From New England to Virginia, Courts Made Insurance Headlines in 2005

By | December 30, 2005

From Maine to Virginia, many of the insurance headlines in 2005 dealt with compensation and reinsurance probes, just as they did across the country, casting the industry’s reputation in a bad light.

But much of the most interesting regional and local insurance news in 2005 took place in the courts of law and not in the court of public opinion.

Among the year’s noteworthy court developments affecting the insurance industry:

A New Jersey Supreme Court ruling allowing people who suffer permanent injuries in auto accidents to sue over pain and suffering, even if their injuries don’t meet a so-called “serious life impact” test caused great concern for the industry.

A Massachusetts court blocked a plan to convert that state’s auto reinsurance facility into an assigned risk plan.

A federal jury in July awarded Vermont’s insurance commissioner $120 million to distribute to creditors of the Ambassador Insurance Co., which failed more than two decades ago.

A federal court ruled against independent agents who claimed a Massachusetts law governing bank sales of insurance trumped the federal Gramm Leach Bliley provisions.

The Pennsylvania Supreme Court permitted four corporations to bypass the state regulator’s liquidation procedures involving failed carrier Legion Insurance Co. and obtain their settlement monies directly from Legion’s reinsurers.

Rhode Island Workers’ Compensation Court Judge Bruce Q. Morin ordered the owners of the West Warwick nightclub The Station to pay lost wages and funeral expenses to the families of four employees who were among the 100 who died in the fire at the club in February 2003.

A Pennsylvania court ruled unconstitutional a key component of tort reforms enacted in 2002. Commonwealth Court ruled that a measure that abolished joint and several liability was invalid because it was not germane to the DNA testing legislation to which it was attached.

The Supreme Court of the State of New York, County of Nassau, reversed a lower court decision that found an insurance agent could potentially be held responsible for misrepresentations in a life insurance application.

Insurers had to go to court in Rhode Island to challenge a new lead paint law and in Delaware to challenge the commissioner over new restrictions on homeowner policy cancellations.

New York’s highest court upheld the plan to convert Empire Blue Cross and Blue Shield into a for-profit company.

The Pennsylvania Supreme Court held that property insurance coverage for the “collapse” of a building is ambiguous and should be construed in favor of policyholders. The court granted coverage in instances where collapse is imminent.

A New York excess lines insurance broker’s use of “sham declinations” to skirt the law on placing coverage with a non-admitted carrier could cost the broker a lot more than just regulatory fines, if a Nassau County Supreme Court ruling stands.

The Connecticut Appellate Court upheld the license suspension of a Connecticut man identified as a repeat drunken driver after a driving under the influence of alcohol (DUI) conviction in Vermont.

A Waterbury, Conn. jury awarded $32.1 million to a Bristol construction worker paralyzed in an accident more than a decade ago.

Another jury in Waterbury Superior Court jury awarded $36.5 million to the family of a 6-year-old boy who is blind, brain damaged and suffering from cerebral palsy since he was injured during his delivery via a surrogate mother at Hartford Hospital. The judgment may have set a new record for a Connecticut malpractice award.

The U.S. Supreme Court ruled against Virginia renters who claimed they were sickened by toxic mold in their apartment building, in a decision that clarifies where personal injury cases should be heard.

In one of the largest malpractice verdicts in state history, a Suffolk County, Massachusetts jury awarded $23.8 million to the parents of a girl born with cerebral palsy after a traumatic delivery at Massachusetts General Hospital.

Jurors in New Jersey said Merck & Co. should not be blamed for the death of a 60-year old Idaho postal worker who suffered a heart attack after taking the company’s Vioxx painkiller. Merck lost an earlier trial in Texas and was told to pay $253 million to the widow of a Vioxx user. Merck is appealing that verdict.

The Port Authority of New York was negligent in the 1993 terrorist bombing of the World Trade Center and can be sued for damages, according to a New York State Supreme Court jury in Manhattan. The jury decided that the Port Authority, which owned the World Trade Center, should have provided better security for the underground parking garage that was hit by Islamist militants in Feb. 1993. The bombing killed six people and injured more than 1,000.

Spitzer fallout
The multiple investigations begun in 2004 by New York Attorney General Eliot Spitzer may yet end up in court. In the meantime, they tarnished the insurance industry’s public image during 2005 but do not appear to have altered the private behavior of most in the industry.

Marsh, Aon and the other large brokerage houses caught up in the investigations paid restitution and agreed to halt certain practices. Connecticut passed a compensation disclosure law. Then for most in the industry in 2005, it was business as usual.

Except it was not exactly business-as-usual for Maurice Greenberg, the former head of AIG, who was forced from that company he helped build into a powerhouse and is still reportedly under investigation by Spitzer. Nor was it business-as-usual for sellers of finite reinsurance, the subject of another of Spitzer’s ongoing probes.

AIG’s Greenberg was not alone in finding new work in 2005. In New York, New Jersey, Maryland, Pennsylvania, Rhode Island and the District of Columbia, chief regulators resigned or were replaced, while in Delaware, the newly-elected commissioner, Matt Denn, came out swinging.

Pennsylvania Commissioner Diane Koken served double duty as president of the National Association of Insurance Commissioners during a trying year for regulators and was succeeded in the fall by Maine’s insurance chief, Alessandro Iuppa.

On the medical malpractice front, state lawmakers in Maryland overrode a gubernatorial veto of reforms. New Hampshire adopted a medical malpractice claims screening system. Pennsylvania renewed its subsidies for malpractice premiums amid signs of an improving market, while New Hampshire reinstated prior approval of rates in response to a report showing the market was not competitive.

Workers’ compensation rates held steady or declined. New York’s workers’ comp system including its insolvency fund showed signs of strain, but lawmakers did not advance reform proposals from Gov. Pataki.

Auto rates, too, stayed even or went down across the region. New Jersey’s private passenger auto market continued to attract new companies, including Progressive, and auto insurers in New York continued to lower rates.

Political wars broke out in Massachusetts, within and outside the industry, over whether and how to reform the state’s auto system, with Gov. Mitt Romney leading the charge to end what he termed the state’s “Soviet-style” price fixing system. The insurance commissioner tried hard to make changes to the residual market through regulation and succeeded on some levels. But by year’s end, auto rates were slashed by close to 9 percent and Romney’s legislative reforms were stalled on Beacon Hill.

Connecticut officials, unhappy over potential job loses, reluctantly approved the deal in which MetLife acquired Citigroup’s Travelers Life & Annuity in Hartford. Soon thereafter, Gov. Jodi Rell created a special agency devoted to maintaining and attracting insurance jobs to the state.

Virginia municipal officials debated the use of cameras at red lights to catch scofflaws, while Rhode Islanders dealt with a report that its laws against drunk driving are among the nation’s weakest.

The region’s insurers faced more natural storms than political ones during 2005, although none as devastating as what Katrina, Wilma and Rita did to the Gulf Coast and Louisiana. Residents in New Hampshire, Pennsylvania, New Jersey and New York faced severe flooding at times during the year.

While flood victims of 2005 turned to insurers and FEMA for assistance, some of those who were flooded years ago were still fighting over claims. More than 140 victims of the 2003 tropical storm Isabel sued Homeland Security and the National Flood Insurance Program, 17 insurance companies and others charging that these officials conspired and knowingly paid claimants far less they deserved to repair their flooded homes and properties.

New Hampshire implemented changes to its small group health system while controversy swirled about Maine’s Dirigo health plan and its costs. Massachusetts Gov. Romney proposed a plan that would require all residents to buy health insurance.

At least two financially-strapped insurers, Pawtucket Mutual in Rhode Island and Mutual Fire Insurance of Carroll County in Maryland, were revived during the year. There were reports that Frontier Insurance Co. in New York would soon be released from rehabilitation as well.

The Green Tree Perpetual Assurance Co., in Philadelphia, one of the nation’s oldest insurers with roots in the 1700s and one of only a handful of companies still selling perpetual homeowners insurance policies, terminated all remaining policies in February.

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