Contingent commissions, court rulings highlight 2006

In 2006, the Midwest experienced the impact of contingent commission settlements based on the actions of several attorneys general and a myriad of court rulings on insurers’ use of credit, liquor liability and asbestos. Throw into the mix severe storms that caused injury, death and thousands of dollars in damage in several states and then add insurance fraud scandals in Ohio and Illinois and the summary could read like a “Best Seller.” What follows are the Top Ten new stories for the Midwest region for 2006.

Contingent commission settlements
In a settlement reached by several attorneys general, Illinois’ Lisa Madigan announced in 2006 that under agreements reached earlier this year, three of the nation’s largest insurance companies can no longer pay contingent commissions to agents and brokers that sell certain types of insurance to consumers, beginning Jan.1, 2007.

Madigan’s office sent notices to Zurich American Insurance Company, ACE and St. Paul Travelers, each of which settled with Madigan and the Attorneys General of New York and Connecticut earlier this year. The settlements resolved the states’ investigations into bid-rigging and the steering of insurance business by insurance brokers and resulted in combined restitution and penalty payments of $310 million. The settlements did not include an admission of wrongdoing by the companies.

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Ill. med-malpractice overhauled
In 2006 the Illinois Insurance Department decided to take drastic action by calling for a 5.2 percent rate reduction for ISMIE Mutual Insurance Co., the state’s largest medical malpractice writer. That started the ball rolling. Using a new law designed to lower doctors’ costs, state regulators ordered Illinois’ major malpractice insurers to start bringing down rates next year.

In response, legislators approved some limits on lawsuit awards, but also strengthened state oversight of doctors and insurers. The major insurer, ISMIE Mutual Insurance Co., was forced to promote competition by opening its ratemaking formulas to other companies.

While more companies are reducing rates, the latest twist is that a former president of the Illinois Trial Lawyers Association, Kim Presbrey has started an insurance company promising doctors more choice and better deals on expensive malpractice coverage. Presbrey predicts his new Doctors Direct Inc. will make money for him and cut costs for doctors feeling the pinch of rising insurance costs. ISMIE responded that he may be surprised at the results of his efforts.

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‘Judicial Hellholes’
Illinois in 2006 again had the dubious distinction of having three court venues listed as the worst in the United States. The ranking was issued by The American Tort Reform Foundation and included Cook, Madison and LeClair counties. Considering that only six counties were named countrywide as “Judicial Hellholes,” Illinois earned the distinction of having half of the infamous courts named in the ranking.

These three jurisdictions all have the same criteria in common. That is that litigation tourists, who neither lived nor were injured in these jurisdictions, are guided by their personal injury lawyers to seek out these venues because they know they will produce a positive outcome, an excessive verdict or settlement, a favorable precedent, or both, the ATRF report said. However, the study did say that recent actions by some local judges and rulings by the Illinois Supreme Court were encouraging signs of improvement in Madison County.

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Michigan credit scoring
Michigan Gov. Jennifer Granholm and legislators were busy in 2006 when they introduced a multi-bill insurance reform package designed to reduce insurance rates and ban credit scoring. The cornerstone of the package included proposals requiring a 20 percent cut in homeowners and automobile insurance rates and a proposal for a complete ban the use of credit-based insurance scoring. Insurers challenged the governor in court and got a stay that nixed the ban on credit scoring for the time being.

In October, a hearing on the legality of the use of credit scoring in setting insurance rates took place in Lansing. The appeals hearing followed the ruling by Judge James H. Fisher that struck down rules issued by the Commissioner Linda Watters banning the use of insurance credit scoring in the rating and underwriting. The court’s final decision is expected to be made in the next few months–in 2007.

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S. D. ‘JAIL for Judges’
The South Dakota “J.A.I.L for Judges initiative,” when soundly defeated in the midterm election, was given a round of applause by the insurance industry. Amendment E would have created a 13-member Special Grand Jury composed of voters and volunteers selected annually at random who would hear complaints against judges and determine if indictments were warranted. Supporters of Amendment E assumed that judicial immunity is absolute, and that citizens do not currently have recourse for addressing perceived judicial misconduct. However, in South Dakota, Supreme Court judges and Circuit Court judges are elected in nonpartisan races and an appeals process exists that is augmented by a seven-member Judicial Qualifications Commission to review complaints and conduct disciplinary proceedings. More than 200 local governmental bodies, including city councils, school boards and countycommissions, opposed the Amendment.

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Ohio workers’ fund scandal
In one of the biggest scandals of the year, the Ohio Bureau of Workers’ Compensation was racked with fraud schemes that are still rocking the state. The fiasco began when it was discovered that coin dealer and Republican donor Tom Noe funneled state money into his own businesses, beginning in 1998 when he received the first of two $25 million investments from the state insurance fund for injured workers. Noe was sentenced to 18 years in prison last month for embezzling millions from a $50 million rare-coin fund he managed for the bureau, and BWC chief financial officer Terrence Gasper is awaiting sentencing after he pleaded guilty earlier this year to taking bribes from brokers doing business with the agency, a recent AP story revealed. Also, Ohio lawmakers and Gov. Bob Taft were among the state elected officials who lobbied the state insurance fund for injured workers to reduce premiums for 27 Ohio companies, newly released records have shown.

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100 tornadoes hit Midwest
The Midwest doesn’t have hurricanes or tidal waves, but can compete on the catastrophe issue with its severe windstorms and tornadoes. Several hit the Midwest in 2006 causing major damage in five states. Illinois, Indiana, Missouri, Kansas and Oklahoma were ravaged by high winds, rain and hail in addition to tornadoes. Several deaths were reported as well as serious injuries across the Midwestern region. In the first round that hit in March of this year, ABC-TV, Chicago news reported that over 100 tornadoes touched down in the region. The report said one woman was killed when her trailer landed on top of her, another account said that a truck trailer was blown over.

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Ill. insurance business scams
In 2005, Michael Segal and the Near North Agency topped the list of insurance scams and fraudulent activity for Illinois. This year a suburban mayor made the hit parade. Niles Mayor Nicholas B. Blase, was arrested and charged with mail fraud, accused of taking payoffs of $280,000 to steer customers to a friend’s insurance agency. The insurance agency central to the case is Ralph Weiner & Associates, based in suburban Wheeling. It was headed for years by Blase friend Ralph Weiner, and when he died last year, his son Steven Weiner took the business over, authorities said. Steven Weiner, 53, of Northbrook, also faces a mail fraud charge.

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Asbestos Supreme Court ruling
In 2006 the Michigan Supreme Court’s decision to preclude trial courts from bundling asbestos cases for trial or settlement is a first step toward restoring balanced justice in asbestos cases in the state, some insurers believe. As the Supreme Court majority wrote, this decision was made with the pending medical criteria bill in mind. The Justices addressed what they thought was appropriate within judicial rulemaking, without intruding on what they felt was the Legislature’s responsibility to make laws. The court’s order leaves open lawmakers’ option to enact medical criteria legislation.

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Mo. ruling on liquor liability
In 2006, the Missouri Supreme Court upheld an earlier law that allows alcohol liability lawsuits against bars and restaurants but blocks suits against convenience and grocery stores, rejecting a claim that the distinction was unconstitutional. The 2002 Missouri law prohibits liability lawsuits against businesses when intoxicated people later injure or kill someone. But the law makes exceptions for lawsuits against onsite, liquor-by-the-drink businesses “when it is proven by clear and convincing evidence that the seller knew or should have known” that the alcohol was served to someone younger than 21 or to a “visibly intoxicated person.” The law was rewritten in response to a 2000 Supreme Court decision.

Topics Catastrophe Carriers Fraud Legislation Workers' Compensation Ohio Illinois Michigan Missouri