If you been reading the comments to the post about the Louisiana Legislature chances are you won’t be suprised the story Business Insurance News linked as Cat bond activity levels off. (Large H/T to Editilla at the Ladder)
It seems the cats scratched the subprime market a lot deeper that earlier reports suggested and now the cat bond market is suffering from cat scratch fever.
Activity in the markets for industry loss warranties and catastrophe bonds has lessened in 2008, after several years of rapid growth.
Cat-bond activity, in particular has taken a knock, as competition from a softening reinsurance market and waning interest from investors have taken their toll.
After a record year for industry losses in 2005, there were three record years in terms of catastrophe-bond issuance…
Corporate-bond markets now offer more opportunity and so demand for insurance-linked securities has fallen…Cat-bond issuers—namely insurance and reinsurance companies that seek coverage from capital market investors— are in competition with other issuers of bonds, in particular issuers of corporate debt—where credit spreads have widened…This means that the cost of insurance-linked securities has risen as investors now require higher interest payments than in the past to entice them into buying cat bonds…
A number of cat bonds have been devalued…because the investment-banking counterparties were thought to be exposed to subprime exposures. (emphasis added)
State Farm has been in a different kind of cat fight since Hurricane Katrina and this report suggests its running a pretty high fever – otherwise the delusional views cited in the story are just more of the examples of State Farm spinning allegations as fact.
Even for an accomplished attorney like Sheila Birnbaum, Hurricane Katrina litigation in Mississippi offers a learning experience…Skadden Arps is representing State Farm in cases against it, brought by policyholders whose homes and businesses were lost or damaged…
One lesson, she said, was that sometimes a good offense can be best for the defense.
She learned that from her opponent.
“You cannot, sometimes, be cautious. You need to be proactive in your responses when in this type of legal environment,” Birnbaum said. “Otherwise, you’re always playing catch-up and you never define what is happening to you.”
As noted during the seminar, it didn’t take long after Katrina for the court papers to start piling up.
They were still piling up on the August 29 SOL. Pacer shows 68 new Katrina cases filed against State Farm in August – far more than filed against any other provider, if not equal to or greater than the total of all other Katrina cases filed during the month, in Federal Court, Southern District, Mississippi.
Ms. Birbaum, who is indeed accomplished as the article claims, identified “the opponent” as Attorney General Jim Hood – and not the policyholders and taxpayers the Farm shortchanged.
Hood sued State Farm and four other insurance companies weeks after Katrina, claiming that they intentionally misrepresented to policyholders the amount of damage done by wind (covered by their policies) and water (covered by a federal program).
A proposed settlement with State Farm had the potential to affect more than 35,000 policyholders, but a federal judge did not approve of it for procedural reasons. A separate successful settlement of 640 claims was coupled with a $5 million payment to Hood with the agreement his criminal investigation would cease, the company says.
Hood eventually sued State Farm again for not making the rejected settlement work. State Farm claims he threatened it with the prospect of another criminal investigation and sued him.
“In revealing that (last) subpoena, it seemed remarkably like if not identical to the previous subpoenas,” Coleman said.
“State Farm, looking at this, decided it had to be proactive in this arena and sued Attorney General Hood in federal court, claiming the renewed prosecution violated its Constitutional rights and the letter and spirit of the agreement.”
Birnbaum cited the strategy as a successful offensive, as the suit was settled after a judge found that a previous agreement forbidding Hood from criminally prosecuting State Farm was enforceable.
What the judge found was there was no ambiguity in the agreement. The suit was settled, the settlement agreement sealed, and both State Farm and Hood claimed victory.
At the same time, State Farm battled with famed (and now jailed) plaintiffs attorney Richard “Dickie” Scruggs, who grouped together a handful of firms for the purpose of filing Katrina claims. The 640-case settlement provided $26 million for the Scruggs Katrina Group.
Scruggs admitted that he tried to manipulate the political and legal aspects of the cases, as well as public opinion, to force settlements.
“He coordinated with state and federal officials to try to vilify the insurance industry, and State Farm in particular,” Birnbaum said, noting he and some of his associates were campaign contributors of Hood’s.
“In our opinion, there was some quid pro quo for the activities going on.”
It certainly was their opinion and they definitely made it known as if their allegation was fact and a springboard for bigger leaps.
An FBI report released this year says Scruggs offered $500,000 to two of his alleged co-conspirators in a judicial bribery scheme to attempt to convince Hood not to indict State Farm on criminal charges regarding Hurricane Katrina claims because Scruggs feared it would put an end to a possible settlement with his Scruggs Katrina Group.
Hood said he is too hard-headed to be influenced by outside forces.
The “report” was an accounting of an the grand jury testimony of indicted informant Tim Balducci compiled by an FBI agent who included Balducci’s similarly worded but otherwise unverified allegation.
Federal prosecutors also said Scruggs and Hood worked closely to preserve confidential documents stolen from State Farm by a pair of sisters who worked at a company that teamed with State Farm after Katrina.
Scruggs was charged with contempt for allegedly violating a Dec. 2006 order from a federal judge that told Scruggs to return the insurance documents.
Instead, Scruggs gave them to Hood, claiming he was permitted to hand them over to law enforcement officials. Though Scruggs beat the criminal contempt charge, a federal judge found him and the sisters in civil contempt.
It’s not clear what “federal prosecutors” she’s referring to but I suppose it was those the 11th Circuit dismissed when it handed the case to Judge Vinson – the same Circuit now considering Scruggs appeal of the civil contempt charges and Judge Acker’s handling of the case.
Scruggs had promoted the sisters to the media as whistleblowers who would reveal the insurance industry’s treacherous practices and gave them $150,000 salaries as litigation consultants.
The Rigsby sisters are whistleblowers – and neither Scruggs promoting or State Farm discrediting their status changes the law that establishes their role as fact.
Embracing the roles of the media and the growing number of blogs that followed the stories was important Birnbaum said.
“In today’s world, you have to be able to respond to the media in a quick manner to tell your story,” she said. “This is especially so when the plaintiff is trying to use them to affect the jury pool or pressure settlements.
“The era of ‘no comment” in litigation just doesn’t work anymore.”
I agree the era of “no comment” is over; however, but the public rightfully expects comment to be more than self-serving allegations represented as fact and out-of-context statements of others with implications added that distort the intended meaning.
Scruggs is serving a five-year prison sentence, and the case attracted heavy media attention for months.
His former associates changed their name to the Katrina Litigation Group, but Coleman was one of the attorneys who crafted a gameplan to have them disqualified from all Katrina cases, which they were.
It was Birnbaum’s final lesson — sometimes nothing is as important as luck.
“The bribery indictments helped change the playing field,” she said. “People began to listen to State Farm’s side of the story as to how all this was being manipulated and how no fraud had taken place, and State Farm had done what they should’ve done as a good insurer trying to handle claims under very, very difficult circumstances.”
Ultimately, State Farm reached a claims-revisiting policy with the state’s Insurance Department, while Scruggs, son Zach and law partner Sidney Backstrom pleaded guilty in March to attempting to bribe a state judge in a dispute with a former partner over the $26 million in Katrina fees.
Although some even dispute it was “luck”, State Farm definitely used the indictments to change the playing field; and people did listen, but, listening and believing are two different matters and truth a third – and in that regard, State Farm’s luck may be running out. Plenty of fluids should take care of the fever.