Claims And Issues

Credit Default Swaps: Who Will Survive Them?

    AIG continues to lead.  They are the fastest-falling "Insurance Company" in the current world of finance.

    Reportedly, AIG faces a deadline of February 28, 2009 or thereabouts -- tomorrow.  The reason for the deadline is left unstated.  Mary Williams Walsh and Michael J. de la Merced, "As A.I.G.'s Losses Grow, Its Survival Options Shrink" p. B5, col. 1 (New York Times Nat'l Ed., Business Day Section, Wed., February 25, 2009).

    Among AIG's alternative choices before tomorrow's deadline are to continue trying to raise capital by selling some of its subsidiaries, or to continue trying to raise capital by asking for more Federal Taxpayer Money in exchange for a Federal Taxpayer share of its business.

    The first alternative, to continue to try to raise capital by selling some of the AIG subsidiaries, is not going as well as AIG might have hoped.  AIG is reportedly not receiving the size of bids that it anticipated.  Its subsidiary, American Life Insurance Company or "Alico," for example, would seem to be an attractive investment in untapped markets of consumers who have not yet been exposed to Life Insurance products.  Alico has operations in some 55 countries.  However, the bids that AIG has received to date, including from MetLife and AXA, are so small in AIG's estimation that AIG reportedly may take the "for sale" sign down from Alico. 

    That would leave the alternative of asking for more Federal Taxpayer Money.

    The unannounced reason, touched upon in the linked newspaper report, for these hard choices for AIG?  AIG issued many Credit Default Swaps.  As a standard part of all CDS arrangements, the issuer agrees to uphold a certain Credit Rating.  If AIG, for example, fails to maintain the specified Credit Rating, it will face a collateral call under these CDS's to immediately post the full amount of each of these CDS's.  (The people indemnified by these guarantees are among the few who still find any credibility in what Credit Ratings Companies have to report.)  That is more money than AIG probably ever had, and it is certainly more money than AIG has on hand now.

    Credit Default Swaps.  Unregulated at the Federal level, unregulated at the State level.  How are they going?

Postscript on Saturday, February 28, 2009:

See generally Lauren Silva Laughlin and Richard Beales, "BreakingViews.com, Spreading Pain In A.I.G.'s Bailout" p. B2, col. 1 (New York Times Nat'l Ed., Business Day Section, Friday, February 27, 2009).

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Labor Law and Insurance Law Intersect: Advice for Lawyers.

    Lawyers counseling clients on Unemployment Insurance, who are themselves not Experts,  may find these resources useful as starting points for background research:

Requirements applicants must meet:  "Unemployment Benefits Eligibility" (Los Angeles Times Online, Sunday, Feb. 22, 2009).

Information applicants should have available to speed up the process:  David Colker, "Preparing to File For Unemployment Benefits:  What You Need" (Los Angeles Times Online, Sunday, Feb. 22, 2009).

Websites and Telephone Numbers:  "Unemployment Benefits Help" (Los Angeles Times Online, Sunday, Feb. 22, 2009).  These resources seem unique to California.  However, one offers a booklet which looks like it will provide a place to begin, and perhaps extrapolate to other jurisdictions, for those called upon to provide Counsel in this area:  "Guide to Benefits and Employment Services" found at http://www.edd.ca.gov/Unemployment.

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Health Care Business Model And Health Insurance Coverage.

    Shannon Brownlee's 2007 ground-breaking book, "Overtreated," focused attention on a new Medicalcare model.  The new Healthcare model she proposed would address Medical treatment from the perspective of whole person health, rather than provider payment for procedures that treat individual symptoms.  Ms. Brownlee can be proud of the "new health care business model" reported by Janet Rae-Dupree, "Unboxed/Disruptive Innovation, Applied to Health Care" p.  3, col. 1 (New York Times Nat'l Ed., "SundayBusiness" Section, Sunday, February 1, 2009).

    A great resource containing many links to related web sites and web logs (although not containing much if any information itself about Health Insurance) is The Health Care Blog, mentioned in the linked article.

    And here is a link to a Health Insurance Info web log, too, for you to check out.  It is not mentioned in the linked newspaper article but it is one of the many, many links available through the Health Care Blog front page.

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Director's and Officer's Risk Management Included in Financial Fiduciary Duties.

    Fiduciary Duties include Risk Management.  Whether or not people sitting on corporate Boards of Directors had the duty to act as a Fiduciary on issues of Financial Risk Management, they apparently are seen as having Fiduciary Duties on financial Risk Management now.  See Zachary A. Goldfarb, "SEC to Examine Boards' Role in Financial Crisis" (Washington Post Online, Friday, February 20, 2009).

    Correspondingly, Insurance Coverage Claims on Director's and Officer's Policies are bound to follow in increasingly greater numbers as a result of these issues.

    A post on other features of this issue can be found at www.insuranceclaimsbadfaith.typepad.com.

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Securitization Unregulated (including "Insurance"), Behind Credit Collapse.

    In a speech to the National Press Club in Washington, D.C. on Wed., February 18, 2009, Mr. Ben Bernanke pointed out that securitization is the major default behind the Credit Collapse.  The current Chair of the Federal Reserve System said that securitization is the real culprit behind the lack of lending at this time, not so much the fact that banks are not extending loans.  See the National Press Club site (the Club requires membership before it will provide anyone a transcript of Mr. Bernanke's remarks). 

    Securitization involves the so-called 'bundling' and sale of instruments that theoretically have a value because they embody a legal obligation to pay money.  In the process of securitization, debt instruments of this kind are made into new securities which some people purchase.  If the new securities cannot be valued, i.e., if an agreed value cannot be put on them which is generally acceptable to the people who extend credit and otherwise make loans, then there is a Credit Collapse.  We are living through that situation right now.

    Among the new securities are Collateralized Debt Obligations and Credit Default Swaps.  Some of these function like Insurance.  However, they have not been regulated for decades.  Some of the persons who argued against regulating them, whether as Insurance or at all, reportedly include former senator Phil Gramm and Messrs. Alan Greenspan, Robert Rubin, and Lawrence Summers.

    How is that going?

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You CAN Teach Alan Greenspan New Tricks.

    In a speech to the New York Economics Club on Tuesday, February 17, 2009, Mr. Alan Greenspan pointed out that there is a need for sufficient Capital to back lending and investments.  This is one reason, the former Chair of the Federal Reserve System said, that financial institutions and the rest of the world are confronted now with a huge Credit Collapse:  Not enough Capital to support lending.  See Download Alan Greenspan, Speech to the New York Economics Club, Tuesday, February 17, 2009.

    In the parlance of Insurance, a specialized sector of the financial system, Capital means Reserves.  Lowering Reserves requirements means lowering the capability of Insurance Companies to pay Claims, in general terms.  That too is a lesson to learn from the Credit Collapse.

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Something Old, Something New: Stimulus Borrowed, Stimulus For You?

    Some of the many provisions of the stimulus bill enacted by the U.S. Congress last Friday, and signed into law yesterday by the President, have potentially great effects on Health Insurance.

    1.  Medicaid, a shared Federal-State Health Insurance program for qualifying poor people, in blunt and basic terms, will continue with certainty.  "States" reportedly were likely to cut their contributions to Medicaid entirely.  That would have required the States to refuse to participate in the Medicaid expense-matching program, as a matter of law.  To say again,
reportedly Medicaid Health Insurance Coverage wlll now instead continue to
be offered to persons who qualify for it, persons who are almost certainly the ones who are most in need of it, particularly during the Credit Collapse. 

    2.  COBRA, the Federal Law mandating an opportunity for fired Employees to continue their Employer-based Health Insurance Coverage despite losing their jobs, but at greatly increased Health Insurance Premiums, is the focus of two (2) results of the bill:  One, the Federal Government will subsidize a reported 65% of the COBRA cost, and Two, the Federal Government will do so for up to 9 months.

    3.  Finally, funding is made available "to digitize medical records and link up doctors and hospitals with information technology."  Privacy of medical records on paper has received attention in existing laws.  Privacy of electronic medical records receives attention in the new Act.

    Other provisions may do what they were designed to do.  These are three major changes to Health Insurance in the Act, summarized also by a reporter who covers Health for a living:  Robert Pear, "Health/More Money for Medicaid and the Jobless," reported with David M.Herszenhorn, "A Smaller, Faster Stimulus Plan, But Still With a Lot of Money" p. A11, col. 1 (New York Times Nat'l Ed., Saturday, February 14, 2009). 

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When Property Damage Occurs in Texas.

    On February 13, 2009 the Texas Supreme Court issued a unanimous decision.  The Court reaffirmed its 2008 pronouncement that under a CGL Policy in Texas, "Property Damage" is deemed to "occur" when there is what the Court calls an "actual injury."  The 2009 opinion is so concise and clear in expressing the Court's reasoning that the opinion is quoted here in this regard:

We adopted instead the actual-injury rule, under which property damage occurs during the policy period if "actual physical damage to the property occurred" during the policy period.  As we explained in that [2008] case, "the key date is when injury happens, not when someone happens upon it"--that is, the focus should be on "when damage comes to pass, not when damage comes to light."...  So property damage occurred under the [standard CGL Policies in the case at bar] "when a home that is the subject of an underlying suit suffered wood rot or other physical damage."

Download Pine Oak Bldrs., Inc. v. Great Am. Lloyds Ins. Co. (Tex. Case No. 06-0867, Opinion Filed Feb. 13, 2009). The quoted material will be found on pages 4-5 of this attached slipsheet opinion provided on the Texas Supreme Court website. This decision is also available as 2009 WL 353526 (subscription required).

    In Pine Oak Builders, the Texas Supreme Court went on to hold that there is no duty to defend under a standard CGL containing an Exclusion for property damage to the insured's completed work, where the underlying complaint alleges only property damage to the insured's completed work, even though the Exclusion also contains a standard Exception or Exemption if the damaged work was performed on the named insured's behalf by a subcontractor, and the insured puts on proof that the damaged work was performed on the insured's behalf by a subcontractor.  Id. at 5-7 of the attached slipsheet.

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Fiduciary Duties: Bonus Pay for POSITIVE Performance?

    One of the many provisions of the stimulus package making its way to the President's desk on this President's Day, 2009, addresses restrictions on executive bonuses paid by financial institutions that take Federal Taxpayer Funds.

    If the provisions remain as they are before they reach the President -- and the provisions in question were reportedly hotly opposed by the Obama Administration -- they would not enact a pay cap.  Rather, the new Federal laws would require the Treasury Department to write new Federal Regulations.  The regulations would apply only to financial institutions that have taken Federal Taxpayer bailout funds in the past -- an extension of existing Federal Law -- or that take Federal Taxpayer money in the future.

    The New York Times reports that in basic terms, the Act will require that any new Federal Regulations limit the payment of cash bonuses to certain executives until the Federal Loans are repaid in full.  "The rules also severely limit retention and incentive pay."  Edmund L. Andrews and Eric Dash, "Stimulus Plan Puts New Limiits on Executive Pay" p. A1, col. 5 (New York Times Nat'l Ed., Saturday, February 14, 2009).  Other newspapers report that cash bonuses are out entirely, and that the restriction applies to bonus awards, but the new Act now limits bonuses entirely to payment in shares of stock.  E.g., Daniel Dombey and Edward Luce, "US Stimulus Clears Congress" (Financial Times.com, Friday, February 13, 2009);  Tomoeh Murakami Tse, "Congress Trumps Obma by Cuffing Bonuses for CEOs" (Washington Post.com, Saturday, February 14, 2009).  All these newspapers report that the amount of bonus is limited under the new Act to one-third of the banker's total annual compensation. 

    The linked New York Times article quotes several commentators who are dubious about these new provisions.  One is a lawyer at a large firm in Chicago.  His law firm lists him on its web site as an "executive compensation" specialist.  He is quoted in the article as saying this about the new provisions which address executive bonuses paid by institutions which apply for Federal Funds:

                    There's no pay for performance in this.

Id.  I was mistaken the first time I read this observation, so I re-read it.  It is one way to look at the new provisions, I suppose.  I just misunderstood.

    I first thought that the comment was about existing pay plans.  They are not about pay for performance.  They are not even about pay for failure.  They are just about pay.  Regardless of how the corporations fare, the profiteers are paid well.

    The thing to remember is that the profiteers at institutions that are not in line for Federal Taxpayer Money are unaffected by the new Federal Laws.  Only when the tanking financial institution wants a capital injection of money from Federal Taxpayers would the new Federal Rules apply.

    In the interim, does continued adherence to the old rules satisfy anyone's Fiduciary Duties?  Is it ever in the best interests of the shareholders of a publicly traded corporation, for officers and employees to be paid extra amounts of money, for failure?

A separate post on potential Insurance Bad Faith Claims on this subject is at www.insuranceclaimsbadfaith.typepad.com.

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Reinsurance Coverage Extends to North Korea.

    Reinsurance Coverage has a broad reach.  Recently, Korea National Insurance Company, owned by the government of North Korea, settled an Insurance Coverage case filed in London, in which reportedly 95% of a claimed loss will be paid by its Reinsurers.

    The real news here is that KNIC, which many would truly consider a "captive" Insurance Company, i.e., the government of North Korea, obtained and paid for Reinsurance Policies.

    The Reinsurance Policies obtained by North Korea were with Allianz, Generali, and several Lloyd's of London syndicates, among others.  However, one of KNIC's Reinsurers, Aviabel, reportedly did not join in the settlement.  See Sundeep Tucker, "N Korea State Insurance Group Wins Case" (Financial Times.com, Dec. 10, 2008).  [Note:  Despite the headline of this linked FT.com report, the matter was settled; the London case did not therefore result in a judgment of any kind as a result of that settlement, apparently.]

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Insurance-Like CDOs Sued On, Newspaper Reports State Court Lawsuit.

    In a case reported in The New York Times, M&T Bank Corporation has sued Deutsche Bank in New York State Court in Buffalo.  Vikas Bajaj, "After Sure-Bet Investment Fails, A Bank Contends It Was Duped" p. B1, col. 2 (New York Times, Business Day Section, Tuesday, January 20, 2009).  The lawsuit was sparked by the marketing and other failures of a series of collateralized debt obligations, or CDO's, collectively called "Gemstone".

    Deutsche Bank allegedly marketed the Insurance-like features of the CDO's and split many fees "with ratings firms, lawyers and others involved in the transaction."  The last Gemstone reportedly yielded $10,000,000.00 in fees.  Id.

    The Insurance-like aspect of Gemstone was its similarity -- if not inseparability -- from Bond Insurance.  Allegedly, Gemstone insured $30,000,000.00 in Bonds.  M&T regrettably was one of the investors in Gemstone.  "The bonds were wiped out in 2008.  Under the terms of the deal, Gemstone owed Deutsche Bank $30 million."  Id.  That would be the same Deutsche Bank that split $10 million in fees for only the last installment of Gemstone, not counting the previous installments.

    Deutsche Bank and/or other defendants have apparently filed a motion to dismiss M&T Bank's complaint.  See id.

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FICO Scores Mortgage Insurance.

    Somethihng called FICO affects whether home buyers hoping to refinance, have to also pay for Mortgage Insurance.  Without a high enough FICO score, homeowners may not be able to refinance without first establishing equity in thier homes of a minimum of 20% of the home's value.  Nobody knows that FICO stands for  Most people just call the standard credit score your FICO credit score.  See Tara Siegel Bernard, "Costs And Tighter Rules Thwart Refinancings" p. B1, col. 2 (New York Times Nat'l Ed., "Business Day" Section, Saturday, January 24, 2009).

    Mortgage Insurance is becoming less available and more expensive.  Mortgage Insurance Companies reportedly will not issue Mortgage Insurance Policies to just anyone who wants to refinance their homes.  The purchasers of such Policies must prove that they can afford to pay the Premiums.  That is where a high FICO score comes in.  Reportedly, in States like Florida, Arizona, California and Nevada where housing markets have been hit very hard, "at least two [Mortgage] insurers are now requiring borrowers to have at least 10 percent equity in their homes and a credit score of more than 720."  Id.

    Actually, this much is know about what FICO stands for:  The "F" and the "I" stand for Fair Isaac, a corporation that made and markets the credit scoring involved in FICO.

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Existing Mortgage Modifications ("Cramdowns") May Affect Mortgage Insurance Premiums: UPDATE.

      It was previously reported that Mortgage Insurance Premiums may be affected by proposals pending in the U.S. Congress.  "Latest Legal Irk:  'Cramdown Provisions,'" January 12, 2009, posted in the Categories of Market Performance and Mortgage Insurance.

    One Creditor's "Cramdown Provision" may be a Debtor's "Mortgage Modification Provision".  The Bankruptcy Law for a long time has contained such provisions, allowing Federal Bankruptcy Judges, as a part of Chapter 13 Bankruptcy proceedings, to "reduce what you owe on credit cards, auto, boat and student loans and even second-home mortgages."  Kenneth D. Harney, "The Nation's Housing/Saving Homes With a New Bankruptcy Rule" (Washington Post online, Saturday, February 7, 2009).   The proposal pending in Congress would allow for Mortgage Modifications for Debtors, or Cramdowns for Creditors, on Mortgages for primary residences.  If adopted, the proposal may considerably lower the rate of Foreclosures, and greatly affect an increase in the number and scope of 'workout provisions.'

    The proposal may also affect the Premiums charged by Mortgage Insurance Companies for Mortgage Insurance.

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Credit Default Swaps Without Capital Reserves: Making Money Without Money.

    The profiteers from Credit Default Swaps never wanted them regulated.  In particular, they did not want the issuance of CDS's to be regulated like Insurance was regulated.  Even when the CDS's were the moral equivalent of Insurance and cried out for Regulation.  "The most critical role for regulation is to make sure that the sellers of risk have the capital to support thier bets."  Michael Lewis and David Einhorn, "The End of the Financial World As We Know It" p. 9, col. 1 (Sunday New York Times, "Week in Review" Section, January 4, 2009). 

    The results are clear.  The profiteers from Credit Default Swaps did not have the capital, the Reserves, to support their bets.

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Commercial Real Estate Financing and Insurance Bind, Too.

The Credit Collapse Continues.    

    According to the mounting evidence, Commercial Real Estate will present the next rush of financing failures.  The financial failures continued to be tied to the inability to obtain appropriate Credit Insurance, among other things, in particular the difficulty in obtaining willing lenders in exchange for Commercial Real Estate Mortgages which in the past have been  securitized and the values for which are now in doubt.  See generally Dana Hedgpeth and Dan Keating, "Property Owners' Predicament/Investors Face Struggle to Refinance Loans for Local Commercial Real Estate" (Washington Post.com, Thursday, January 29, 2009).

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Health Insurance Predictions UPDATE: Higher 2009 Deductibles, Premiums, Less Coverage.

    This is an UPDATE of a post originally reported here on November 3, 2008.

    Employers in 2009 are experiencing the effects of predicted Higher 2009 Health Insurance Deductibles and Premiums, and Less Coverage.  Anecdotal evidence is offered by Kevin Sack, "Small Payroll, But Big Woes On Insurance" p. A1, col. 4 (New York Times Nat'l Ed., Tuesday, February 3, 2009).

    For convenience, and for the useful links to information and evidence in addition, here is the original report posted here on these Health Insurance issues:  Deductibles, Premiujms and Coverage:

The general ideas that Health Insurance Coverage Deductibles and Premiums are likely to continue to climb in 2009, while Health Insurance Coverage offerings are likely to shrink, are certainly accepted by most people.  The Kaiser Family Foundation puts some figures in those equations in its 2008 Survey of Employer Health Benefits.

    Among the numbers reported by the Kaiser Foundation:

• 63% of Employers offered Health Insurance in 2008, about the same number (60%) that offered it in 2007.
• The larger the Employer in terms of the number of Employees, the more likely it is that an Employer will offer Health Insurance Benefits:  49% of Employers with 3 to 9 Employees; 78% with 10 to 24 Employees, 90% with 25 to 49, and more than 95% of Employers employing 50 or more people.

    The numbers in this survey reflect that Employers will continue to offer Health Insurance Benefits in the year to come, but at the cost of larger Premiums borne by the worker:

• Respondents in the Kaiser survey of Employers supplied numbers that show a continuing increase in Health Insurance Premiums of 119% for "family coverage" since 1999.  Overall, the actual Premiums charged to Employers for "family coverage" are generally smaller for "small" Employers than for "large" ones.  However, on average, Employees working at "smalll" Employers (3-199 Employees)  also contribute much more money toward Premiums for "family coverage" but contribute lower Premiums for "single coverage"  than do workers for "large" Employers.
• "Cost sharing" is in the midst of a continuing steady increase.  These are costs paid by Employees in addition to Premiums when they actually use the offered Health Insurance.
• Some 80% of "single coverage" participating Employees contribute to the Employer's Health Insurance Premium, while 90% of family coverage participants so contribute.

     Finally, Employee contributions are expected to increase substantially in 2009.  The largest numbers of Employers answering the Kaiser Family Foundation Survey reported that they are "very or somewhat likely" to raise the contribution amount, to increase deductibles, to raise the amount of cost sharing, and to raise the amount that participating Employees pay for prescription drugs.  Very few Employers report, however, that they are "very likely or somewhat likely" to drop Health Insurance Benefits entirely.

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You Know Your Class(less) When Half a Million is Way Beneath You.

    Today President Obama proposed a $500,000.00 cap on the salary of the top 5 executive officers of Corporations that ask for very large amounts of Federal Taxpayer Money.  The proposed cap will not apply to any other officers, nor to officers of Corporations that ask for less than what amounts to a nationalized bailout (think Citigroup or AIG), and even the top 5 executive officers can still receive compensation in shares of stock payable after the Loans from the Federal Government (Taxpayers) are paid back.

    Today the reaction of James F. Reda, a compensation consultant, was quoted in the New York Times:

    "That is pretty draconian.  $500,000 is not a lot of money, particularly if there is no bonus."

Edmund L. Andrews and Vikas Bajaj, "For Large Bailout Recipients, A Plan to Curb Executive Pay" p. A1, col. 5 (New York Times Nat'l Ed., Wed., February 4, 2009), rewritten in part and published online with the headline, "Obama Calls For 'Common Sense' on Executive Pay".

   Honest to goodness.  That is what the man said.  It probably has nothing to do with Insurance.  I had to post this quote anyway.  It speaks for itself.

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"They Bet Your Life Insurance Reserves. And You Lost?": UPDATE 2

   MAYBE IN SOME STATES?

    This post updates a couple of previous posts here.  The post of December 21, 2008, "They Bet Your Life Insurance Reserves.  And You Lost?", contains a postscript added on January 12, 2009 reporting that the National Association of Insurance Commissioners scheduled a Hearing for the end of January, 2009 on "emergency" measures proposed by several Life Insurance Companies requesting an expedited process from the NAIC to adopt their proposals.  The issue behind all of the proposed measures was whether to immediately loosen the Reserves requirements imposed by the States on Life Insurance Companies.  The change would have allowed the Life Insurance Companies to operate immediately, and to report their impending results from 2008, with fewer Reserves than were previously required (and are still required, now).

    On February 2, 2009, a second post reported here that the National Association of Insurance Commissioners executive committee scotched this idea.  In an NAIC Hearing held on Thursday, January 29, 2009 the linked proposals were all voted down in a "nearly unanimous vote" of the NAIC executive committee; only one (1) State Insurance Commissioner voted in favor of the Life Insurance Companies' proposals.  The evidence to support this proposal either did not exist or was not presented by the Life Insurers, according to Commissioners.

    Now certain Life Insurance Companies are taking their case, if not evidence, to individual State Insurance Commissioners who they perceive may be more sympathetic to their request.  See Andrew Frye and Erik Holm, "Insurers in Illinois, Iowa [and Kansas] Seek Relief From States (Update 3)" (Bloomberg.com, Friday, January 30, 2009).

    The risks, rewards and consequences to Policyholders, consumers, Life Insurance Companies and their lobbyists are explored in detail in this linked report well worth a look:  David S. Hilzenrath and Nancy Trejos, "The Risks of Life Insurance/Anxiety About Industry Complicates Consumer Choices" (Washington Post.com, Sunday, February 1, 2009).

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How Recoup Bonuses to Bankers? Let Me Explore the Ways.

    Apologies to the Bard in writing a captivating headline to this post.  Some starting points to explore possible ways to recoup monies paid to bankers who may not have earned them.

    There are many ways to attempt to recoup nonexistent if not ill-gotten "gains" that were foolishly paid to Wall Street financiers and bankers by their employers as so-called "bonuses".  I have not found much mention of these possible recoupment actions in the press.  Some of them do not appear to have been mentioned previously at all.

1.  Equity makes many possibilities available.  Recoupment and restitution, money had and received, and money paid under a mistake of fact, are all remedies that come immediately to mind.

2.  Statutes should be consulted by those who wish to invoke them in trying to get the money back from the bankers who arguably should never have been paid the money.  The laws of New York may apply to many of the "bonus" payments shamelessly made to banker-employees.  In addition, the laws of other States may and should be consulted where payment and employment activities touched their turf as well.

3.  It is not strictly a recoupment of monies already paid, but certainly it will be easier to recoup monies paid in the future under these circumstances when employees and employers agree to it.  For example, serious consideration should be given to conditioning further payments to these employers who continue to ask for Federal Taxpayer money, by the empoyers executing enforceable agreements that they will obey clearly stated limits on payments to employees (whether "bonuses" or "compensation").  

4.  Shareholder suits are worth exploring, not in this sense against the corporations themselves, i.e., against directors or officers of the corporation, but instead in the name of the corporation whenever the directors and officers will not act to recover monies foolishly paid and sometimes called "bonuses" to the bank employees who received them.

5.  Finally, ask everyone who received the bonuses and other allegedly undeserved payments for the money back.  The law refers to this as a "demand".  If a demand is required, a formal demand is not hard to write.  The asking is virtually free to the ones doing the asking.  They have nothing to lose, not anymore.  (I recall that the Insurance Commissioner of the State of New York asked AIG, I believe, to ask for money back from certain fired executives, as a condition he imposed, or wanted to impose, during his investigation into the question of its possible wrongdoing.  I lost track of that and do not know if AIG ever asked the executives for the money back, or if it did, what the upshot of it was.)  Where pursuing recoupment and restitution at law or in equity or by statute requires a demand first, then that condition is satisified by the asking or demanding, as the case may be.  The former masters of the universe may well agree to repay at least a part of what they received.

    It is all worth exploring.

    For the contrary view that nothing can be done, see the views attributed to two "compensation experts" quoted in Eric Dash and Vikas Bajaj, "Few Ways to Recover Bonuses to Bankers" p. B1, col. 6 (New York Times Nat'l Ed., "Business Day" Section, Friday, January 30, 2009).  The reporters who collaborated on this article, Eric Dash and Vikas Bajaj, are two of the best in reporting financial news,  Their linked article is based on views of what are called "compensation experts," but only two persons are quoted.  Both are lawyers who appear to be familiar with the employers and employees who participate in the financial banking compensation scheme.  Rather than taking these two particular views alone as answering the question, it would be wise to perhaps explore the alternatives instead, accompanied by those whose focus is not so much on how well the participants are protected but focused rather on getting the money back.

    Whatever alternatives may be explored, the payors and the payees of what has been described as bonuses for performance, paid to employees of failed banks and financial institutions now supported only by Federal Taxpayer Funds, would be well advised to explore their own Insurance Policy Coverages and comply with any Conditions that a Judge or Jury might potentially be convinced in the future should have been complied with under their Policies.

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"They Bet Your Life Insurance Reserves. And You Lost?": UPDATE.

MAYBE NOT.

    This post updates a previous post here on December 21, 2008, "They Bet Your Life Insurance Reserves.  And You Lost?"  A postscript added to that post on January 12, 2009 reported that the National Association of Insurance Commissioners scheduled a Hearing for the end of January, 2009 on "emergency" measures proposed by several Life Insurance Companies requesting an expedited process from the NAIC to adopt their proposals.  The issue behind all of the proposed measures was whether to immediately loosen the Reserves requirements imposed by the States on Life Insurance Companies.  The change would have allowed the Life Insurance Companies to operate immediately, and to report their impending results from 2008, with fewer Reserves than were previously required (and are still required, now).

    The National Association of Insurance Commissioners executive committee reportedly scotched this idea.  In an NAIC Hearing held on Thursday, January 29, 2009 the linked proposals were all voted down in a "nearly unanimous vote" of the NAIC executive committee; only one (1) State Insurance Commissioner voted in favor of the Life Insurance Companies' proposals.  The majority of State Insurance Commissioners included the New Hampshire Insurance Commissioner, who issued this statement after the NAIC executive committee vote:

Simply put, the [Life Insurance] industry has not made a credible case for why we need to make changes on an emergency basis, and why those changes should be limited to the specific proposals made by the industry.

    One newspaper described the Life Insurance Company's defeated proposals "as a cashless bailout.  They would have changed the way companies and regulators measure life insurers' financial strength, making them look healthier than they otherwise would appear."  David S. Hilzenrath, "Relief Denied For Life Insurers/Industry Must Keep Financial Cushion" (Washington Post.com, Friday, January 30, 2009).

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