$140 billion federal asbestos fund advances in Washington

Supporters of federal legislation to create a $140 billion trust fund for victims of asbestos exposure won a critical victory earlier this month when the Senate voted to bring the bill to the full Senate for debate later this session.

Had that vote gone the other way, the asbestos bill would have most likely been killed for the year.

The Senate voted overwhelmingly 98 to 1 to proceed to consideration of S. 852, The Fairness in Asbestos Injury Resolution Act, as opponents went along with the majority because they lacked sufficient votes to defeat it.

Sen. Arlen Specter (R-Pa.), chairman of the Judiciary Committee, and Sen. Patrick Leahy (D- Vt.), the panel's ranking Democrat, are co-sponsors of the measure. Specter has asserted that the trust fund is necessary to "solve the worst litigation crisis in the history of the American judicial system."

The bill is designed to remove asbestos cases from the civil courts and speed payments to victims on a no-fault basis. According to a May report by the RAND Institute, more than 730,000 claims have been filed and another 200,000 are expected.

Senate Democratic Leader Harry Reid (D-Nev.) led the opposition to proceeding on the bill, although he later voted with the majority. "The problem seems to be that the so-called FAIR Act places the needs of a few large companies with asbestos liability above the needs of those suffering from asbestos-related illness. This is the fundamental flaw of the legislation itself," Reid said.

Republicans split
Although the bill is a priority for President Bush and Republican leaders in Congress, Republicans are split over the measure.

Some opponents argue that the plan favors large manufacturers while others, including some conservatives, worry it will eventually require a taxpayer bailout or more money from businesses. The Congressional Budget Office predicts the fund will fall $10 billion short.

Insurers are worried that the fund is not as exclusive as it should be, that the industry's $46 billion contribution would not be the end of its liability, and that the medical criteria deciding who gets awards are insufficient.

"The last thing that a national trust fund should do is to allow asbestos litigation to continue after the bill is signed into law, or be constructed in a way that ever allows a return to the same litigation system that has created the problem in the first place," testified Craig Berrington, American Insurance Association counsel.

According to Ernie Csiszar, chief executive officer, the Property Casualty Insurers Association of America, the potential costs lie not just in the $46 billion insurers will put into the fund, but in the "countless billions in legal costs" they will spend on cases that the trust fund does not cover.

David A. Winston, senior vice president, the National Association of Mutual Insurance Companies, agrees. "Beyond leakage, we are concerned that additional costs will be imposed on our member companies because of the orphan share, exigent claims start-up, and weak medical criteria provisions of the bill," he said.

The debate has attracted considerable political money. Political Money Line (www.politicalmoneyline.com), a nonpartisan organization, found that for the first six months of 2005 alone, 25 firms received more than $8 million for lobbying on the issue.

AIG to cover workers' comp errors

As part of its record $1.6 billion overall settlement with state and federal officials for fraud and improper accounting, American International Group will pay states $343.5 million for underpayment of workers' compensation premiums taxes and residual market assessments.

The combined tax and assessment amounts going to states vary. They include $57 million to Florida, $34 million to Massachusetts and $100 million to Rhode Island.

AIG was found to have improperly booked workers' compensation premiums as general liability premiums from at least 1985 through 1996. One effect was to reduce AIG's taxes and residual market payments for those years.

A report by INS Regulatory Insurance Services Inc., consultants retained by the New York State Insurance Department, cited two reasons for the improper bookings. AIG issued contracts for three lines of business (commercial auto, general liability and workers' compensation). Due to its estimation process for the workers' compensation portion, premium was improperly allocated among the three lines of business or not booked to the proper line. Subsequent premium adjustments were not booked to the proper lines either, the report found.

In addition, the report says that AIG's premium adjustments were "severely backlogged and often not done at all. When finally done, care was not taken to ensure proper booking to the correct line of business."

The estimated total workers' compensation premium tax impact was $15.3 million or $42.4 million with interest. The residual assessment impact was $101.5 million or $301.2 million with interest.

AIG was also accused of improperly booking direct workers' compensation premiums as assumed reinsurance premiums for the purpose of avoiding premium taxes and residual market assessments. However, the consultants were unable to conclude whether this happened.

Record $1.6 billion deal ends litigation, creates 'new path' for giant AIG

State and federal regulators on Feb. 9 announced agreements that resolve litigation and investigations of securities fraud, account steering, bid-rigging, improper accounting and under-reporting of workers' compensation premiums by giant insurer American International Group.

Under the agreements, AIG will pay more than $1.6 billion in restitution and penalties, considered a record for a U.S. financial services firm. The company has acknowledged and apologized for its misconduct, adopted a series of governance and accounting reforms, and agreed to halt the payment of contingent compensation.

The agreements were announced simultaneously by the New York Attorney General, the New York State Insurance Department, the Securities and Exchange Commission and the Department of Justice.

"AIG was and is a solid company that didn't need to cheat," commented N.Y. Attorney General Eliot Spitzer, whose 2004 investigations of bid-rigging and other activities by Marsh and large brokers led his office and the insurance department to probe AIG's reinsurance, workers' compensation and accounting deals. "It finds itself in this position solely because some senior managers thought it was acceptable to deceive the investing public and regulators. However, by changing management, implementing reforms and providing restitution to injured investors, customers and states, the company has placed itself on a path toward resurgence."

Since the investigation began, AIG has restated its earnings by $3.5 billion. Following an internal review, the company said it will take a $1.1 billion after-tax charge to boost its reserves by $1.69 billion.

"Providing incorrect information to the investing public and regulators was wrong and is against the values of our current leadership and employees," AIG said.

Under the settlement, AIG will pay $800 million into an SEC fund for investors misled by AIG's accounting and financial reporting. Another $375 million fund will pay AIG insureds who purchased excess casualty policies through Marsh Inc. In addition, approximately $343 million will compensate states for the underpayment of workers' compensation premium taxes and residual market assessments. Finally, AIG will pay a fine of $100 million to the state of New York and $25 million in connection with the DOJ settlement.

AIG President and CEO Martin J. Sullivan called the settlements "a major step forward" and maintained AIG is "committed to business practices that provide transparency and fairness in the insurance markets."

Liquidated Mission claimants to get $530 million

California's Conservation and Liquidation Office (CLO) will distribute $530 million to policyholders and claimants from the liquidated estate of the Mission Insurance Companies, California Insurance Commissioner John Garamendi announced. The latest amount brings the total amount distributed since 2003 to $750 million, the largest distribution ever made to claimants of a property and casualty insolvency.

Under the plan, Mission and Mission National policyholders will receive 100 percent of their approved claims; Mission National Insurance Co. general creditors with approved claims will receive 100 percent of their claims; and the Mission Insurance Co. general creditors with approved claims will immediately receive 30 percent of their claims, with more distributions likely at a later date.

Throughout the early 1980s, the Mission Insurance Companies were one of the country's top workers' compensation insurers, according to the commissioner's office. However, competition spurred declines in rates, leading to financial problems for the Mission companies.

At the time of failure in 1987, the Mission Companies represented the largest P/C insurance insolvency in the country. Since liquidation, the companies have collected in excess of $1.22 billion in legal and reinsurance recoveries, and processed more than 165,000 claims that were filed with the liquidated estates. They have already distributed in excess of $900 million, and coupled with the current $530 million, will have paid out in excess of $1.4 billion.

Off-the-job worker injuries outpacing safety gains

Contrary to popular belief, today's workers are safer on the job than they are at home or in their communities. According to the National Safety Council, recent gains in lowering workplace death rates, which are down 17 percent since 1992, have been undone by the rate of fatalities occurring off the job, up 14 percent in that same period.

However, while corporate America has made dramatic gains in workplace safety, businesses are losing money on accidents unrelated to the workplace.

"The business costs of off-the-job accidents is staggering when you take into account lost wages and productivity, medical and disability payments, and training for new employees," said Alan C. McMillan, president and CEO of the National Safety Council.

According to 2004 National Safety Council statistics being presented at the nation's first Off the Job Safety Symposium in Orlando later this month, twice as many workers, or 6.8 million, were seriously injured while off the job than were injured while working. Of the 49,000 injury-related deaths in 2004 involving workers, roughly 90 percent occurred while employees were off the job.

Injury costs
In 2004, the cost of employee injuries, both on and off the job, was more than $330 billion. Nearly 60 percent or $200 billion was for injuries to employees who were off the job. According to the Agency for Healthcare Research and Quality, more is spent by private health insurance on medical care associated with trauma and poisoning for people of working age than for any other health condition including cancer, heart conditions, mental disorders or upper respiratory conditions and asthma.

In addition, off-the-job injuries accounted for employers losing 165 million days of production time, compared with 80 million lost workdays as a result of workplace injuries.

Increasingly, businesses are recognizing the value of keeping their employees safe at all times both on and off the job. In a recent National Safety Council survey of 1,300 companies of varying sizes, the impact of off-the-job safety training has begun to be felt at businesses that have implemented programs. Of those who have implemented off-the-job programs, 58 percent reported reductions in injuries occurring outside of work.

In addition, research presented at the 17th World Congress on Safety and Health at Work last fall found that for every dollar businesses spend on safety, they realize a $3 to $6 savings.

Liquidated Mission claimants to get $530 million

California's Conservation and Liquidation Office (CLO) will distribute $530 million to policyholders and claimants from the liquidated estate of the Mission Insurance Companies, California Insurance Commissioner John Garamendi announced. The latest amount brings the total amount distributed since 2003 to $750 million, the largest distribution ever made to claimants of a property and casualty insolvency.

Under the plan, Mission and Mission National policyholders will receive 100 percent of their approved claims; Mission National Insurance Co. general creditors with approved claims will receive 100 percent of their claims; and the Mission Insurance Co. general creditors with approved claims will immediately receive 30 percent of their claims, with more distributions likely at a later date.

Throughout the early 1980s, the Mission Insurance Companies were one of the country's top workers' compensation insurers, according to the commissioner's office. However, competition spurred declines in rates, leading to financial problems for the Mission companies.

At the time of failure in 1987, the Mission Companies represented the largest P/C insurance insolvency in the country. Since liquidation, the companies have collected in excess of $1.22 billion in legal and reinsurance recoveries, and processed more than 165,000 claims that were filed with the liquidated estates. They have already distributed in excess of $900 million, and coupled with the current $530 million, will have paid out in excess of $1.4 billion.

AIG affirms ban against contingency compensation

Producers should no longer expect contingent commissions from American International Group, according to the settlement with New York Attorney General Spitzer and what the company says is its own global policy now.

Spitzer's announcement stated that "AIG has agreed to stop paying such commissions in any line of insurance where companies with 65 percent of gross written premiums do not do so."

AIG CEO Martin Sullivan made his firm's policy clear in a conference call. "Well, let me say straightaway that currently, we are not paying contingent commissions to brokers and we won't be paying them and we have no plans to pay them. What the agreement says is that if 65 percent of the market agrees not to pay contingent commissions in any line of business, then obviously, AIG will agree not to pay contingent commissions. That is what the agreement says and that is what we'll do," Sullivan said in answer to a question from Paul Newsome, analyst from A.G. Edwards.

"But presumably, you could start paying contingent commissions in lines that don't meet that threshold at some point in the future?" Newsome then asked.

"You're absolutely correct. We could, but we're not," Sullivan answered.

The New York State Insurance Department is not a party to the contingent commission restrictions because its chief disagrees with the approach taken. Insurance Superintendent Howard Mills "believes that the issue of contingent commissions should be addressed by legislation," and for that reason the department did not address contingencies in its own agreement with AIG, according to NYSID spokesman, Michael Barry.