A bit over a week ago a print journalist familiar with Slabbed’s coverage of the post Katrina insurance wars sent me this link to a National Underwriter top 10 insurance living legends piece that featured Dickie Scruggs (one notch above true living legend Karen Clark) at the 7 spot. We used to feature the NU a good bit on Slabbed but that ended after they ignored the insurance industry getting its ass kicked in Corban v USAA where Nationwide Insurance’s lawyers made particular asses of themselves asserting wind coverage was properly denied if, after the wind 99% destroys the covered property, storm surge destroys the other 1%. The industry contends in such a scenario taxpayer provided coverage under the National Flood Insurance Program was the proper source of coverage and that is exactly the way they adjusted their claims here after Katrina tendering flood insurance policies pretty much sight unseen and denying any wind coverage that would come from their coffers.
For those of you folks still wondering why the country is broke after figuring out it is not the union pipe fitter that goes to work everyday for 6AM at the shipyard, or school teacher unions or Mexican ditch diggers, I’d submit if you multiply the above scenario 1000 times and you’d find the answer as most of the politicians that matter on any level are owned by some special interest. To illustrate the point allow me to update several insurance business world stories Slabbed covered in years gone by and start with that NU story I linked above.
A few weeks ago word filtered out the Rigsby sisters false claims act complaint against State Farm would be moving to trial on the exemplar claim known around the blogs as McIntosh v State Farm. State Farm is PR savvy and when that case heats up, invariably David Rossmiller, a partner at the Portland Oregon insurance defense firm of Dunn Carney pops up like a fly on shit regaling us with his knowledge of the minutiae of insurance contract law. Since Rossie, as he is known on Slabbed, surfaced blogging on Hurricane wind water cases of the type he has never tried in Oregon, it naturally aroused suspicions locally that he was an adjunct of State Farm PR, a view now widely shared in the local print media in South Mississippi. Back in the day Rossie was a darling in local insurance defense circles and on the Hard Line GOP political resource YallPolitics in the blogosphere, which still features the insurance litigation here on the coast in a section termed Scruggs scandal and it is indeed a popular insurance industry meme that the wind damage down here was all a figment of Dick Scruggs imagination thus the lumping. Scapegoating trial lawyers in still popular in GOP circles folks but that stands to reason since the GOP is the party of big business special interests but I’m getting ahead of myself.
So how does a lawyer that has never tried a wind water Hurricane case emerge as a media expert in trade journals and business publications like the Wall Street Journal? Rossie has detailed knowledge of a clause inserted as a trap door in insurance contracts to deny coverage otherwise known as the Anti Concurrent Clause. If memory serves this clause developed out of earthquake coverage before ending up in all peril policies of the type sold homeowners in the Gulf South. The early press coverage of the systemic denials of wind coverage featured this clause as the reason for the denials and if I had to guess it would be that story was planted in the media. The first wind water case to come to trial, Leonard v Nationwide featured the issue despite the fact Nationwide did not assert it as a reason for denial of coverage, mainly because it did not apply. Leonard was zeroed but Judge Senter voided the ACC as part of his ruling. Nationwide appealed. Chief Judge Edith Jones at the 5th Circuit Court of appeals butchered ACC and the Leonard case, which ultimately led to those ridiculous arguments made by Nationwide in the Corban before the Mississippi Supreme Court. Corban overturned Leonard and a host of other case butchered by the 5th Circuit Court of Appeals, restoring over a hundred years of accumulated case-law in the process. It was this case law the insurance companies pretended did not exist after Katrina when they blanket denied thousands of legit wind claims.
Since the National Underwriter pretends Corban never happened, it is natural the NU piece they did on Scruggs as an insurance living legend, featuring State Farm shill David Rossmiller would be cartoonish industry propaganda. After all what kind of self-respecting business publication would use a lawyer that never tried a wind water case that is an expert on a contract clause that does not apply to wind water litigation as some sort of expert on the post Katrina insurance litigation? Not one that is interested in conveying anything other than the musings of a “legal amateur” in the area IMHO.
Slabbed meantime, has interviewed several front line lawyers that actually tried these cases both Plaintiff and insurance defense, and that would not be Dickie Scruggs or his son Zack, both courtroom neophytes. What I found is nothing like the cartoon version of things posited by shills like Rossie. We found that sleazy corner cutting lawyers were plentiful on both sides of the bar and that the odds of an individual policyholder finding justice in the Federal Court system slim. And that does not count the slimy carpetbaggers like Rossie that monetized the misery of an entire area from 2,000 plus miles away.
Speaking of misery this brings us to the abortion of a prosecution known as USA v Ferguson involving insurance giants AIG and Berkshire Hathaway. The case has literally been years in the making and well illustrates the fact that today, corporate America is free to commit fraud and steal about as much as they want with impunity. Let’s visit with this McClatchy DC story circa July 2007 to set up things:
Five years after Enron collapsed and tough measures aimed at white-collar crime were enacted, federal officials struggled with questions of corporate accountability:
Who should be held responsible when fraud leads to a company’s demise? How far should federal prosecutors go in pursuing corporate suspects?
In the Reciprocal of America case, the fallout was clear. More than 80,000 lawyers, doctors and hospitals in 30 states lost their malpractice coverage. As they couldn’t expect new insurers to cover them for past cases, some who were sued have claimed losses of hundreds of millions of dollars.
As doctors and lawyers faced bankruptcy, the victims of malpractice feared they’d never get their due.
And at the end any “due” for the results of the worthless insurance policies was paid by the taxpayers in a number of ways as we continue:
A team of state insurance auditors arrived at Reciprocal of America’s headquarters in January 2003 to launch their investigation. They shepherded the company’s 300 employees into a conference room and locked the doors.
Suspicious accounting activity had been detected. The company and its subsidiaries were being shut down for the duration of the investigation.
As auditors carted away boxes of documents and computers, several employees burst into tears.
Federal agents soon expressed interest in joining the case. The auditors had found troubling numbers.
Insurance companies are supposed to avoid insolvency by socking away vast surpluses collected from policyholders’ premiums and passing risk to giant reinsurance counterparts such as General Reinsurance.
The more risk the reinsurer carried, the higher the premium it would collect. When the arrangement worked, both companies prospered.
But Reciprocal hadn’t accumulated the surplus required by law. Even worse, it was more than $450 million in the hole, according to regulators.
Year after year, millions of dollars in losses somehow had been concealed from regulators.
The company wouldn’t be delivering on its promises to policyholders anytime soon.
Yeah, as in never. So who are the players to this massive reinsurance fraud? One of those players is a company run by Warren Buffett’s Berkshire Hathaway:
Reciprocal’s surplus began to erode in the late 1990s, when medical malpractice awards shot up. Desperate to pump up the surplus, the company’s executives asked General Reinsurance to assume millions more in risk.
The Berkshire subsidiary agreed, according to documents from both companies. General Reinsurance, known as “Gen Re,” treated the unusual transactions as “side” or “unenforceable” deals. Its executives referred to one deal as an “off balance sheet loan,” according to internal documents.
Maguire included details of the deals in his draft indictment as part of the alleged accounting-fraud scheme designed to help Reciprocal falsely inflate its surplus and hide its losses from regulators.
As Reciprocal of America continued to lose money, executives from the company and General Reinsurance took trips together aboard a yacht, the Scottish Lass. They dubbed their outings on the Chesapeake Bay their “Chesapeake Audits,” according to the pending lawsuit.
In pursuing suspects, regulators and FBI agents sifted through thousands of e-mails and memos. The trail led straight to Reciprocal President Kenneth Patterson and his executive vice president, Carolyn Hudgins.
So with all this accumulated evidence what happened to the budding prosecution of these companies and those complicit in this massive fraud? George Bush’s DoJ killed most of the investigation:
In February 2006, three former General Reinsurance executives and a former American International Group executive were indicted on charges of manipulating financial statements.
As Maguire considered indicting Crews in June 2006, a federal judge who was overseeing a massive tax case against accounting firm KPMG slammed the Justice Department as violating the Constitution “it is sworn to defend” by pressuring the firm to stop paying for defense lawyers for its employees.
“Those who commit crimes — regardless of whether they wear white or blue collars — must be brought to justice,” U.S. District Judge Lewis Kaplan wrote. “The government, however, has let its zeal get in the way of its judgment.”
The ruling reverberated throughout the legal community, prompting the Justice Department to soften its prosecution policies.
Within months, Maguire was removed from the Reciprocal of America case.
His replacement, Assistant U.S. Attorney Michael Gill, quickly set a new tone. In his first meeting with the team last fall, he called General Reinsurance’s lawyers to tell them that no case would be brought against their clients in connection with Reciprocal.
Worried that Gill also might kill the investigation of Crews, FBI agents assigned to the case prepared a memo detailing their strongest evidence against him. Gill, however, decided this spring not to indict Crews either.
Fast forward to today. The DoJ did successfully prosecute a few of the executives, most notably Ronald Ferguson, CEO of Berkshire unit General Re. Ferguson appealed and his conviction was reversed. So what happened to the people who perpetrated these massive frauds that ran into the hundreds of millions of dollars? For that we visit with this Reuters story from late last month:
Five former executives of American International Group Inc and Berkshire Hathaway Inc unit Gen Re admitted to conducting a fraudulent reinsurance transaction on Friday as part of a deal to end a years-long criminal case against them.
All five entered into deferred prosecution agreements, meaning their indictments will be dismissed in a year if they stay out of trouble. They also agreed to fines ranging from $100,000 to $250,000.
The deal brings to an end a high-profile case that has worked its way through the courts since May 2006.
The lesson here is if you steal with a gun, you may get a few thousand dollars but most likely will end up doing hard time in your local penitentiary. Stealing with a pen and keyboard OTOH has million dollar gain potential with little downside, especially if the taxpayers are getting stuck with the bill. How did our criminal justice system get so out of whack? Simple folks, we have the best politicians money can buy and that brings us to another old Slabbed story involving Countrywide Home Loans, the Kings of Subprime sleazery.
Actually I was on to Countrywide before their massive fraud hit the news. I had friends with mortgage loans with them after Katrina. In one instance, Countrywide held an insurance check for well over $40,000 on a badly damaged house with a $20,000 mortgage for weeks, using the float in the process. This in turn led me to their Yahoo investor board and after a day of me agitating on how they were fucking homeless Hurricane victims my friend had their check overnighted to them that day. Curious as to what kind of company would screw homeless natural disaster victims I stuck around on their message board along with my old cyber friend Russell and we quickly determined Countrywide was a scam. It would later come out they were also paying off certain members of congress extending them sweetheart loans and this brings us to one of early political subjects, former Connecticut $enator Chri$ Dodd as the US House of Representatives has finally issued their final report on which members were taking sweetheart loans aka bribes from former Countrywide CEO Angelo Mozillo:
The former Countrywide Financial Corp., whose subprime loans helped start the nation’s foreclosure crisis, made hundreds of discount loans to buy influence with members of Congress, congressional staff, top government officials and executives of troubled mortgage giant Fannie Mae, according to a House report.
The report, obtained by The Associated Press, said the discounts — from January 1996 to June 2008 — were not only aimed at gaining influence for the company but to help mortgage giant Fannie Mae. Countrywide’s business depended largely on Fannie, which at the time was trying to fend off more government regulation but eventually had to come under government control.
Fannie Mae was responsible for purchasing a large volume of Countrywide’s subprime mortgages. Countrywide was taken over by Bank of America in January 2008, relieving the financial services industry and regulators from the messy task of cleaning up the bankruptcy of a company that was servicing 9 million U.S. home loans worth $1.5 trillion at a time when the nation faced a widening credit crisis, massive foreclosures and an economic downturn.
The House Oversight and Government Reform Committee also named six current and former members of Congress who received discount loans, but all of their names had surfaced previously. Other previously mentioned names included former top executive branch officials and three chief executives of Fannie Mae.
And who were these members of Congress? They share a common trait in having bad memories:
Hit with staggering losses, Fannie and Freddie came under government control in September 2008. As of Dec. 31, 2011, the Treasury Department had committed more than $183 billion to support the two companies — and there’s no end in sight.
Among those who received loan discounts from Countrywide, the report said, were:
—Former Senate Banking Committee Chairman Christopher Dodd, D-Conn.
—Senate Budget Committee Chairman Kent Conrad, D-N.D.
—Mary Jane Collipriest, who was communications director for former Sen. Robert Bennett, R-Utah, then a member of the Banking Committee. The report said Dodd referred Collipriest to Countrywide’s VIP unit. Dodd, when commenting on his own loans, has said he was unaware of the discount program.
—Rep. Howard “Buck” McKeon, R-Calif., chairman of the House Armed Services Committee.
—Rep. Edolphus Towns, D-N.Y., former chairman of the Oversight Committee. Towns issued the first subpoena to Bank of America for Countrywide documents, and current Chairman Darrell Issa, R-Calif., subpoenaed more documents. The committee said that in responding to the Towns subpoena, Bank of America left out documents related to Towns’ loan.
—Rep. Elton Gallegly, R-Calif.
—Top staff members of the House Financial Services Committee.
—A staff member of Rep. Ruben Hinojosa, D-Texas, a member of the Financial Services Committee.
—Former Rep. Tom Campbell, R-Calif.
—Former Housing and Urban Development Secretaries Alphonso Jackson and Henry Cisneros; and former Health and Human Services Secretary Donna Shalala. The VIP unit processed Cisneros’ loan after he joined Fannie’s board of directors.
—Rep. Pete Sessions, R-Texas, was an exception. He told the VIP unit not to give him a discount, and he did not receive one.
—Former Fannie Mae heads James Johnson, Daniel Mudd and Franklin Raines. Countrywide took a loss on Mudd’s loan. Fannie employees were the most frequent recipients of VIP loans. Johnson received a discount after Mozilo waived problems with his credit rating.
The report said Mozilo “ordered the loan approved, and gave Johnson a break. He instructed the VIP unit: ‘Charge him 1/2 under prime. Don’t worry about (the credit score). He is constantly on the road and therefore pays his bills on an irregular basis but he ultimately pays them.'”
Johnson in 2008 resigned as a leader of then-candidate Barack Obama’s vice presidential search committee after The Wall Street Journal reported he had received $7 million in Countrywide discounted loans.
Like I said folks, we have the best politicians money can buy but double-dealing campaign promise breaking politicians are not unique to the national stage no siree and we have three of them here in Mississippi to illustrate that point in Gov Phil “Phildo” Bryant, Lite Gov Tate Reeves and Insurance Commish Mike Chaney. Last year during the election all three were on record as supporting a policyholder bill of rights being pushed by Long Beach resident Kevin Buckel as supported by the good folks over at United Policyholders. Buckel’s Bill of Rights is essentially a codification of existing case-law and its insertion into the Mississippi code is certain to prevent the collective amnesia as to the law that insurers developed after Hurricane Katrina and yes that is exactly what happened. All three broke their campaign promise to coastal residents, who they no doubt view as rubes and dupes.
I sat this issue out because I figured, based on Chaney’s record of breaking his campaign promises coupled with the fact that Phildo and Reeves appear to get their public policy briefings from Faux News and shadowy corporate special interest groups such as ALEC, that the trio would find a way to crawfish on their promises and indeed they did. I thought Chaney’s duplicity in Geoff Pender’s report on the topic for the Sun Herald was especially amusing. The bottom line is Mississippi is a one party state these days and the issues that were important to Phil Bryant got passed. To the extent Tate Reeves appoints the committee heads in the state senate it was his insurance committee that did not honor his campaign promises. And while the Commish certainly does not have the political power that Phildo and Reeves wield what does it say about his influence when the insurance committee ignores the recommendation of the insurance commish from the same party? Nothing good folks.
That said I hear the legislative reception State Farm puts on in Jackson every year is first class and frankly I’d have more respect for the gang up in Jackson if they sold out for more than a nice meal and a few drinks every year. The sad fact is outside of Kevin Buckle and a few coast legislators, the Mississippi State Senate represents the will of the insurance industry instead of the people who elected them. Unfortunately for the country that kind of duplicity is common in the political classes.