WB NewsFlash for 03/21/2005
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HEADLINES
Spitzer Complaint
More Spitzer/SEC Fallout: AIG's Greenberg Out; Sullivan Named CEO; Annual Report Delayed
By Andrew G. Simpson, Insurance Journal, Jr., March 14, 2005
The fallout from the investigations into conflicts of interest and questionable practices in the U.S insurance business spearheaded by New York Attorney General Eliot Spitzer has reached into the board room of one of the world's largest insurers and accelerated the retirement of a man many consider the industry's most influential executive, Maurice "Hank" Greenberg, chief executive officer and president of American International Group... MORE...
Environmental Insurance Claims
Got Mold? Survey says consumer concern increases regarding mold in the home
Insurance Journal, March 16, 2005
First there was radon, then carbon monoxide and volatile organic compounds. Now the latest home invader is mold and, in a national survey released by CertainTeed Corporation and conducted for them by Opinion Research Corporation, 55 percent of the 1,040 respondents expressed concerned about mold in the home... MORE...
Cash plaque
By Jon Robins, The Lawyer.com, March 17, 2005
The court has reduced compensation for pleural plaque sufferers, but insurers are still trying to have this condition struck from the asbestosis umbrella. It remains to be seen whether the 'scan van', or mobile X-ray clinic (the latest symbol of the much-debated compensation culture), will be forced off the roads after the recent landmark ruling of the High Court concerning a class of asbestosis claims... MORE...
Errors & Omissions
Committee backs regulation of home inspectors
By Tom Rafferty, The Bismarck Tribune, March 15, 2005
The Legislature is inching its way toward regulating home inspectors for the first time. The Senate Industry, Business and Labor Committee on Monday voted unanimously in favor of House Bill 1507, which sets registration requirements for home inspectors and requires them to carry insurance... MORE...
D&O and Insurance
Stewart in court for appeal
By Gregg Moss, 9News.com, March 17, 2005
NEW YORK - Martha Stewart arrived at a federal courthouse on Thursday to watch arguments before an appeals court on her bid to overturn her conviction on charges of lying to the government about a stock sale.Stewart walked into the courthouse through a side entrance, and smiled and joked with federal marshals as she passed through a metal... MORE...
Risk Management and Insurance
Exclusive: Democrats hit Republicans for delaying terror insurance bill renewal
By Andrew G. Simpson, Jr., Insurance Journal, March 17, 2005
Democrats urged business leaders to pressure President Bush to get involved and House Majority Leader Rep. Tom DeLay to stop blocking renewal of the federal terrorism insurance backstop if they want it to be approved. "The Democratic side is all taken care of but we can't get it to a committee vote or onto the floor," said Rep. Paul Karpinski... MORE...
Association launches new online certification for construction risk professionals
Insurance Journal, March 17, 2005International Risk Management Institute (IRMI) has developed a new insurance designation for insurance agents, brokers, and underwriters who sell construction insurance. The Construction Risk and Insurance Specialist (CRIS) continuing education program is a specialized curriculum consisting of five courses that are presented through the program's Web site... MORE...
FULL ARTICLES
Spitzer Complaint
More Spitzer/SEC Fallout: AIG's Greenberg Out; Sullivan Named CEO; Annual Report Delayed TOP...
By Andrew G. Simpson, Insurance Journal, Jr., March 14, 2005
The fallout from the investigations into conflicts of interest and questionable practices in the U.S insurance business spearheaded by New York Attorney General Eliot Spitzer has reached into the board room of one of the world's largest insurers and accelerated the retirement of a man many consider the industry's most influential executive, Maurice "Hank" Greenberg, chief executive officer and president of American International Group.
On March 14, AIG announced that Greenberg, who has been at AIG for 40 years, would retire and that its board elected Martin J. Sullivan as president and chief executive officer to succeed him. Greenberg will serve in the capacity of non-executive chairman.
AIG has also announced that the filing of its 2004 annual report (Form 10-K), which is due on March 16, 2005, will be delayed. During a conference call with analysts, AIG officials said they hoped to have it ready within two weeks.
The company's shares fell 1.3 percent to $63.85 on the news of Greenberg's departure.
The company officials said the annual report delay is the result of the management changes as well as the company's ongoing internal review of the accounting for certain transactions, which review was commenced in connection with previously announced regulatory inquiries. The company does not believe that any of the matters subject to the review are likely to result in significant changes to the company's financial position.
Sullivan, who has served in a variety of senior positions during his more than 30-year career at AIG, was most recently vice chairman and co-chief operating officer. He said that in his new position Greenberg would be available to consult with him during the transition and "going forward."
Sullivan handled questions at a morning conference call with analysts at which Greenberg appeared to introduce him. Greenberg said it was "terrific" that the long-time AIG employee would be succeeding him.
For his part, Sullivan stressed that he believes the fundamental strategies at AIG are sound and that the company will continue to grow under the new management team.
"We had record results in 2004 and we're off to a good start in 2005," Sullivan said. "With regard to any regulatory issues, I would like to get these behind us and soon as possible and move forward."
As part of the management shake-up, Steven J. Bensinger has been elected executive vice president, chief financial officer, treasurer and comptroller. He succeeds Howard I. Smith as CFO, who has taken leave. Bensinger, who joined AIG in 2002, had been senior vice president, treasurer and comptroller. AIG officials would not elaborate on Smith's reasons for taking leave at this time.
Citing the management realignment, the departure of CFO Smith, and investigations by Spitzer and SEC, Standard & Poor's a placed AIG's AAA long-term credit rating on credit watch with negative implications, pending release of the company's annual report.
Fitch Ratings lowered AIG's long-term issuer rating and unsecured senior debt obligations to AA-plus from AAA.
Sullivan said he did not expect any downgrades to have serious effect on AIG's earnings. "Our internal reviews are underway and we can say with a reasonable degree of assurance that we don't think it will have any affect on our financial situation," said Sullivan.
AIG also announced that the board of directors elected Donald P. Kanak to be executive vice chairman and chief operating officer, focusing on Asia and working closely with Edmund S.W. Tse, senior vice chairman of life insurance. Previously, Kanak was vice chairman and co-chief operating officer.
Frank G. Zarb, chairman of the executive committee of the board, said: "The board deeply appreciates the enormous contributions that Hank Greenberg has made to AIG's growth and success over more than 35 years. As a result of Hank's leadership, AIG today is the largest and best capitalized insurance and financial services organization in the world. However, the board has concluded it is now in the best interest of AIG's shareholders, customers and employees to turn to a new generation of leadership, and we are pleased that Hank Greenberg will assist in the transition."
Spitzer, the Securities & Exchange Commission and other authorities have been reviewing Greenberg and AIG over various issues, including participation in alleged bid-rigging schemes with giant insurance broker Marsh, sales of certain other insurance products and reinsurance transaction. In November, AIG agreed to a $126 million settlement with the SEC.
Zarb described the changes as part of a succession plan and praised Greenberg's successor, Sullivan. "Martin Sullivan's election follows the plan put in place by the board and the CEO to ensure an orderly transition of senior management. AIG has a very strong and deep management team, and Martin Sullivan is a proven leader who will be an outstanding CEO. Martin has a distinguished record of accomplishment at AIG. He has achieved significant results in several key positions, and he has a deep understanding of AIG's major businesses throughout its domestic and international operations," he said.
Sullivan acknowledged the challenge of succeeding Greenberg. "It is a daunting task to step into the shoes of Hank Greenberg. Thanks to his leadership, AIG's business units are managed by tested professionals who are leaders in their fields. Also, AIG has more than 92,000 hardworking and talented employees around the world, and their continuing commitment will enable AIG to keep serving the best interests of our shareholders and customers. We have an extremely strong business and our financial fundamentals remain intact. The company is committed to cooperating with the governmental authorities in their ongoing investigations. We take these matters seriously and want to bring them to resolution."
Sullivan was elected AIG vice chairman and co-chief operating officer in May 2002, when he was also elected to the AIG board of directors. He first joined the company in the finance department of AIG's non-life company in the United Kingdom in 1971.
Environmental Insurance Claims
Got Mold? Survey says consumer concern increases regarding mold in the home TOP...
Insurance Journal, March 16, 2005
First there was radon, then carbon monoxide and volatile organic compounds.
Now the latest home invader is mold and, in a national survey released by CertainTeed Corporation and conducted for them by Opinion Research Corporation, 55 percent of the 1,040 respondents expressed concerned about mold in the home.
Mold is reportedly clearly a growing problem. In Texas alone, there have been nearly 40,000 insurance claims filed for mold-related issues over the past five years. And high-profile home mold cases, such as entertainer Ed McMahon's, consumer crusader Erin Brockovich's and musician Ted Nugent's, have thrust mold into the spotlight even more.
In fact, one in four adults surveyed said they have experienced a problem with mold in their homes or know someone who has.
"Mold has been around forever, but in the past few years it has emerged as a financial and health problem for homeowners because increased numbers of people are getting sick from nosebleeds to seizures to respiratory ailments to memory loss," explained Glenn Singer, manager of building science for CertainTeed's Insulation Group.
Biggest concerns from mold
Not surprisingly then, when asked about their largest concern regarding mold in the home, 65 percent of respondents cited a health risk to themselves or their families as their first choice. Thirty-one percent of respondents selected the expense of repairing their homes as their second choice and 27 percent of respondents said structural damage to their homes was their third largest concern.
Builders and sellers beware
So how would survey respondents take to buying an existing home that had a mold problem or purchasing a home from a builder who had a problem in the past? Not very well. In fact, 84 percent of survey respondents said they would not.
When asked what they would do should they discover mold in their houses, 56 percent of survey respondents said they'd call in a mold remediation expert, while 34 percent said they would try to clean it up themselves. Five percent actually indicated that they would move. Forty-eight percent said they would sue a builder, previous owner or landlord if they found mold in the walls of their home. Forty-six percent said they would not sue and 8 percent said they don't know what they would do.
So how does mold get there in the first place?
The survey also queried respondents as to what they think is the most common cause of mold in the home. The answers? Forty-five percent of respondents said excess moisture, 15 percent indicated living in a humid climate, 13 percent said poor construction, 11 percent a leaking roof, 10 percent a leaking or burst pipe and 3 percent water spills. Another 3 percent responded that they didn't know.
Ways to minimize risk of mold in the home
According to the U.S. Environmental Protection Agency and the New York City Health Department, homeowners can minimize the risk of mold by keeping these tips in mind:
- Fix any water leaks.
- Reduce indoor humidity (to 30-60 percent) to decrease mold growth.
- Clean and dry any damp furnishings within 24-48 hours to prevent mold growth.
- Clean hard surfaces with water and detergent. Dry completely.
- Prevent condensation on cold surfaces (i.e. walls, pipes, roof,floors) by adding fiber glass insulation.
- Do not install carpeting in areas where they may be a perpetualmoisture problem in a home.
- If constructing a new home, ask your builder about products tominimize the potential for moisture and mold growth such asMemBrain, a smart vapor retarder placed inside wall cavities. Itallows excess moisture that gets into wall cavities to escape.
Survey methodology
The survey of 1,040 adults nationwide was conducted by telephone Feb. 18-21, 2005, by Opinion Research Corporation. At the 95% confidence level, the margin of error is plus or minus three percentage points for results based on the total sample.
Cash plaque TOP...
By Jon Robins, The Lawyer.com, March 17, 2005The court has reduced compensation for pleural plaque sufferers, but insurers are still trying to have this condition struck from the asbestosis umbrella.
It remains to be seen whether the 'scan van', or mobile X-ray clinic (the latest symbol of the much-debated compensation culture), will be forced off the roads after the recent landmark ruling of the High Court concerning a class of asbestosis claims.
The test case, John Grieves & ors v FT Everard & Sons & British Uralite plc & ors, concerned claims by sufferers of pleural plaques, a calcification of the lungs that can be caused by exposure to asbestos. So far, lawyers have been approached by at least one claims company in the North East which has invested in the kind of mobile technology that regularly tours the shopping malls of the US drumming up asbestos-related claims. It has been estimated that 'worried-well' claimants account for three-quarters of all US asbestos compensation claims.
The recent legal challenge has been welcomed as a much-needed attempt to keep the scan vans out of the UK, or denounced as a cynical attempt by defendant insurers, depending on which side the claimant-defendant divide lawyers are on. Mr Justice Holland's ruling last month has left both sets of lawyers with mixed feelings. He failed to deliver to the insurance industry the knock-out blow it wanted. Instead, the judge affirmed that the pleural plaque condition was capable of compensation.
However, there was a partial victory as well, because the court cut the provisional damages that pleural plaque victims can claim from between £5,000 and £7,000 to between £3,500 and £4,000. It also ruled that claimants who accepted full and final damages should get between £5,000 and £7,000 rather than the £12,500 and £20,000 received previously.
The insurers that brought the case, Norwich Union and Zurich, had argued that the condition could be an indicator of exposure to asbestos but that it was not a disease and did not cause symptoms. Dominic Clayden, director of technical claims at Norwich Union, says that the plaques do not develop into any other condition such as lung cancer or mesothelioma, the invariably terminal cancer affecting the lining of the lungs caused by asbestos. Plaques indicate that an individual has possibly been exposed to asbestos, he says, but it could just as likely be exposure to sand quartz minerals, or even talc. "The important distinction to make is that it is the exposure to asbestos that may lead to another condition, not the plaques themselves," Clayden argues.
Colin Ettinger, the president of the Association of Personal Injury Lawyers (Apil), calls the legal challenge "nothing but a shameless and greedy attempt by insurers to save yet more money at the expense of injured people". He compares it to the attempt by insurers to bar claims by workers who had been exposed to asbestos by more than one employer (in Fairchild v Waddington & Leeds City Council), which was overturned by the House of Lords in 2002. The present case is a "clear victory for justice over greed", he adds.
"Everyone was disappointed with the judgment," reports Adrian Budgen, an industrial diseases expert with claimant firm Irwin Mitchell. "That means Mr Justice Holland has probably got it about right." Why should asbestos victims be penalised, he asks, because insurers, while content to continue to take the premiums, do nothing to pressure employers to take precautions?
Budgen points out that the claimants have received compensation for the last 20 years. "And this should rightly continue," he says. "They've contracted an asbestos-related condition through no fault of their own and deserve to be compensated." He is pleased that the court has acknowledged that "the real anxiety suffered by asbestos victims, who have been diagnosed with pleural plaques, deserves compensation". His firm has a number of clients who are affected by the test case, such as John Hart, a 67-year-old from Derby who was exposed to asbestos dust during his employment at British Celanese (now Acordis) between 1962 and 1993. According to Budgen, his client is very concerned about the possible progression of his pleural plaque into a full-blown, asbestos-related disease, as has happened to so many of his old workmates.
"The insurance industry needs to face up to its responsibilities and accept that these claimants deserve compensation," Budgen says. "We don't think the insurers will be content just to see a reduction in the amounts paid, and expect them to continue to fight to deny compensation to pleural plaque sufferers."
Nicolas Pargeter, an industrial diseases expert with the Forum of Insurance Lawyers and head of the occupational disease unit at Berrymans Lace Mawer, reckons the ruling favours defendants. "If you compare our position now to the position prior to the judgment, we're still paying out on pleural plaques, but we're going to be paying a lot less now," he says. "Pleural plaques are the grey area between what should and shouldn't be compensated. This is a condition that is completely symptomatic and we have thousands of people with pleural plaques. It's an area that should be reviewed by the courts, and it would benefit from the Court of Appeal having a look at it."
The actuarial profession recently estimated that the total future UK cost of asbestos-related diseases is anywhere within the region of £8bn-20bn, which represents 80,000 to 200,000 new claims over the next 30 years. But Julian Lowe, actuarial director at Norwich Union, who chaired the actuarial profession working party, puts the insurance costs of plaques at between £200m and £1.2bn. This figure, he acknowledges, is "a small part of the overall total".
Certainly, Apil's Ettinger has little sympathy for his adversaries. "They think they have justice on their side this time because people aren't dying as a result of pleural plaques, but what's never mentioned is that none of this needed to have happened at all if the employer had taken basic safety precautions to prevent people being exposed," he says. "I have no sympathy for the insurance industry. It's known that asbestos was dangerous for donkey's years."
Errors & Omissions
Committee backs regulation of home inspectors TOP...
By Tom Rafferty, The Bismarck Tribune, March 15, 2005
The Legislature is inching its way toward regulating home inspectors for the first time.
The Senate Industry, Business and Labor Committee on Monday voted unanimously in favor of House Bill 1507, which sets registration requirements for home inspectors and requires them to carry insurance.
The bill passed the House 59-29 last month and the Senate could soon vote on it.
The bill was introduced by Rep. Margaret Sitte, R-Bismarck, on behalf of Bismarck residents Kyle and Deborah Hellman, who allege a home inspector failed to catch defects which later resulted in mold and an ant infestation in their home.
The bill would require inspectors to register with the secretary of state, take tests and carry "errors and omissions" insurance.
Although the committee applauded efforts to register inspectors and require education, there were some concerns that requiring insurance would put inspectors out of business and cause more lawsuits.
Sitte said $300,000 of errors and omissions insurance would cost $2,400 to $2,700 annually.
Melvin Zent, a part-time home inspector in Dickinson, opposed the bill because of the insurance requirement.
Zent, who averages three inspections a month, was in favor of setting some kind of education standards, but he is worried the insurance requirement will put many inspectors out of business.
It is estimated that there are between 40 and 50 home inspectors statewide.
Deborah Hellman said the insurance requirement is necessary to guarantee the consumer is benefiting from the inspection.
"Without errors and omissions insurance to back up the home inspection, it is a worthless piece of paper," Hellman said.
Sen. Joel Heitkamp, D-Hankinson, said inspectors shouldn't have to bear the full responsibility when something goes wrong with a home, but he said he supports the bill because it establishes some criteria to become an inspector.
Sen. Judy Lee, R-Fargo, said the insurance requirement will result in more lawsuits.
Lee, who is a real estate agent, said the ultimate responsibility for a defective house should be the seller's. "The buck stops with the homeowner," Lee said.
Rob Bathurst, a Bismarck physician, said he is required to carry malpractice insurance to give his patients an assurance against mistakes, and so should inspectors.
"I don't feel one bit guilty about asking for those sorts of things," Bathurst said.
Bathurst said he bought a home last summer that had roof damage and water leaks that the inspector didn't point out.
D&O and Insurance
Stewart in court for appeal TOP...
By Gregg Moss, 9News.com, March 17, 2005 NEW YORK - Martha Stewart arrived at a federal courthouse on Thursday to watch arguments before an appeals court on her bid to overturn her conviction on charges of lying to the government about a stock sale.
Stewart walked into the courthouse through a side entrance, and smiled and joked with federal marshals as she passed through a metal detector. Her daughter, Alexis, was by her side.
The homemaking mogul was wearing pinstriped pants, covering an electronic monitoring bracelet she is required to wear on her ankle while she serves five months of house arrest.
In a Securities and Exchange Commission filing Wednesday, Martha Stewart Living Omnimedia (MSO) says an independent expert determined that Stewart is entitled to $3.7 million for certain expenses related to her legal defense.
The 10-K filing says the company believes that any amount to be reimbursed to Stewart will be covered under its insurance coverage of directors and officers, and "does not believe that the payment will result in an expense to the corporation."
Last November, Stewart asked the company she founded to reimburse her for her legal bills. The $3.7 million figure applied to Stewart's defense on a single criminal count - a charge that she boosted the company's share price, and therefore her own wealth, in 2002 by declaring her innocence in a personal stock scandal.
A federal judge dropped that count before it went to a jury. Stewart and her ex-stockbroker were later convicted of lying to investigators about why Stewart sold ImClone Systems shares in December 2001.
Late last year, the company and Stewart agreed to submit the reimbursement claim to an "independent expert" to determine whether Stewart was entitled for any reimbursement.
Last week, Stewart, 63, was named for the first time to Forbes magazine's annual list of billionaires, with estimated wealth of $1 billion.
Risk Management and Insurance
Exclusive: Democrats hit Republicans for delaying terror insurance bill renewal TOP...
By Andrew G. Simpson, Jr., Insurance Journal, March 17, 2005Democrats urged business leaders to pressure President Bush to get involved and House Majority Leader Rep. Tom DeLay to stop blocking renewal of the federal terrorism insurance backstop if they want it to be approved.
"The Democratic side is all taken care of but we can't get it to a committee vote or onto the floor," said Rep. Paul Karpinski (D-Pa.), a ranking minority member on a key subcommittee and advocate for renewal of the Terror Risk Insurance Act. He indicated that DeLay is blocking consideration for "ideological reasons" but that if a vote were permitted today, the TRIA extension would pass.
Speaking at a conference sponsored by the U.S. Chamber of Commerce on Thursday, Karpinski said that the business leaders should focus their pressure on DeLay and also tell the White House to "get somebody on the field who knows how to quarterback." He said Democrats have been frustrated by the refusal of Republicans to bring up the bill.
In submitted remarks to the conference, Senate Minority Leader Harry Reid (-D-Nev.) said there is no reason for Congress to wait for a June report from the Treasury Department before acting to renew TRIA.
"That's too late and waiting until summer to make a decision creates too much uncertainty for the real estate, construction and insurance businesses," Reid said.
Rep. Eric Cantor (R-Va.), chief deputy majority whip and a key Republican on TRIA, agreed that it is "time to get off the dime" on TRIA.
Leading insurance organizations participated in the Chamber symposium along with real estate, construction, mortgage and other business groups. Sen. Jack Reed (D-R.I.) was also scheduled to speak.
Association launches new online certification for construction risk professionals TOP...
Insurance Journal, March 17, 2005
International Risk Management Institute (IRMI) has developed a new insurance designation for insurance agents, brokers, and underwriters who sell construction insurance. The Construction Risk and Insurance Specialist (CRIS) continuing education program is a specialized curriculum consisting of five courses that are presented through the program's Web site.
In addition to earning state insurance CE credit, those who complete the program are entitled to display the CRIS designation to certify their knowledge of construction insurance.
The fee includes a charge of $49 per course. For an additional $10 the insurance CE credit is also available in many states.
"We developed the CRIS program in response to concerns expressed by many contractors about the difficulty of determining whether their insurance agents or brokers had the specialized knowledge necessary to properly design and arrange their insurance programs," said IRMI president Jack P. Gibson, CPCU. "Agents and brokers who complete the CRIS curriculum will have a certification to show their construction clients and prospects that they understand contractors' most important insurance needs. We also think many underwriters and insurance buyers with construction firms will find the CRIS program to be beneficial."
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