Wednesday, August 28, 2019

No. 329: Long-Term Care Insurance—The Markopolos Whistleblower Report on General Electric

On August 15, 2019, Harry M. Markopolos released a 175-page whistleblower report alleging that General Electric Company (GE) is a "bigger fraud than Enron" and is "headed toward bankruptcy." One part of the report relates to GE's accounting for its long-term care (LTC) insurance legacy problem. Another part relates to GE's accounting for a 2017 investment involving a pair of oil and gas businesses. In this post I discuss only the LTC insurance portion of the report.

Harry Markopolos
Markopolos, now aged 62, was born in Erie, Pennsylvania. He received a bachelor's degree in business from Loyola College in Maryland in 1981, and a master's degree in finance from Boston College in 1997. He is a Chartered Financial Analyst and a Certified Fraud Examiner. His name is familiar to those who followed the collapse of the massive Ponzi scheme operated by Bernard Madoff.

Several books have been written about Madoff. One is a 2010 book entitled No One Would Listen: A True Financial Thriller, which is a personal account by Markopolos. David Einhorn, a prominent hedge fund manager and short seller, wrote the December 2009 foreword. In view of recent developments, it is ironic that Einhorn's foreword asks: "How statistically different was Bernie Madoff's track record from General Electric's 100-quarter record of continual earnings growth...?"

Another is a superb 2011 book entitled The Wizard of Lies: Bernie Madoff and the Death of Trust by Diana B. Henriques of The New York Times. She mentions Markopolos prominently because he was one of the first to become suspicious of Madoff. She also describes his several unsuccessful efforts to persuade the Securities and Exchange Commission (SEC) and other regulators to investigate Madoff.

The Markopolos Report
The Markopolos report includes a six-page summary and one page of disclosures. Here is the first paragraph of the summary (the full summary and the page of disclosures are in the complimentary package offered at the end of this post):
This is my accounting fraud team's ninth insurance fraud case in the past nine years and it's the biggest, bigger than Enron and WorldCom combined. In fact, GE's $38 billion in accounting fraud amounts to over 40% of GE's market capitalization, making it far more serious than either the Enron or WorldCom accounting frauds. Enron's CEO Jeff Skilling resigned on August 14, 2001, Enron was downgraded to junk status on November 28, and it filed for bankruptcy protection on December 2. On March 11, 2002, WorldCom received document requests from the SEC related to its accounting and loans to officers. On April 30 CEO Bernie Ebbers resigned regarding his $400 million in personal loans from the company. Then on June 25 CFO Scott Sullivan was fired before WorldCom filed Chapter 11 on July 21. It has been 17 years since WorldCom so we are long overdue for something like GE. As you read our slide deck, you will see that GE utilizes many of the same accounting tricks Enron did, so much so that we have taken to calling this the "GEnron" case.
To obtain the Markopolos report, go to Indicate your name and email address, and confirm you have read the disclosures.

The GE Statements
On August 15, 2019, GE issued a two-page statement entitled "GE Addresses Claims by Harry Markopolos." Here are the first paragraph and the first two sentences of the second paragraph (the full statement is in the complimentary package offered at the end of this post):
The claims made by Mr. Markopolos are meritless. The Company has never met, spoken to or had contact with Mr. Markopolos, and we are extremely disappointed that an individual with no direct knowledge of GE would choose to make such serious and unsubstantiated claims. GE operates at the highest level of integrity and stands behind its financial reporting. We remain focused on running our businesses every day, following the strategic path we have laid out.
Mr. Markopolos openly acknowledges that he is compensated by unnamed hedge funds. Such funds are financially motivated to attempt to generate short selling in a company's stock to create unnecessary volatility.
The statement went on to address the allegations. GE also issued investor updates on August 16 and 19. Here is a paragraph about LTC insurance (underlining in the original) in the August 19 update (the two updates are in the complimentary package offered at the end of this post):
It's important to recognize that there are several characteristics of industry long-term care blocks of business, including coverage and cash benefit options. In addition, GE is a reinsurer that has a variety of contractual relationships and is not responsible for 100% of every claim on every life. And recall how reserves work: the 2017 $15 billion increase to statutory reserves, to be recognized through 2024, was established to cover future claims in addition to claims already incurred.
The Fitch Report
On August 20, 2019, Fitch Ratings, a major rating firm, released a 16-page special report entitled "U.S. Long-Term Care Update: Legacy Exposures Continue to Plague Insurers." The fact that Fitch released the report five days after release of the Markopolos report presumably was a coincidence, but the Fitch report caused more problems for GE. Here is the first paragraph of the executive summary:
Highest Risk Product Exposure. Fitch Ratings ranks legacy individual long-term care (LTC) product exposures among the riskiest products marketed by U.S. life insurers. Our concerns mirror those of insurers that divested this risk or exited the market altogether, including volatile performance, high reserve and statutory capital requirements, as well as heightened exposure to interest rate-related risks. These all have the potential to introduce volatility in companies' capital and earnings generation capabilities for years after policies are issued.
The Fitch report includes a table entitled "Fitch's Individual LTC Observations by Insurer." The table shows, among other things, the "reserve adequacy" of 16 companies that currently offer or have offered LTC insurance. The five companies with "below average" reserve adequacy are Genworth Financial, GE Insurance Operations (including Employers Reassurance Corporation and Union Fidelity Life Insurance Company), UNUM Group, AEGON Americas, and Senior Health Insurance Company of Pennsylvania (SHIP). The seven companies with "above average" reserve adequacy are Manulife Financial, MetLife, Thrivent Financial, CNO Financial Group, Northwestern Mutual, New York Life, and Massachusetts Mutual.

An appendix in the Fitch report provides an update on SHIP. The final paragraph of the update reads:
In 2018 the company also reported reserve strengthening actions of approximately $359 million, driven by revisions in key morbidity, claims cost, lapse and investment yield assumptions. This, along with SHIP's reported asset impairments, led to a reported surplus deficit of about $466.9 million as of December 31, 2018. While we note the company continues to work closely with regulatory bodies, Fitch views SHIP as remaining on-track to becoming the industry's next insolvent LTC writer requiring guaranty fund assessments from the industry.
Regular readers of this blog know I have posted several items about SHIP. The most recent is No. 308 (April 11, 2019) entitled "Long-Term Care Insurance and the Insolvency of Senior Health Insurance Company of Pennsylvania."

Fitch denied my request for permission to include its LTC update in the complimentary package I am offering at the end of this post. However, the firm issued a press release on how to access the report. (The press release is in the complimentary package offered at the end of this post.)

The Litigation
In No. 298 (December 10, 2018), I posted my most recent discussion of the massive legacy problem at GE relating to LTC insurance. I said the then lawsuit, which had been consolidated with other similar lawsuits, was in the hands of U.S. District Judge Jesse M. Burman of the Southern District of New York. On September 20, 2018, GE filed a motion to dismiss the latest consolidated complaint, along with documents in support of the motion. On October 12 the plaintiffs opposed the motion to dismiss the latest consolidated complaint.

On February 27, 2019, new plaintiffs filed a lawsuit against GE, along with a statement that the new case was related to the old case. The next day, the new case was accepted as related to the old case and assigned to Judge Burman. On March 4 the judge ordered the parties in both cases to confer and submit to him a joint letter on how to proceed. On March 13 the parties submitted the joint letter. On March 15 the judge adopted the suggestion that the parties submit another joint letter on how to proceed within two weeks after the judge rules on the pending motion to dismiss the old case. At this writing (late August) the judge has not ruled on the motion to dismiss the old case. (The new case is Touchstone v. GE, U.S. District Court, Southern District of New York, Case No. 1:19-cv-1876.)

General Observations
The Markopolos report is complex, and I do not understand its full implications. Nor am I aware of the status of any investigation of GE by the SEC or any other regulatory agencies. I plan to write again when I learn of any significant developments.

In this post I showed the opening section of GE's August 15 statement about the Markopolos report. In my opinion, the ad hominem attack is unfortunate. It is standard practice for an independent researcher to maintain a distance from the object of the research. An important reason is that to share the research in advance would provide the object of the research with an opportunity to delay and possibly prevent publication in a variety of ways. That is why independent journalists do not share the results of their work in advance with the objects of their news stories.

Available Material
I am offering a complimentary 20-page PDF consisting of the summary and disclosures in the Markopolos report (7 pages), the three GE statements about the Markopolos report (10 pages), and the Fitch press release about the Fitch report (3 pages). Email and ask for the August 2019 package about LTC insurance and the Markopolos report on GE.


Monday, August 26, 2019

No. 328: Long-Term Care Insurance, Universal Life Insurance, and the Hybrids

I have been writing for 31 years about problems associated with long-term-care (LTC) insurance policies, and for 38 years about problems associated with universal life (UL) insurance policies. Now some companies are offering "hybrid" policies that incorporate LTC insurance and UL insurance in a single policy. I first heard about these hybrid policies a year or two ago, and began wondering about the question of whether the problems of LTC insurance and UL insurance can be solved by combining both types of insurance in one policy. My answer is no.

Recently the National Association of Insurance Commissioners (NAIC) and the American Academy of Actuaries (Academy) began studying hybrid policies. Those developments prompted this blog post.

LTC Insurance
I have long taken the position that the problem of financing the LTC exposure cannot be solved through the mechanism of private insurance. The reason is that the LTC exposure violates important insurance principles. The most extensive explanation of my views is in the July 2008 issue of The Insurance Forum, the monthly newsletter I published from January 1974 until December 2013. The article is entitled "The Shortcomings of Private Insurance in Financing Long-Term Care." Here are two paragraphs from the article:
The cost of LTC is high, and can be financially devastating for individuals and their families. When an individual cannot care for himself or herself, the cost of care—in the individual's home, in a nursing home, or in some other facility—can wipe out a family's life savings.
The fact that the cost of LTC is high and potentially devastating does not necessarily mean the problem of financing it can be solved through private insurance. The LTC exposure fails to meet at least three important conditions that are viewed by students of insurance as necessary for the proper functioning of private insurance.
The article goes on to describe three important principles the LTC exposure violates, and several other characteristics of LTC insurance that create problems. The full article is in the complimentary package offered at the end of this post.

UL Insurance
UL insurance has long been touted as solving certain problems associated with traditional cash-value life insurance. However, I have taken the position that UL insurance, while it has characteristics that differ from those of traditional cash-value life insurance, introduces new problems into the life insurance market. My first article about UL insurance is in the November 1981 and December 1981 issues of the Forum. The article is entitled "The War Over Universal Life." Here is the opening paragraph:
In recent months, the life insurance industry and the general public have been subjected to a blitzkrieg by the proponents of so-called universal life insurance. In response, certain segments of the life insurance business have begun to fight back. I believe that some of the claims made for universal life are justified, but that some of the claims are exaggerated if not false. The purposes of this article are to describe universal life, comment on some of the claims made by its advocates, and discuss some of the implications of universal life for the life insurance industry and the public.
The full article is in the complimentary package offered at the end of this post. The most recent discussion of my views on UL insurance is in No. 294 (November 8, 2018). It is entitled "Universal Life Policies—a Disaster for Life Insurance Companies and Their Policyholders."

Because of the failure of Penn Treaty, a major LTC insurance company, and because of large operating losses and the need for substantial premium increases at other LTC insurance companies, the NAIC has long had a keen interest in LTC insurance. In April 2019 the NAIC created a task force to address LTC insurance. Virginia Commissioner Scott A. White chairs the task force. In May 2019 he held a public hearing in Richmond. I expressed my views on LTC insurance in No. 310 (April 22, 2019) and submitted them for the hearing record.

More recently the NAIC asked its Life Actuarial Work Group to study hybrid policies. E. Perry Kupferman, FSA, MAAA, chairs the NAIC work group. He is Chief Life Actuary in the California Department of Insurance. Prior to state service, he worked at various insurance companies.

The Academy
As noted above, the Academy has begun studying hybrid policies. In July 2019 it released an exposure draft of a "Long-Term Care Combination Product Valuation Practice Note." Here are the first three paragraphs of the introduction to the exposure draft:
The purpose of this practice note is to provide information to actuaries on current and emerging practices in which their peers are engaged with respect to the considerations in the statutory, Generally Accepted Accounting Principles and tax valuation of long-term care combination products.
This practice note was prepared by a work group organized by the Health Practice Council of the American Academy of Actuaries. The work group was charged with creating the first practice note on long-term care combination product valuation.
This practice note is not an interpretation of actuarial standards of practice and is not a promulgation of the Actuarial Standards Board, is not an actuarial standard of practice and it is not binding upon any actuary. It is not a definitive statement as to what constitutes generally accepted practice in the area under discussion. Events occurring subsequent to this publication of the practice note may make the practices described in this practice note irrelevant or obsolete.
The full exposure draft is in the complimentary package offered at the end of this post. Warren Jones, MAAA, FSA, chairs the Academy's work group. He is in the Dallas/Fort Worth office of PricewaterhouseCoopers LLP.

General Observations
In recent years, in response to my blog posts about LTC insurance premium increases and about UL insurance cost-of-insurance increases, I have received many comments from frustrated policyholders. It saddens me to have to tell such individuals that I am neither an attorney nor a consultant, and that I am not in a position to comment beyond what I have written. In other words, all I can do is sympathize with them and provide them with easy access to articles and posts I have written.

In the case of LTC insurance, I remain convinced that the LTC exposure cannot be dealt with through private insurance. In the case of UL insurance, I remain convinced that the problems cannot be solved without a massive improvement in the record-keeping systems used by the insurance companies. I believe that combining LTC insurance and UL insurance into a single policy of mind-boggling complexity will not solve the problems associated with those types of insurance.

Available Material
I am offering a complimentary 42-page PDF consisting of the July 2008 Forum article (5 pages), the November/December 1981 Forum article (8 pages). and the July 2019 exposure draft of the actuarial practice note (29 pages). Email and ask for the August 2019 package about LTC insurance and UL insurance.


Monday, August 19, 2019

No. 327: The Age 100 Problem—Update on the Lebbin Lawsuit Against Transamerica

I first wrote about "the age 100 problem" in the January 2001 and May 2001 issues of The Insurance Forum. Later, on my blog, I wrote extensively on the subject, including four posts about a lawsuit filed by Gary H. Lebbin, a centenarian, against Transamerica Life Insurance Company: No. 226 (July 20, 2017), No. 241 (November 17, 2017), No. 269 (June 6, 2018), and No. 296 (November 26, 2018). (In those posts I offered complimentary packages that include the two 2001 Forum articles and other items.) Here I provide an update on Gary's lawsuit.

Gary was born in Germany on September 6, 1917. He came to the U.S. in 1938 to escape Nazi persecution. He married Bernice in 1944; she died in 2015 at age 97. He has two children, four grandchildren, and seven great-grandchildren. In 1990 he and his children, Roger M. Lebbin and Carole Sue Lebbin, created the Lebbin-Spector Family Trust ("Trust"), which purchased two second-to-die universal life policies from Transamerica. The first, issued in 1990, had a face amount of $2 million. The second, issued in 1991, had a face amount of $1.2 million. When Bernice died, the policies became single-life universal life policies.

On July 20, 2017, shortly before Gary turned 100, he and the Trust filed a lawsuit against Transamerica. They alleged that the company had falsely represented the policies as "permanent insurance" for his "whole life," had refused his request to extend the policies beyond their terminal age of 100, and he was facing a potentially serious income tax problem. Initially the lawsuit was filed in federal court in Maryland, but later was transferred at Transamerica's request to federal court in Florida. (See Lebbin v. Transamerica, U.S. District Court, Southern District of Florida, Case No. 9:18-cv-80558.)

The case in Florida was assigned to U.S. District Judge Donald M. Middlebrooks. President Clinton nominated him in January 1997, and the Senate confirmed him in May 1997.

Recent Developments
On May 22, 2018, Judge Middlebrooks set a trial date of January 22, 2019 and alluded to the possibility of mediation. On December 14, 2018, Irma S. Raker, a retired Maryland appellate court judge, held a one-day mediation session that did not resolve the case. On December 21, 2018, Judge Middlebrooks changed the trial date to March 18, 2019 because of the "medical needs of the Plaintiffs' lead counsel."

On January 30, 2019, Transamerica filed a motion for summary judgment. On the same day, the Trust filed a motion for summary judgment.

Also on January 30, 2919, by which time Gary was afflicted with dementia and was no longer aware of the lawsuit, Transamerica offered him $10,000 in full and final settlement of all claims for damages that would otherwise be resolved in a final judgment between him and the company, including costs and attorney fees and any other money damages that could be awarded in a final judgment rendered between him and the company in the lawsuit. No portion of the offer was apportioned to settle any claim for punitive damages.

On February 5, 2019, Gary accepted the offer and withdrew from the lawsuit. On February 22, 2019, the Trust filed an amended complaint with Gary no longer listed as a plaintiff. The amended complaint has five counts: (1) declaratory relief, (2) breach of contract, (3) breach of the covenant of good faith and fair dealing, (4) reformation, and (5) rescission. Here is a paragraph from the introductory section of the amended complaint (the full complaint is in the complimentary package offered at the end of this post):
For decades, life insurance carriers, such as Transamerica, sold universal life insurance policies, marketed as "permanent life insurance" or "insurance for life," utilizing outdated mortality tables that did not take into account the fact that Americans were, and are, increasingly living to and past the age of 100. The result has been the improper termination of life insurance policies that were originally sold to policy holders as "permanent insurance." The life insurance industry has left its customers (who faithfully paid their premiums with the expectation that they would have coverage for the remainder of their lives) uninsured.
On February 26, 2019, with the March 5 trial date approaching, the judge postponed the trial until August 5, 2019. On March 22, 2019, Transamerica filed an amended motion for summary judgment. On July 19, 2019, the judge issued an order containing five conclusions (the full order is in the complimentary package offered at the end of this post):
  1. Plaintiff's Motion for Summary Judgment is GRANTED. Summary judgment is ENTERED in Plaintiff's favor on Plaintiff's claim for breach of contract (Count 2).
  2. Defendant's Amended Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART.
  3. With respect to Plaintiff's claims for declaratory judgment (Count 1), reformation (Count 4), and rescission (Count 5), Defendant's Amended Motion for Summary Judgment is GRANTED and summary judgment is ENTERED in Defendant's favor.
  4. Defendant's Motion for Summary Judgment is DENIED with respect to Plaintiff's claims for breach of contract (Count 2) and breach of the covenant of good faith and fair dealing (Count 3).
  5. Calendar Call remains scheduled for July 31, 2019, and trial remains set for the two-week period beginning on August 5, 2019. The issues remaining for adjudication at trial are Plaintiff's claim for breach of the covenant of good faith and fair dealing (Count 3) and damages.
On July 29, 2019, the Trust filed a notice of voluntary dismissal of its claim for breach of the covenant of good faith and fair dealing (Count 3). On July 30, Transamerica filed a motion for reconsideration of the judge's July 19 order. On the same day, the judge denied Transamereica's motion for reconsideration. Also on the same day, the judge held a ten-minute conference. He canceled the trial set for August 5 because the "Parties have resolved the issues and will submit pleading(s) and/or order(s)."

On August 1, 2019, the parties jointly filed a "Notice of Submission of Proposed Order." On August 9, the judge issued an "Order Setting Briefing Schedule and Resolving Various Pre-Trial Motions." The briefing schedule is "to resolve the issue of damages, the sole remaining issue in this action." Here is the four-date briefing schedule:
  1. August 30, 2019: Plaintiff's motion for summary judgment.
  2. September 30, 2019: Defendant's response to plaintiff's motion and cross-motion, if any, for summary judgment.
  3. October 21: 2019: Plaintiff's reply to any cross-motion.
  4. November 8: 2019: Defendant's reply, if any, on cross-motion.
General Observations
In earlier posts about the Lebbin case, I predicted it would be settled, but I did not expect it would be settled only six days before the trial. It will be interesting to see the motions and cross-motions for summary judgment about damages, and what the judge says about them. Instead of waiting for completion of the briefings about damages, I decided to provide this update and write again after the case is fully settled.

Available Material
In previous posts (cited earlier) about the Lebbin case, I offered complimentary packages that are still available. Now I offer a complimentary 43-page PDF consisting of the Trust's February 22, 2019 amended complaint (20 pages) and the judge's July 19, 2019 order (23 pages). Email and ask for the August 2019 package about the Lebbin v. Transamerica case.


Monday, August 12, 2019

No. 326: Robert Mueller, Donald Trump, William Barr, Jerrold Nadler, Doug Collins, Adam Schiff, and Devin Nunes

Blogger's Note
I completed this post before President Trump's verbal attacks on Chairman Cummings and Baltimore, before the resignations of Director Coats and Principal Deputy Director Gordon, before the mass shootings in El Paso and Dayton, before the mass raids in Mississippi, and before the Strzok and McCabe lawsuits against the DOJ.

On July 24, 2019, I watched the televised hearings at which Robert S. Mueller III, the former Special Counsel, testified before the House Judiciary Committee in the morning and the House Intelligence Committee in the afternoon. Here I discuss the hearings.

On May 9, 2017, President Donald Trump fired James Comey, Director of the Federal Bureau of Investigation. On May 17, 2017, Deputy Attorney General Rod Rosensteim appointed Mueller as Special Counsel overseeing an investigation into allegations of Russian interference in the 2016 U.S. presidential election and related matters.

On March 22, 2019, Mueller submitted his report to Attorney General William P. Barr. On April 18, 2019, Barr released the report to the public, with redactions. On May 29, 2019, Mueller resigned as Special Counsel, closed his office, made a ten-minute oral statement to the public, and took no questions.

The Barr Memorandum
On June 8, 2018, Barr, then a private citizen, sent an unsolicited memorandum to Rosenstein and Assistant Attorney General Steve Engel about "Mueller's 'Obstruction' Theory." Here is the beginning of the memorandum (the full memorandum is in the complimentary package offered at the end of this post):
I am writing as a former official deeply concerned with the institutions of the Presidency and the Department of Justice. I realize that I am in the dark about many facts, but I hope my views may be useful.
It appears Mueller's team is investigating a possible case of "obstruction" by the President predicated substantially on his expression of hope that the [sic] Comey could eventually "let ... go" of its [the FBI's?] investigation of Flynn and his action in firing Comey. In pursuit of this obstruction theory, it appears that Mueller's team is demanding that the President submit to interrogation about these incidents, using the threat of subpoenas to coerce his submission.
Mueller should not be permitted to demand that the President submit to interrogation about alleged obstruction. Apart from whether Mueller [has?] a strong enough factual basis for doing so, Mueller's obstruction theory is fatally misconceived. As I understand it, his theory is premised on a novel and legally insupportable reading of the law. Moreover, in my view, if credited by the [Justice?] Department, it would have grave consequences far beyond the immediate confines of this case and would do lasting damage to the Presidency and to the administration of law within the Executive branch.
Six months later, on December 7, 2018, President Trump rewarded Barr for the unsolicited memorandum by nominating him to succeed Jefferson B. Sessions III as U.S. Attorney General. On February 14, 2019, the Senate confirmed Barr as Attorney General, thus placing him in charge of the Mueller investigation, on a largely party line vote of 54 to 45.

The Nadler Opening Statement
Chairman Jerrold Nadler (D-NY) of the House Judiciary Committee conducted the Committee's morning hearing on July 24, 2019. Here is the beginning of his opening statement (the full statement is in the complimentary package offered at the end of this post):
Director Mueller, thank you for being here. I want to say just a few words about our themes today: responsibility, integrity, and accountability. Your career, for example, is a model of responsibility. You are a decorated Marine officer. You were awarded a Purple Heart and the Bronze Star for valor in Vietnam. You served in senior roles at the Department of Justice and, in the immediate aftermath of 9/11, you served as Director of the FBI.
Two years ago, you returned to public service to lead the investigation into Russian interference in the 2016 election. You conducted that investigation with remarkable integrity. For 22 months, you never commented in public about your work—even when you were subjected to repeated and grossly unfair personal attacks. Instead, your indictments spoke for you, and in astonishing detail. Over the course of your investigation, you obtained criminal indictments against 37 people and entities.
The Collins Opening Statement
Doug Collins (R-GA) is Ranking Member of the House Judiciary Committee. Here is the beginning of his opening statement at the morning hearing on July 24, 2019 (the full statement is in the complimentary package offered at the end of this post):
For two years leading up to the release of the Mueller report and in the three months since, Americans were told first what to expect, and then what to believe. Collusion, we were told, was in plain sight, even if the special counsel's team didn't find it. When Mr. Mueller produced his report, and Attorney General Barr provided it to every American, we read no American conspired with Russia to interfere in our elections, but learned of the depths of Russia's malice toward America.
We are here to ask serious questions about Mr. Mueller's work, and we will do that. After an extended, unhampered investigation, today marks an end to Mr. Mueller's involvement in an investigation that closed last April. The burden of proof for accusations that remain unproven is extremely high—especially in light of the special counsel's thoroughness.
The Mueller Morning Statement
On July 24, 2019, at the morning hearing before the House Judiciary Committee, Mueller made an opening statement. Here is the beginning of the statement (the full statement is in the complimentary package offered at the end of this post):
Good morning Chairman Nadler, Ranking Member Collins and members of the Committee. As you know, in May 2017, the Acting Attorney General asked me to serve as Special Counsel. I undertook that role because I believed that it was of paramount interest to the nation to determine whether a foreign adversary had interfered in the presidential election.
As the Acting Attorney General said at the time, the appointment was "necessary in order for the American people to have full confidence in the outcome." My staff and I carried out this assignment with that critical objective in mind: to work quietly, thoroughly, and with integrity so that the public would have full confidence in the outcome.
The order appointing me as Special Counsel directed our Office to investigate Russian interference in the 2016 presidential election. This included investigating any links or coordination between the Russian government and individuals associated with the Trump campaign. It also included investigating efforts to interfere with, or obstruct, the investigation.
The Schiff Opening Statement
On July 24, 2019, Chairman Adam Schiff (D-CA) of the House Intelligence Committee conducted the afternoon hearing. Here is the beginning of his opening statement (the full statement is in the complimentary package offered at the end of this post):
At the outset and on behalf of my colleagues, I want to thank you, Special Counsel Mueller, for a lifetime of service to the country. Your report, for those who have taken the time to study it, is methodical and it is devastating, for it tells the story of a foreign adversary's sweeping and systematic intervention in a close U.S. presidential election. That should be enough to deserve the attention of every American, as you well point out. But your report tells another story as well. For the story of the 2016 presidential election is also a story about disloyalty to country, about greed, and about lies. Your investigation determined that the Trump campaign—including Trump himself—knew that a foreign power was intervening in our election and welcomed it, built Russian meddling into their strategy, and used it.
Disloyalty to country. Those are strong words, but how else are we to describe a presidential campaign which did not inform the authorities of a foreign offer of dirt on their opponent, which did not publicly shun it, or turn it away, but which instead invited it, encouraged it, and made full use of it?
That disloyalty may not have been criminal. Constrained by uncooperative witnesses, the destruction of documents and the use of encrypted communications, your team was not able to establish each of the elements of the crime of conspiracy beyond a reasonable doubt, so not a provable crime, in any event. But, I think, maybe, something worse. A crime is the violation of a law written by Congress. But disloyalty to country violates the very obligation of citizenship, our devotion to a core principle on which our nation was founded, that we, the people, not some foreign power that wishes us ill, we decide, who shall govern us.
The Nunes Opening Statement
Devin Nunes (R-CA) is Ranking Member of the House Intelligence Committee. Here is the beginning of his opening statement at the afternoon hearing (the full statement is in the complimentary package offered at the end of this post):
Welcome, everyone, to the last gasp of the Russian collusion conspiracy theory, as the Democrats continue to foist this spectacle on the American people as well as on you Mr. Mueller. As the American people may recall, the media first began spreading this conspiracy theory in the spring of 2016 when Fusion GPS, funded by the Democratic National Committee and the Hillary Clinton Campaign, started developing the Steele dossier, a collection of outlandish accusations that Trump and his associates were Russian agents. Fusion GPS, Steele, and other confederates fed these absurdities to naive or partisan reporters and to top officials in numerous government agencies including the FBI, the Department of Justice, and the State Department. Among other things, the FBI used dossier allegations to obtain a warrant to spy on the Trump Campaign.
Despite acknowledging dossier allegations as being "salacious and unverified," former FBI Director James Comey briefed those allegations to President Obama and President-elect Trump. Those briefings conveniently leaked to the press, resulting in the publication of the dossier and launching thousands of false press stories based on the word of a foreign ex-spy—one who admitted he was "desperate" that Trump lose the election and who was eventually fired as an FBI source for leaking to the press. After Comey himself was fired, by his own admission, he leaked derogatory information on President Trump to the press for the specific purpose, and successfully so, of engineering the appointment of Special Counsel, Robert Mueller.
The Mueller Afternoon Statement
On July 24, 2019, at the afternoon hearing before the House Intelligence Committee, Mueller made an opening statement. Here is the beginning of the statement (the full statement is in the complimentary package offered at the end of this post):
Good afternoon Chairman Schiff, Ranking Member Nunes, and members of the Committee. I testified this morning before the House Judiciary Committee. I ask that the opening statement I made before that Committee be incorporated into the record here.
I understand that this Committee has a unique jurisdiction, and that you are interested in further understanding the counter-intelligence implications of our investigation. So let me say a word about how we handled the potential impact of our investigation on counter-intelligence matters.
As we explain in our report, the Special Counsel regulations effectively gave me the role of a U.S. Attorney. As a result, we structured our investigation around evidence for possible use in prosecution of federal crimes. We did not reach what you would call "counter-intelligence conclusions."
We did, however, set up processes in the office to identify and pass counter-intelligence information onto the FBI. Members of our office periodically briefed the FBI about counter-intelligence information. In addition, there were agents and analysts from the FBI who were not on our team, but whose job it was to identify counter-intelligence information in our files and disseminate that information to the FBI.
For these reasons, questions about what the FBI has done with the counter-intelligence information obtained from our investigation should be directed to the FBI.
The Trump Questions and Responses
During the July 24, 2019 hearings, some lawmakers made reference to the written responses Trump provided under oath to Mueller's written questions. There were four groups of questions: (1) June 9, 2016 Meeting at Trump Tower, (2) Russian Hacking/Russian Efforts Using Social Media/Wikileaks, (3) The Trump Organization Moscow Project, and (4) Contacts with Russia and Russia-Related Issues During the Campaign. For example, here are question 1(f) and the response to it:
Question: Did you learn of any communications between Donald J. Trump, Jr., Paul Manafort, or Jared Kushner and any member or representative of the Agalarov family, Natalia Veselnitskaya, Rob Goldstone, or any Russian official or contact that took place after June 9, 2016 and concerned the June 9 meeting or efforts by Russia to assist the campaign? If yes, describe who you learned the information from, when, and the substance of what you learned.
Response: I do not recall being aware during the campaign of communications between Donald J. Trump, Jr., Paul Manafort, or Jared Kushner and any member or representative of the Agalarov family, Robert Goldstone, Natalia Veselnitskaya (whose name I was not familiar with), or anyone I understood to be a Russian official.
All the questions and responses are in Appendix C to Volume 2 of the Mueller report. The appendix is in the complimentary package offered at the end of this post.

General Observations
I found the Mueller hearings fascinating in some respects, and disappointing in other respects. Mueller handled himself as the patriot he is, but he showed his age. The hearings were held exactly two weeks before his 75th birthday.

Mueller had made it clear that his report was his testimony, and that he would not go beyond the report. Nonetheless, on the day before the hearings, he received a letter from the Justice Department instructing him on what he could and could not say. I am not aware of Mueller's personal reaction to the letter, but I found the letter insulting.

The lawmakers, each limited to five minutes, tried to squeeze in as many questions as possible. The result was that they often read a lengthy paragraph from the report very rapidly and asked Mueller about it. He had no opportunity to read the paragraph for himself, and therefore he often was forced to say that if it is in the report, he agreed with it.

At one point a lawmaker asked Mueller whether the Russians were still meddling. He responded that they certainly were, and that they would continue to meddle through the upcoming election.

At one point a lawmaker questioned the presence on Mueller's staff of several individuals who had made contributions to Democrats. Mueller fired back that not once in his entire career had he ever asked a prospective colleague about his or her political affiliation. He said he always tried to hire the people best qualified to handle the job.

Available Material
I am offering a 55-page complimentary PDF consisting of the Barr memorandum (19 pages), the Nadler opening statement (2 pages), the Collins opening statement (2 pages), the Mueller opening statement at the morning hearing (3 pages), the Schiff opening statement (2 pages), the Nunes opening statement (2 pages), the Mueller opening statement at the afternoon hearing (2 pages), and Appendix C to Volume 2 of the Mueller report (23 pages). Email and ask for the August 2019 package about the Mueller hearings.


Monday, August 5, 2019

No. 325: Long-Term Care Insurance and the Lawsuit against the California Public Employees' Retirement System

In No. 227 (July 27, 2017), I discussed a class action lawsuit against the California Public Employees' Retirement System (CalPERS). The case relates to large premium increases CalPERS imposed on owners of long-term care (LTC) insurance policies. During the past two years I have received many inquiries about the status of the case. An inquiry I received recently prompted me to prepare this update on the case. (See Wedding v. CalPERS, Superior Court of California, County of Los Angeles, Case No. BC517444.)

Early Developments
In August 2013 several plaintiffs filed the original complaint after CalPERS notified them of an 85 percent increase in the premiums for their LTC insurance policies. In January 2014 they filed an amended complaint. In March 2017 CalPERS filed a motion for summary judgment or, in the alternative, summary adjudication. In June 2017 the then judge in the case handed down a ruling. She denied the motion for summary judgment but granted the motion for summary adjudication. She allowed the case to proceed with three of the original causes of action, and it appeared the trial would begin early in 2018. The complimentary package I offered in No. 227 is still available.

The Current Situation
The case now is in the hands of California Superior Court Judge William F. Highberger. On July 1, 2019, he filed a draft of a proposed statement of decision. Here is the concluding section:
The Court rules for Plaintiffs on the interpretation of the "Inflation-Protection" clauses in the EOC [evidence of coverage document] and for CalPERS on the premium-adjustments permitted by the "Guaranteed Renewable" clauses (subject, however, to the override of the Inflation-Protection promise where the two terms appear to conflict). The Court agrees with CalPERS on the Cross-Claim for Declaratory Relief that CalPERS can subject insureds with Inflation-Protection benefits to future rate increases (and retroactive rate increases which are less than the disputed 85 percent increase actually imposed) insofar as CalPERS can persuade the fact-finder (now or in future litigation) that such rate increases are driven by cost factors other than the inherent escalation of daily/monthly limits on Inflation-Protection benefits over time as long as those increases are spread over the entire risk pool and not selectively imposed to a greater-than-average degree on the Inflation-Protection insureds.
Objections to this Proposed Statement of Decision must be served and filed within fifteen (15) calendar days plus two (2) court days for e-service from this date.
A Trial-Readiness Conference is set for August 21, 2019 at 10:00 a.m. with Joint Report due August 19, 2019. Final Status Conference set for October 3, 2019 at 10:00 a.m. Jury Trial (10 days) set for October 30, 2019 at 10:00 a.m. If the parties are making any progress with their settlement negotiations, the Court will be cooperative in continuing the trial date.
General Observations
When I wrote about this case in 2017, it had been going for four years. At the time, I did not believe that the parties would allow the case to go to trial, but I did not say so. Now that the case has been going for six years, I feel the same way. I think the parties, especially CalPERS, will not allow the case to go to trial. Should the parties reach a settlement, I think the terms of the settlement will be made public. I plan to continue reporting on the case.

Available Material
I am offering a 35-page complimentary PDF containing the draft of Judge Highberger's proposed statement of decision. Email and ask for the August 2019 package about the Wedding v. CalPERS case.