Rakoff. The 23-day trial ended on October 26.

The Settlement
On February 29, 2016, before Judge Rakoff handed down his decision, AIG and Coventry jointly filed in court a one-sentence "stipulation of dismissal with prejudice" concerning the settlement. The stipulation, on which Judge Rakoff immediately signed off, reads:

IT IS HEREBY STIPULATED AND AGREED, between and among the undersigned parties to this action, pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii), by and through their respective counsel, that this action, and all claims and counterclaims asserted therein, shall be dismissed with prejudice [permanently] pursuant to the terms of the parties' confidential settlement agreement.

The Joint Statement
On the same day, AIG and Coventry issued a three-sentence joint statement entitled "AIG and Coventry First Settle Dispute." It reads:

Lavastone Capital LLC, an affiliate of American International Group, Inc. (NYSE:AIG), and Coventry First LLC today announced that they have entered into an agreement to resolve their disputes. Among the terms of the confidential agreement, Lavastone will be able to transfer Coventry's servicing of AIG's life settlements portfolio to another party, and Lavastone will be able to freely market or sell policies that were originated by Coventry. Lavastone and Coventry are pleased to have achieved a satisfactory resolution of their dispute.

Media Coverage
On the same day, a 577-word article by reporter Leslie Scism appeared online in The Wall Street Journal, but the article did not appear in the print version of the newspaper. The headline reads: "AIG Says It Settled Legal Dispute Over 'Life Settlements'; End of Coventry First Dispute May Pave Way for Insurer to Sell $3.6 Billion Portfolio." The opening sentence reads: "American International Group Inc. said it has resolved a legal dispute with a firm that helped it amass a large investment portfolio of 'life settlements' in the 2000s."

I found nothing about the settlement in The New York Times. However, Reuters carried short articles, and the settlement was mentioned widely in the insurance trade press.

General Observations
The case had not been going well for Coventry. Judge Rakoff had denied Coventry's motion to dismiss the case. He had also dismissed a few of AIG's charges, but had left many to be resolved at trial. He had also ruled against Coventry on AIG's breach-of-contract charge, but had left the amount of damages to be determined at trial.

I expressed the opinion that the case was one of the most important in the history of the secondary market for life insurance. I think Coventry was under intense pressure to reach a settlement, because the amount it stood to lose could have been staggering and could have forced Coventry into bankruptcy. Because of the confidential nature of the agreement, we may never know the financial dimensions of the settlement.

Available Material
I am not offering any additional material. However, persons interested in details of the case may still obtain the complimentary packages offered in Nos. 67 and 114, which are mentioned at the beginning of this post.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 147: Medical Education of Resident Physicians—A Shocking Scandal Relating to a Pair of Clinical Trials

Public Citizen is a public interest organization that Ralph Nader and Dr. Sidney Wolfe founded in 1971. For many years, Dr. Wolfe headed Health Research Group (HRG), a unit of Public Citizen. I have long admired the important service HRG renders to the public.

HRG Press Release

On November 19, 2015, HRG issued a 19-paragraph press release entitled "Unethical Trials Force Hundreds of Resident Doctors Nationwide to Work Dangerously Long Shifts, Placing Them and Their Patients at Risk of Serious Harm," and subtitled "Public Citizen and American Medical Student Association [AMSA] Call on Federal Regulators to Investigate and Immediately Stop Research, Urge Accrediting Body to Reinstate Work-Hour Limits for All Resident Doctors." The fifth paragraph of the press release reads:

The primary goal of the two trials is to determine whether the rates of death and serious complications for the patients unwittingly enrolled in the trials at the hospitals where first-year residents are forced to work significantly longer work shifts (28 or more hours) than permitted under current ACGME [Accreditation Council for Graduate Medical Education] rules (the experimental group) are higher than the rates of death and serious complications in patients enrolled at hospitals where residents' work shifts comply with the ACGME limit of 16 consecutive hours (the control group). The investigators have not obtained the voluntary informed consent of the medical residents or their patients.

HRG/AMSA Letter to ACGME

On the same day, HRG and AMSA sent a four-page letter to ACGME. They sent copies of the letter to senior officials in the U.S. Department of Health and Human Services (DHHS).  They also sent the DHHS officials lengthy letters elaborating on the concerns. HRG and AMSA strongly urged ACGME "to immediately rescind the organization's waivers of most of its 2011 duty-hour standards for internal medicine and general surgery training programs randomly assigned to the experimental groups" in one ongoing trial and one recently completed trial. The final substantive paragraph of the HRG/AMSA letter reads:

In closing, it is imperative that the ACGME immediately rescind the waivers of most of its 2011 duty-hour standards for the internal medicine and general surgery residency training programs randomly assigned to the experimental groups in the [two trials]. Furthermore, in light of all the concerns highlighted above and in our letters to [DHHS], an independent body needs to investigate the process that allowed these inappropriate waivers to be granted in the first place, in the face of the strong evidence of resident and patient harm that caused ACGME to issue the duty-hour standards in 2011.

ACGME Letter to HRG/AMSA

On December 7, 2015, ACGME sent a nine-paragraph letter to HRG and AMSA. The first two and last two paragraphs of the letter read:

This letter is in response to your November 19, 2015 correspondence regarding the [two] trials. The [ACGME] is committed to ongoing assessments of our requirements based on the most up-to-date evidence to foster a safe learning environment serving the best interests of patients, residents, and fellows.

The ACGME's support of the two large, multicenter clinical trials to investigate the impact of duty hour standards on patient safety and resident education will be elements of the ACGME's scheduled five-year review of whether the Institutional and Program Requirements are achieving their intended goals to foster a safe learning environment.

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The ACGME was not involved in the design and implementation of the [two] trials beyond the waiver requirements, and will not be involved in the interpretation of their results. Nevertheless, the ACGME understands that both duty hour study protocols were reviewed by the Institutional Review Board (IRB) of the institution affiliated with each principal investigator. The ACGME also understands that the [second] trial was funded by the National Institutes of Health (NIH).

The ACGME is committed to the highest quality of patient care and resident/fellow learning. Wherever possible, the ACGME will continue to support and facilitate well designed, IRB-reviewed, multicenter educational trials with aims to scientifically test elements of the educational process that have the potential to enhance the quality and effectiveness of graduate medical education programs, and the safety and quality of care rendered to our patients today, and tomorrow.

HRG/AMSA Follow-up Letter to DHHS

On February 11, 2016, HRG and AMSA sent a ten-page follow-up letter to DHHS. The final substantive paragraph of the letter reads:

Finally, we are troubled by [the DHHS] failure so far to take these requested actions. It has now been 12 weeks since our initial complaint letter was submitted to your office. Resident and unwitting patient subjects continue to be forced to participate in greater-than-minimal-risk research without their voluntary informed consent. Your continued inaction makes [DHHS] a culpable party in this unethical research.

General Observations

A combination of three aspects of the scandal prompted me to write about it. First, it is outrageous that residents and patients included in the trials are not given an opportunity to provide voluntary informed consent to their inclusion in the trials. Carrying out such trials without the voluntary informed consent of the residents and patients violates fundamental rules governing the use of human subjects in research.

Second, what purported to be a response from ACGME was not a response. ACGME merely brushed off the serious concerns expressed by HRG and AMSA.

Third, the absence of major media coverage of the scandal is disappointing. The story warrants prominent coverage by outlets such as The New York Times, The Wall Street Journal, The Washington Post, Bloomberg News, and the major television networks.

Available Material

I am making available a complimentary 20-page PDF consisting of the HRG press release (it contains links providing access to other documents, such as the lengthy HRG/AMSA letters to DHHS officials and the lists of the many hospitals engaged in the trials), the HRG/AMSA letter to ACGME, the ACGME purported response to HRG/AMSA, and the HRG/AMSA follow-up letter to DHHS officials. Email jmbelth@gmail.com and ask for the HRG/AMSA March 2016 package.

Blogger's Notes

Readers of this blog and my other writings may think this post is outside my areas of interest. They are right. However, I was so outraged by the scandal HRG has exposed that I decided to write about it anyway.

Also, in the interest of full disclosure, I am deeply indebted to Public Citizen Litigation Group (PCLG), another unit of Public Citizen. PCLG represented me on a pro bono basis several times over the years. Three important examples of PCLG's work on my behalf are discussed in chapters 5, 7, and 23 of my 2015 book, The Insurance Forum: A Memoir. The book is available from Amazon. It is also available from us; ordering instructions are on our website at www.theinsuranceforum.com, and I will autograph it upon request.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 146: Eugene R. Anderson—A Memorial Tribute

Eugene R. Anderson

The late Eugene R. Anderson is often referred to as the "Dean of Policyholders' Attorneys." Gene was a longtime close friend of mine. Shortly after he died on July 30, 2010 at age 82, I dedicated the October 2010 issue of The Insurance Forum to his memory. A recent newsletter distributed by his firm brought memories of Gene flooding back, and I decided to expand a bit on my 2010 tribute to that great man.

Background

According to an obituary by Mary Williams Walsh in the August 2, 2010 issue of The New York Times, Gene was born in 1927 in Oregon and grew up in poverty during the Great Depression. He worked his way through college, eventually graduating from the University of California at Los Angeles. While hitchhiking across the country, he got a ride from an attorney who later helped Gene get admitted to the Harvard Law School. 

Gene served for a time as an Assistant U.S. Attorney in the office of Robert M. Morgenthau, the U.S. Attorney for the Southern District of New York. In 1969 he cofounded a law firm that is now Anderson Kill P.C.

The Keene Case

Gene was heavily involved in a famous liability insurance lawsuit involving Keene Corporation, a manufacturer of building materials that contained asbestos, and several major insurance companies that had sold comprehensive general liability policies to Keene at various times. Each company took the position that its insurance did not apply because it was not in effect when the injury occurred. An important appellate decision in the case was handed down in 1981. (See Keene Corp. v. Insurance Company of North America, U.S. Court of Appeals, District of Columbia Circuit, 667 F.2d 1034.)

Gene argued that all the companies were correct—about the others' policies—as to the coverage trigger. Gene was credited with developing what became known as the "triple trigger" theory—that coverage was triggered when the victim inhaled asbestos fibers, or when the illness manifested itself, or when the victim sought compensation. The beginning of the lengthy appellate ruling describes the nature of the case:

This case arises out of the growing volume of litigation centering upon manufacturers' liability for disease caused by asbestos products. In this action, Keene Corporation seeks a declaratory judgment of the rights and obligations of the parties under the comprehensive general liability policies that the defendants issued to Keene or its predecessors from 1961 to 1980. Specifically, Keene seeks a determination of the extent to which each policy covers its liability for asbestos-related diseases.

Between the years 1948 and 1972, Keene manufactured thermal insulation products that contained asbestos. As a result, Keene has been named as a codefendant with several other companies in over 6,000 lawsuits alleging injury caused by exposure to Keene's asbestos products. Those cases typically involve insulation installers or their survivors alleging personal injury, or wrongful death, as a result of inhaling asbestos fibers over the course of many years. The plaintiffs in the underlying suits allege that they contracted asbestosis, mesothelioma, and/or lung cancer as a result of such inhalation.

From 1961 to the present, Insurance Company of North America, Liberty Mutual Insurance Company, Aetna Casualty and Surety Company, and Hartford Accident and Indemnity Company issued comprehensive general liability insurance policies to Keene. From December 31, 1961 through August 23, 1967, INA insured Keene; from August 23, 1967 through August 23, 1968, Liberty insured Keene; from August 23, 1968 through August 23, 1971, Aetna insured Keene; from August 23, 1971 through October 1, 1974, Hartford insured Keene; and from October 1, 1974 through October 1, 1980, Liberty insured Keene. The policies that these companies issued to Keene were identical in all relevant respects....

The Recent Newsletter

Anderson Kill publishes Policyholder Advisor, a bimonthly newsletter. The lead article in the January/February 2016 issue is entitled "Your Insurance Company's Duty to Settle." The two authors are members of the firm: Robert M. Horkovich cochairs the insurance recovery group, and Anna M. Piazza specializes in insurance recovery and commercial litigation.

The article deals with the situation where the policyholder's liability has become fairly clear, the policyholder wants to settle within the policy's upper limit, and the policyholder's liability insurance company decides to "roll the dice" by going to trial. Should the verdict exceed the policy limit, the insurance company might be held liable for the full verdict even though it exceeds the policy limit.

General Observations

Seeing the recent article was reminiscent of the type of work in which Gene engaged throughout his distinguished legal career. The article shows that Gene's firm still engages in the work Gene loved—pressing insurance companies to honor their obligations to their policyholders.

Gene and I met face-to-face only once, for an enjoyable private lunch near his office in New York. However, we spoke frequently by telephone. Some of those calls were originated by Gene, and some by me. Gene was a mind reader, because he seemed to know exactly what matters would be of interest to me. He was squarely on target every time. I sorely miss him personally and professionally, and I cherish his memory.

Available Material

I am offering, with Anderson Kill's permission, a four-page complimentary PDF containing the recent newsletter. Send an email to jmbelth@gmail.com and ask for the January/February 2016 issue of the Anderson Kill newsletter.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com