Claims And Issues

"Socialism for Investors, Capitalism for Everyone Else."

Steven Pearlstein of the Washington Post writes a very informed column about the world of finance.  He knows more about finances and the people who live in the U.S. financial system than most people alive.  

    So it's worth listening when he says that it's time for the Federal Reserve to "fix" the financial system.  Fixing it, Pearlstein writes, is something that "surely the overpaid lawyers and investment bankers who created the shadow banking system are clever enough to figure it out."  

    See Mr. Pearlstein's proposed solutions here in his recent article, Socialism For Investors, Capitalism For Everyone Else in THE WASHINGTON POST.

Please read the disclaimer. ©2020 Dennis J. Wall.  All rights reserved.

MOVE FEDERAL RESERVE TO BORDER. HE WOULD NOT GET IN.

The current chief prospect for the Federal Reserve owes $75,000 in back taxes.  For 5 years.

If he were at the border trying to get into the United States, they would not let him in.

But he is not.  He is in Washington, D.C. trying to get into the United States Federal Reserve.

Odds are he is likely to make it in the current Federal Government.

See Alan Rappeport, Jim Tankersley and Glenn Thrush, Fed Pick Who Owes Taxes is Latest Example of Trump's Vetting Woes, New York Times, Friday, March 29, 2019, p. B3  (New York Times may charge for online access).

Please Read The Disclaimer.  This blog article ©2019 Dennis J. Wall.  All Rights Reserved.

ADVISING ABOUT YOUR PREVIOUS "PRIVILEGED" ADVICE?

The person who is now in charge of counseling the current Secretary of the Treasury on what to do about Fannie Mae and Freddie Mac, the two conduits both of Federal government mortgage guarantees and of Federal government revenue from their continuing operations, has previous experience it seems.  When he previously made his money in the financial sector, the same individual was in charge of a unit at a "huge asset manager."  The current counselor's former employer, the huge asset manager, advised the Federal government on the future of Fannie Mae and Freddie Mac. 

Shareholders of Fannie Mae and Freddie Mac sued the Federal government because the Federal government diverted Fannie's and Freddie's revenues to the Federal Treasury and away from the shareholders.

In their lawsuit, the shareholders requested many documents showing the analysis the advisers gave to the Federal government about whether and how Fannie and Freddie are profitable now and in the future.  These are of course exactly the issues on which the Treasury counselor, well, now counsels the Treasury.

The Federal government understandably has refused to let those analyses see the light of day, or for that matter, let the shareholders see them.

Many questions come to mind now.  Among them:  Does it make any difference to that discovery dispute that the supervising consultant of "Fannie and Freddie's loss and capital projections" is now a counselor to Treasury on Fannie and Freddie's loss and capital projections?

Does it add anything that the current counselor helped to bundle mortgage loans for Fannie and Freddie to buy, which went south very badly.  In fact, they performed so badly that the allegedly bad mortgage loans were one of the reasons that the Fannie and Freddie's Federal overseer, the Federal Housing Finance Administration, sued and settled for $1.25 billion?

Or that the company that bundled the loans and employed the current Treasury counselor and former consultant on Fannie and Freddie's finances, settled with the Department of Justice for $2.6 billion in large measure because of those mortgages?  See Gretchen Morgenson, "Business Day / Fair Game / The Man in Charge of Fixing Fannie and Freddie Knows Them All Too Well" (New York Times Online, posted Friday, April 7, 2017), also available at https://nyti.ms/2oax0J3.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

WELLS FARGO: COVERAGE FOR 5,300+ "BAD APPLES?" OR FORESEEABLE DAMAGES?

News reports have been published since at least 2013 that certain demands that Wells Fargo made (makes?) on its employees pretty much foreseeably result in fraud.  Recent news reports advise that because Wells Fargo employees were subject to "cross-selling" requirements, among other requirements, at least 5,300 Wells Fargo employees at the present count opened millions of bogus accounts and credit cards in the names of Wells Fargo customers so that the employees could meet their sales quotas.  See, e.g., Michael Corkery and Stacy Cowley, "DealBook / Wells Fargo Warned Workers Against Sham Accounts, But 'They Needed a Paycheck'" (New York Times Online, posted September 16, 2016); Andrew Ross Sorkin, "DealBook / Pervasive Sham Deals at Wells Fargo, and No One Noticed?" (New York Times Online, posted September 12, 2016).

Yesterday as this article is written, the current head of Wells Fargo confirmed the fraudulent opening of bogus accounts in testimony before the United States Senate.

He blamed the 5,300+ bad apples.  He called them "rogue employees."

Are there any insurance policies including any bonds that provide coverage for 5,300+ bad apples and rogue employees?  Wells Fargo is undoubtedly looking at this question right now.  So are its insurance carriers.

Or if the damages to Wells Fargo employees are not really the results of misconduct by 5,300+ bad apples and rogue employees, but if instead they are proven to be the results of corporate requirements imposed on the apples by Wells Fargo, it seems that there may be good arguments that many if not all of the damages to Wells Fargo customers were foreseeable and even intentional.   Wells Fargo admits that it has known about the fraud since at least 2013 and the "illegal sales" may have begun in 2009.  Michael Corkery, "DealBook / Illegal Activity at Wells Fargo May Have Begun Earlier, Chief Says" (New York Times Online, posted Tuesday, September 20, 2016).

There is a recurring exclusion or "carve-out" from commercial general liability insurance "occurrence" coverage when the policyholder is shown to intentionally cause the damages complained of by the underlying plaintiff.  This is a frequent insurance coverage issue.  If that is shown to be the case here, then Wells Fargo faces some difficult issues of what it knew and when it knew it, as they say, if Wells Fargo is inclined to put on proof to contest whether the reported pattern of fraud was a covered "occurrence" or the exclusionary insurance coverage equivalent of intentional damages.

Time will tell.  Stay tuned as coverage issues develop along with the liability issues embedded in this behavior.

Please Read The Disclaimer.  ©by Dennis J. Wall.  All Rights Reserved.

TOO SCARED TO TRY: FEDS BEG WALL STREET TO SETTLE …

…All the Big Cases.

This article is being posted simultaneously on Insurance Claims Bad Faith Law Blog and on Insurance Claims and Issues Blog.

HSBC was accused by the Federal Government of what amounts to laundering money for terrorists.  The Feds settled the HSBC matter although they had good chances of success if they went to trial against HSBC and especially against many of its officers and employees.  What trial lawyer would not want to have the prosecution side of a case against terrorists and their sympathizers?  Apparently the Feds.  See Gretchen Morgenson in her "Fair Game" column published in this morning's Sunday New York Times, "A Bank Too Big to Jail" (posted Online on July 15, 2016), which you can also post in your browser at http://www.nytimes.com/2016/07/17/business/a-bank-too-big-to-jail.html?ref=business&_r=0.  Ms. Morgenson's column features an unofficial report released by Republican staffers of the U.S. House Financial Services Committee without the Committee's approval.  Although obviously partisan, it appears that this investigative report offers a lot of actual evidence and not just opinions.

For example, after the Feds decided not to take the HSBC case to trial, they wanted so much to settle with HSBC that they offered immunity from prosecution to HSBC's officers and employees if only HSBC would settle.  The HSBC settlement apparently offers a lesson in settling on unfavorable terms.  Anyone who has ever settled a case knows that once the other side of a negotiation knows that your side wants to settle badly, that is exactly how your side will almost certainly end up settling, which is badly.

Please Read The Disclaimer.  © by Dennis J. Wall.  All Rights Reserved.  

A STEP CLOSER TO SUMMARY JUDGMENT ON A MOTION TO DISMISS.

Federal Court Building, New York City.

Image courtesy of the New York Public Library Collection.

A Federal Court may have taken a step closer to summary judgment on a motion to dismiss.  Federal Courts notoriously consider extrinsic evidence when passing on Rule 12(b)(6) motions to dismiss for failure to state a claim.  However, although such motions are no longer viewed as addressed to the face of the complaint, Rule 12(b)(6) is now a "Roberts Rule" and among other documents which the District Judge may consider on a motion to dismiss are documents she thinks are "integral" to the complaint and relied on in it, whether or not the documents are attached to the complaint.

The FDIC alleged in the main case here that the defendant broker arranged the mortgage loan in question based on the broker furnishing false information.  The FDIC sued the broker to recoup monies expended on the strength of the false information, because the simple act "of supplying the false and misleading information" was allegedly a breach of a Master Broker Agreement with the AmTrust Bank of Cleveland, Ohio.  (The FDIC was suing as receiver standing in the shoes of the AmTrust Bank.)

However, the actual sources of the false information were allegedly several "individuals engaged in a fraudulent scheme to obtain a home mortgage loan."  The broker sought indemnity from the individual defendants in the event it, the broker, was found liable.  One of the individual defendants filed a motion to dismiss under Rule 12(b)(6) for failure to state a claim.

The broad reach of extrinsic evidence was expanded to include "the Closing Documents" and "the Deed" involved in the real estate transaction in this case.  Federal Deposit Ins. Corp. v. US Mortgage Corp., 132 F. Supp. 3d 369, 380, 381-82 (E.D.N.Y. 2015).  The individual defendant's motion to dismiss was granted as a result of the District Court considering this and other evidence in passing on the motion to dismiss.

Whatever distinctions there might once have been between a motion to dismiss and a motion for summary judgment became increasingly harder to detect once the Roberts Rule of extrinsic evidence went into effect.  The decision in this case seems to be a part of that trend.

Please Read The Disclaimer.  © by Dennis J. Wall.  All Rights Reserved.

WITHOUT FANNIE, FREDDIE, WILL MONEY COME FROM MORTGAGE INSURERS …

 Copyright Shutter_M; Image by Shutterstock.

OR FROM BIG INVESTMENT "BANKS"*, DO YOU THINK?

The answer to this question comes from the facts we know and not from the opinions we may cherish:

Allowing too-big-to-fail banks to dominate the nation’s mortgage market would crowd out smaller lenders and expand the federal safety net, putting taxpayers at greater risk of funding bailouts in a downturn. Relying on mortgage insurers to provide that capital also seems dubious given how badly these companies performed in the 2008 crisis.

Gretchen Morgenson, "Insiders Aid Big Banks in Effort to Displace Fannie and Freddie" (Monday, December 7, 2015, posted online with the headline, "A Revolving Door Helps Big Banks' Quiet Campaign to Muscle Out Fannie and Freddie").  [Emphasis added.]

Well, we know the answer to that one.

*"Big banks" are investment banks.  They do not take deposits.  They make investments.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, Co-Author of "Catastrophe Claims / Insurance Coverage for Natural and Man-Made Disasters" (Thomson Reuters November, 2015).  All Rights Reserved. 

CROP INSURANCE SUBSIDIES TO CROP INSURERS, ONCE CUT, NOW RESTORED.

Image copyright 2015 Donna Bruno and Dennis J. Wall.

View this YouTube video on Lender Force-Placed Insurance Practices here.

Image by NASA.

Business models centered around insurance frequently dominate the economy.  Stories of new models are published every day.  One such story involves lender force-placed insurance practices, but this is only one of the stories of business models that dominate the economy.   Another story, but again only one story among many such stories, involves crop insurance subsidies.

Crop insurance subsidies do not really subsidize the costs of growing crops.  Crop insurance subsidies instead apparently subsidize crop insurance companies.  Crop insurance subsidies provide a return on investment that the insurance carriers offering crop insurance policies cannot get otherwise.  The margin is paid with your taxes.

And there is no evidence that crops are affected one way or the other.  But people are affected.

The story of crop insurance subsidies and the apparent windfall to crop insurance carriers is the subject of a New York Times report.  The story tells itself with these quotes from a much longer news article, available here:

Federal crop insurance is a public-private program. The government subsidizes insurers, many of them subsidiaries of multinational companies, to cushion farmers against losses from drought, floods, other natural disasters and low market prices.

Taxpayers cover about 60 percent of farmers’ premiums, while insurers get federal reimbursements for their operating costs. A target rate of return on their investment is set at 14.5 percent — “higher than that of other private companies, on average,” the Congressional Budget Office reported.

The provision in the October budget deal cut that rate to 8.9 percent. The outcry from farm-state lawmakers was immediate.

JACKIE CALMES, "NATIONAL | CONGRESSIONAL MEMO / Crop Insurance Subsidy Reflects a Budget Reality" (New York Times Online posted for Friday, November 27, 2015).

As the report observes:

The case of the crop insurance subsidies is just the latest evidence that talking about balancing the budget is far easier than doing it.

Id.

Please Read The Disclaimer.  ©2015 Dennis J. Wall.  All rights reserved.

FEWER HOUSING STARTS, FEWER APARTMENT STARTS: FEWER HOMEOWNERS POLICIES?

 

August brought a lower number of new housing starts and also new apartment construction starts everywhere except in the Southern United States.  Construction was down in the Northeast, the Midwest, and the West.  In other words, new housing construction was down in August in all the rest of the United States outside of the South.  "Fewer Starts in Housing, But Analysts Are Upbeat" p. B7, col. 6 (Associated Press copyrighted story published in New York Times Nat'l ed., "Business Day" Section, Friday, September 18, 2015).

A home lender's vice president is quoted in the linked report as saying that "[t]his is a mere blip on the radar."  Let's hope so if we want homeowner's insurance policies.  Fewer homes means fewer homeowner's policies in basic and simple terms.  That may increase the cost and limit the availability of renter's insurance, too.  Here's how.

Although even the fact that new construction of apartment buildings decreased, this event does not mean that there will not likely be some kind of insurance to be sold that would cover housing.  Renter's insurance will not likely be totally eliminated simply because renters are going to be renting in existing buildings, rather than renting in new buildings.

The availability of renter's insurance for rented space in old buildings may be limited, however, by the age and condition of older buildings which may present greater risks than new construction.  Or the premiums may be higher.  Either way would present one more burden on people looking for a place to live that they can afford.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, co-author of "Catastrophe Claims:  Insurance Coverage for Natural and Man-Made Disasters" (Thomson Reuters West May 2015).  All rights reserved.  

MORE HEALTH INSURANCE, SAME POOR AND UNEMPLOYED: "RECOVERY" STUMPS "EXPERTS."

 

 Algae Bloom / NASA

There are fewer people without health insurance since the Affordable Care Act took effect.  Robert Pear, "Health Care Gains, But Income Remains Stagnant, the White House Reports" p. A22, col. 1 (New York Times Nat'l ed., Thursday, September 17, 2015).

Eager to support the concept that the national economy has "recovered," so-called "experts" are stumped by the continuing low numbers for median family income and by continuing high numbers of people who are actually unemployed (including in the headcount not only people who are still looking for a job, who are counted in the official unemployment statistics, but also people who have stopped looking for a job since about 2008, and who are not included in the official unemployment stats).

The reality of course is that health insurance is up and uninsured numbers are down because the Affordable Care Act spurred or enabled policyholders and insurance companies to get and issue health insurance coverage.  There is nothing comparable to the ACA which would raise the average household income or lower the number of people in poverty.

The economy is too important to be left to the economists and politicians, you might say.  At least it's too important to be left to the economists and politicians who have been in charge of the economy all this time.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of "Litigation and Prevention of Insurer Bad Faith" (3d Edition, Thomson Reuters West, in 2 Volumes and 2015 Supplements).  All rights reserved.  

Related articles

Video Displays "Lender Force-placed Insurance Practices".

BANKS CDS INSURANCE POLICIES IN SETTLEMENT … WHAT'S THE DEAL?

A $2 Billion lawsuit filed by investors against large banks is reportedly being settled.  See Nathaniel Popper, "Banks to Settle With Investors in Suit Over Crisis" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, September 12, 2015).  The investors filed suit over the banks' use and alleged misuse of credit default swaps ("CDS"), a form of credit insurance unregulated by State Insurance Commissioners.  The plaintiffs alleged that the banks conspired to close the CDS market to competitors, thereby driving up prices paid by the investors-plaintiffs.

 One of the investors' attorneys claims that the banks are making changes which will make the CDS market more transparent as a part of the settlement.  Id.  However, the settlement terms are not reported.

 The operational manual for settlements involving investment banks and the Great Recession calls for secret provisions and sealed side-agreements.  It may be worth keeping a close eye on the Court File in this case.

 

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All rights reserved.

Related articles

Big Banks in $1.865 Billion Swaps Price-Fixing Settlement

Wall Street Banks to Settle CDS Lawsuit for $1.87 Billion

Video Displays "Lender Force-placed Insurance Practices".

LABOR DAY, LOW UNEMPLOYMENT, LOW WAGES, INSURANCE RE-EXAMINED.

 

On Insurance Claims and Bad Faith Law Blog yesterday, I shared some thoughts about the "fortuitous" requirement and its mother, the "known loss doctrine."  I wondered what some effects might be of applying those claim-denial concepts to insurance underwriting, specifically, to the calculation of retroactive premiums including below-market wages in the calculation.

I would like to extend the discussion on this Labor Day to include any claim or premium rate based on below-market wages.  Worker's compensation insurance premiums, for example.  Or business interruption claims for lost income over and above basic expenses such as below-market payroll at an insured restaurant.

Punitive damages are often and generally uninsurable, at least when clearly assessed on the ground of the policyholder's proven bad conduct.  Where punitive damages are uninsurable it is because public policy forbids insuring them, forbids providing bad actors with (insurance) money for their bad conduct.  Suppose that paying below-market wages in a given industry located in a particular place rises or falls to the same level of public policy against their insurability.  Suppose the public policy is based on the same notion that forbids paying bad actors with insurance money to do bad things, in this case, paying below-market wages.

It seems that then there will be a good argument against insurability for at least a part of the restaurant's business interruption claim in our hypothetical.  To the extent that the business interruption carrier can prove that the basis of the restaurant's claim should rest on market wages, the restaurant's business interruption claim would begin with a higher basis or expense factor, before awarding the difference between expenses and lost profits when calculating the available amount of business interruption coverage.   The difference between the policyholder's below-market payroll in this example, and what the policyholder would have paid if the restaurant had paid wages at the prevailing market rate, would represent an amount that is uninsurable and so would rightly be deducted from the lost profits before calculating the claimed lost income.

Thinking along these lines requires thinking outside the box of rules which worked pretty well until they didn't.  This seems to be true of jobs and wages information generally.  A lower unemployment rate coupled with an increase in the number of jobs added to the 'labor market' is treated as good news signaling a recovering economy.  See Neil Irwin, "The Upshot / Steady Jobs Data Puts Onus on the Fed," p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, September 5, 2015).  The lower unemployment rate, it is hardly mentioned, is skewed by the large number of people who have dropped out of the 'labor market' because they are no longer looking for work after looking for years, and so they are no longer counted as being in the market to provide labor.  They are just not counted in the official unemployment rate, thus skewing the percentage of unemployed people lower than it is in reality.

It goes without mention in the popular press reports, but it is possible if not likely that more jobs on the market at lower wages does not represent the number of people who have found jobs.  People may be working more than one job in even greater numbers than were known or suspected to be the case, because prevailing average wages are so low for the newly offered jobs.  To say again, this is never mentioned, not even suggested, but it fits the evidence.

Further, the fact that wages have actually decreased in relative terms is treated not as a bad thing, but as a good thing because average "hourly earnings rose a healthy 0.3 percent."  Neil Irwin, "The Upshot / Steady Jobs Data Puts Onus on the Fed," p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, September 5, 2015).  Apparently this is to be treated as a good thing because a 0.3 percent rise in average hourly earnings was "unexpected" by whoever is supposed to expect such things.  For workers paid by the hour, a raise of 3/10 of one percent seems like many things, but "healthy" is probably not one of them.  SeeNelson D. Schwartz, "Low-Income Workers See Biggest Drop in Paychecks" (New York Times Online, posted on Tuesday, September 2, 2015).

 

To say again, thinking along the lines explored here requires thinking outside the box of rules which worked once upon a time but not now. The previous rules and models do not work now because they are not based on the reality of the present.  New rules and different ways of thinking which reflect the reality of the present day are required.  The old rules and previous ways of thinking have brought us to where we are today, thereby proving if more proof was required, that they have stopped working.

 

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All rights reserved.

 

The return of the Munis!

               Municipal bonds are in the news again.  They took a long vacation during the Great Recession, due largely to the failures of municipal bond insurance companies which resulted from taking on credit default risk and straying from a lucrative but boring business of simply insuring municipal bonds.

               Before the Great Recession, and during the Great Recession including the present time, municipal bonds are the same as corporate bonds, only different:  Municipal bonds rarely default, unlike corporate bonds which default a lot more often.  These comparative rates of default are not reflected in the cost of their insurance policies, however, as municipal bond insurers set high rates in a niche market.  There just have not been many alternatives open to local government bodies that wish to obtain insurance to protect their bonds (and so give confidence to their bondholders).

               Now, some call into question whether the very low default rate of municipal bonds is threatened by unfunded local government pension plans.  See Tara Siegel Bernard, “Your Money / Municipal Bonds Not Really So Scary” p. B1, col. 3 (New York Times Nat’l ed., “Business Day” Section, Saturday, July 25, 2015).

               What is scary is the spectacle of municipal bond insurance companies issuing policies to cover risks unrelated to their core business.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of “Lender Force-Placed Insurance Practices” (American Bar Association 2015).  All Rights Reserved.

No "Lender Force-Placed Insurance Practices" Cases Have Gone to Trial.

   American Bar Association publishes book presenting the evidence never before available except to the lawyers and their clients in cases that never went to trial.

"Lender Force-Placed Insurance Practices" tells the story of a real-life drama, the drama of how American homeownership became a business opportunity for everyone but homeowners.  Lender force-placed insurance is not just for homes, however; it is a part of virtually every loan in the country.

We just may not be aware of it.

Lenders place insurance by force when a loan's collateral is in danger. Borrowers agree to provide collateral to guarantee that they will repay the loan. If the loan is for an automobile, then the automobile is the collateral; if the loan is a mortgage on a home, then the home is the collateral.  In case of damage to the collateral, as a part of the loan the borrower pays for insurance to protect the collateral.

If the borrower does not pay the collateral protection insurance premiums, then as a part of the loan agreement the lender can place insurance by force to protect the collateral and the borrower will pay the premiums for the insurance force-placed by a lender. Those premiums are added to the monthly loan repayment. Borrowers agree that if they do not make the monthly payment, their lenders can foreclose on their homes or repossess their automobiles.

This is where the previously unpublicized, often unseen “lender force-placed insurance practices” come into play.  These practices involve hidden charges like commissions paid to affiliates of the lender which are insurance agents in name only, or reinsurance premiums paid to subsidiaries of the lender.  The insurance company providing the force-placed insurance pays these charges in order to get the business of force-placed insurance.  The charges are silently added to the borrower’s monthly payment.

The facts presented here were learned in a forensic investigation into publicly available information over the course of 3 years. What I mean by “forensic investigation” refers to my examination of the evidence of LFPI practices, which I largely found in Court files.  I concentrated on what the parties testified and what the documents displayed.  I did not put much emphasis on what the attorneys argued in those cases.

My default rule was to rely on the testimony and documents that came from the most knowledgeable source on any given issue. Whenever the issue involved identifying and describing LFPI practices, and the evidence was available, those sources were the testimony and documents provided by the lenders and their affiliates and subsidiaries, by their mortgage servicers, and by the insurance companies which offer the force-placed insurance policies.

No case involving “Lender Force-Placed Insurance Practices” has ever gone to trial.  The evidence is on display in this book and in the Court files of the cases which all came to an end without a trial.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.

LIFE INSURERS’ CAPTIVE REINSURANCE SUBSIDIARIES CAPTURE INVESTMENTS.

    The aim of life insurance companies in the 21st Century is to provide investments.  And perhaps they will have enough in reserve to pay beneficiaries upon the death of their policyholders.

    Perhaps not.

    Life insurance companies have transmogrified their industry.   They no longer focus on issuing an insurance policy backed by reserves.  They focus on decreasing their reserves so that they can make investments and attract shareholders by paying dividends.  And paying the officers at the company.

    Statutory accounting has until recently required high levels of reserves except when State Insurance Commissioners grant waivers, also known as deviations.  Captive reinsurance companies are a prime source of deviations from statutory accounting.

    The complicated schemes are explored by Mary Williams Walsh in an informative article on “Risky Moves in the Game of Life Insurance / Complex and Mostly Hidden Maneuvers May End Up Costing Taxpayers and Policyholders” p. 1, col. 1 (New York Times Nat’l ed., “SundayBusiness” Section, Sunday, April 12, 2015), noting among other things, that “more and more money has flowed away from policyholder reserves and into the hands of investors.”

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.

Related articles

Risky Moves in the Game of Life Insurance

AIG SHAREHOLDER CLASS ACTION SETTLEMENT OF FEDERAL SUIT, ATTORNEY’S FEES.

               AIG has reportedly settled a shareholder class action lawsuit filed in Federal Court.  Even though the Federal Government closed its alleged investigations into the subject, without filing any criminal or civil regulatory enforcement action, the AIG shareholders’ lawsuit involved allegations that AIG “had led investors to buy stock and debt they otherwise would not have bought, resulting in billions of dollars in losses.”  The alleged failures of AIG were alleged failures “to disclose the risks [AIG] took on through its portfolio of credit default swaps and a securities lending program.”  Reuters copyrighted report, “A.I.G. to Pay Nearly $1Billion to Settle Class-Action Suit Brought by Shareholders,” p. 16, Col. 1 (New York Times Nat’l ed., Sunday, March 22, 2015).

               AIG’s monetary payment of indemnity in the settlement is a reported $970.5 Million.  Id.

               AIG will pay the plaintiffs’ attorneys $120.46 Million.  See id.

               Whether these numbers are “hard” or “soft,” including whether the settlement payments for indemnity in particular represent actual amounts to be paid to the plaintiffs in this settlement, are questions worth exploring further.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.

Related articles

CORRECTED-UPDATE 2-AIG investors' $970.5 mln settlement wins US court approval

Civil Procedure & Federal Courts Blog

A.I.G. to Pay Nearly $1 Billion to Settle Class-Action Suit Brought by Shareholders

ST. PATRICK'S DAY, 2014: THE DAY THAT BARRED ALL CLAIMS, supposedly.

RUSSIANS DRILLING FOR OIL IN THE U.S. GULF OF MEXICO ...

... PURCHASING RIGHTS IN DEAL WITH EXXON:  THE INSURANCE IMPLICATIONS.

           Exxon has sold oil rights to Russia in the Gulf of Mexico.  Russia is using its oil rights to drill for oil in the Deepwater Horizon territory.  See Christopher Helman, "Will Exxon's 'Bromance' With the Kremlin Help Keep Putin in Check?" (www.forbes.com, posted online March 20, 2014).

          We will let others address questions concerning sanctions for conduct in the Crimea, and whether the Russians have immunity from suit even when yet another oil catastrophe occurs, should damage result to people and businesses in the United States from Russian oil drilling operations in the Gulf of Mexico.

          Will there be insurance for those damages should they occur?  Will there be any of the kinds of coverages discussed here and elsewhere after the last oil disaster in the Gulf of Mexico including:

• Business Interruption?
• Contingent Business Interruption?
• "Extra Expense"?
• Bodily Injury and Property Damage?

See generally Dennis J. Wall, "Claims Handling Practices Issues:  Releases of Claims:  Macondo--Deepwater Horizon and the BP Business Model," § 2:15 in John K. DiMugno, Steven Plitt and Dennis J. Wall, Catastrophe Claims:  Insurance Coverage For Natural and Man-Made Disasters" (West Publishing Co. 2014 Supplements in Process).

          And they said the Deepwater Horizon escapade was over with.

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

BOND INSURANCE PREMIUMS MAY NOT MEAN PROTECTION FOR MUNIS.

           It is an interesting but little-known fact that muni bonds do not default nearly as often as corporate bonds.  Muni bonds are issued by small public entities like counties, cities, water districts and the like.  Corporate bonds are issued privately by corporations.  Both types of bonds are issued to raise money.

          There are major differences between the two categories.  As was already pointed out, public muni bonds default at a much lower rate than private corporate bonds.  That is a fact.

          Muni bonds also carry bond insurance at starkly high premiums compared to the premiums on bond insurance for private corporate bonds.  That's a major difference between the two categories right there.  These and other characteristics are highlighted in years of articles posted here under the category of Bond Insurance, including for example "Municipal Bond Insurer MBIA Back in The Headlines," posted on March 21, 2012, and "Gaming the Muni System:  Another Kind of Muni Bond Insurance?" posted on May 23, 2010.

          Since muni bonds default far less often than corporate bonds, the comparatively higher premiums charged by bond insurance companies to munis for their bonds do not appear to be based on the lower default rate of muni bonds.  The premiums charged by bond insurance companies to munis for insurance on muni bonds almost certainly have to be based on something else.  Perhaps that something else is one of the constants of modern finance, return on investment or "ROI".

          That would make bond insurance something like return-on-investment insurance, not insurance at all really, but something of a guarantee or hedge against an unexpectedly low return on the bond investor's investment.  In this sense, muni bonds can only be sold and traded if they are backed by bond insurance, which is close to the reality of the situation.  Prospects for muni bond investments in 2014 do not appear to be good, in any case.   Walter Hamilton, "Investing Quarterly / Muni Bond Forecast:  Cloudy in 2014 / Last Year, Bonds From States, Cities and Counties Suffered Their Worst Annual Performance Since 2008 and Only Their Fourth Losing Year Since 1990" (Los Angeles Times Online, posted Sunday, January 5, 2014).

          If on the other hand premium rates for  insurance on muni bonds are somehow linked to bond default performance, then premium rates for muni bonds would seem like an offer of nothing-for-something as it were.  Bond insurance companies would then be charging high rates for insurance that is not necessary, if the premium rates for muni bond insurance were actually based on the chances of muni bonds defaulting, which doesn't happen as a rule.

          Who ever knew that the basis for insurance premiums could reveal investment strategies or financial schemes at work?

 

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

 

 

 

16,000! And Counting! And, SO WHAT?

   Newspaper headlines, television news and EMails are ablaze with the astonishing report that the Dow has reached 16,000!  And counting!

   So what?  Does that really affect the outcome of your life, or the outcomes of your clients' lives?

    Less prominent are stories about the deaths and destruction caused by unforeseen tornadoes and storms in Illinois, Indiana, Missouri, and Kentucky.  And fewer are the reports on whether any or all of this loss is covered by catastrophe insurance of any kind.

   But by all means, blare out the 16,000! 

Please Read The Disclaimer.

DENY HEALTH INSURANCE, BLAME OTHERS, BUILD HOTEL.

          On page D2 of the Orlando Sentinel for Monday, October 21, 2013, there is a story reported by Sandra Pedicini with this headline:  "Darden Cuts Health Insurance for 1,000".  Darden blames its decision on President Obama.  Darden's story is that it had no say in the matter.

           On page D3 of the same Orlando Sentinel, there is a story reported by Sara K. Clarke and Sandra Pedicini with this headline:  "Darden Gets Going on Headquarters Hotel".  Darden praises itself for deciding to spend the money it takes to build a hotel at the site of its corporate headquarters.

           Clearly these can be hard decisions to make.  What's more important, spending money on health coverage for people or on buildings for profit?  For one restaurant corporation it's plainly a simple choice. 

Please Read The Disclaimer.

SAY IT AIN'T SO, SHEILA: THE FDIC'S SECRET SETTLEMENTS.

          I am currently reading with interest Sheila C. Bair's book, "Bull By The Horns".  It is a description of the time spent in office by the Federal Deposit and Insurance Corporation's former Chairman, written by the Chairman herself to describe her office.  During her tenure, which ended on or about July 6, 2009, much of the Financial Crisis exploded on our economy.

           While I am reading Ms. Bair's account of her tenure, reports have surfaced concerning secret FDIC settlements made on her watch with Directors and Officers who allegedly caused or contributed to the cause of the Great Financial Fiasco.  In apparent violation of Federal law, the FDIC agreed to keep the settlements secret unless a specific request was made for disclosure of that particular settlement.  See, e.g.,  E. Scott Reckard, "FDIC Begins to Reveal Settlements Related to Financial Crisis" (Los Angeles Times Online, posted March 19, 2013); William K. Black, "Business Blog / Which Aspect of the FDIC's Litigation Failures is The Most Embarrassing and Damaging?" (Huffington Post, posted March 12, 2013).  Reportedly, Ms. Bair was leading the FDIC "when most of the settlements were completed".  See Scott Reckard, Los Angeles Times, supra.

           Sheila Bair does not mention the fact of FDIC settlements with Directors and Officers of failed banks in her book, let alone that the FDIC agreed to keep them secret, or at least I cannot find any mention of them in her book.  We shall now, perhaps, all hear her side of the story soon.

           In response to a recently published newspaper report in the Los Angeles Times, the FDIC has begun posting information concerning its previously secret settlements on its web site.  The documents will be posted in increments.  As of March 29, 2013, the initial postings consist of  about 45 sets of documents (not simply individual settlements, but in some cases, groups of settlements).  They are collectively labeled by the FDIC as "Professional Liability Agreements by State Since 2008".  The FDIC site also contains a list of 53 "Professional Liability Lawsuits" filed by the FDIC against "officers and directors, attorneys, accountants, appraisers, brokers or others" and "fidelity bond carriers and title insurance companies," between July 2, 2010 and March 7, 2013.

           Examining the 45 pdf's posted to date will take awhile.  If I find anything 'newsworthy' in them, I will post my reviews of these settlement documents as I am able to complete my reviews.  In the meantime, the settlement which has attracted the most popular interest at the present time is the December, 2012 settlement between the FDIC and Michael Perry, who was CEO of failed IndyMac Bank located in California.  IndyMac's failure "cost the [FDIC] $13 billion -- the biggest loss in its 80-year history."  Scott Reckard, Los Angeles Times, supra.  [Emphasis added.]

           The FDIC reportedly secretly settled its claims against Mr. Perry for his agreement to personally pay $1 Million, plus an agreement by Mr. Perry not to engage in the banking industry (for awhile, at least) and also with provisions guaranteeing the FDIC's pursuit of IndyMac's "liability insurers" for $11 Million more.  Professor William K. Black, Huffington Post, supra.

           The Perry settlement was so good that it was announced in EMails sent to news organizations -- reportedly by Mr. Perry's lawyers, not by the FDIC.  The terms of this particular settlement were therefore public knowledge in December, 2012 when the settlement was reached between Mr. Perry and the FDIC.  See Kevin LaCroix, "IndyMac CEO Settles FDIC's Failed Bank Suit" (The D & O Diary, posted December 17, 2012).   

           In contrast, one alleged seller and/or deliverer of Mortgages to IndyMac Bank, Quicken, agreed to pay 6.5 times as much money, or $6.5 Million, to settle the FDIC's claims against it, and "[w]ithout admitting liability".  (See the 65th page in the 230 page pdf labeled, "IndyMac2", among the FDIC's "Professional Liability Settlement Agreements by State Since 2008".)

           On the whole, it seems less expensive to be a failed CEO than it does to be a failed Mortgage 'seller and/or deliverer'.  On the whole, as well, there are many legal entanglements with secret settlements that make these agreements unwise, and the price of keeping them secret exorbitant.  This is a good rule of thumb to follow when making all types of insurance settlements, it seems:  As a general rule at least, keep them open and transparent.  See generally DENNIS J. WALL, 1 LITIGATION AND PREVENTION OF INSURER BAD FAITH § 3:107, "Settlement of Third Party Bad Faith Claims:  Confidentiality (protected) or Concealment (Void)" (West Third Edition; 2013 Supplement in process); 2 id. § 9:28, "Settlement of First Party Bad Faith Claims:  Confidentiality (Protected) or Concealment (Void)".    

 Please Read The Disclaimer. 

Exercising An Opportunity to be Heard on Lender Placed Insurance.

          The Federal Housing Finance Agency ("FHFA") has issued a Notice that it invites our Comments on restrictions it should consider placing on Lender Placed (Force Placed) Insurance under Mortgages involving Fannie Mae and Freddie Mac:  Download LPIregister32613.pdf.FHFA Notice of Restrictions Proposed on Lender Placed Insurance Terms and Conditions.  The FHFA is the Conservator for these two government sponsored enterprises ("GSEs").

          Specifically, the FHFA is interested in hearing from anyone interested in these areas in which the FHFA is considering restrictions on Lender Placed Insurance:

The specific practices related to lender placed insurance that FHFA has determined pose risks to the Enterprises or run contrary to the duties of the Conservator and for which actions are specified are practices where there are concerns regarding conflicts between parties to the insurance agreement, including:

1. Certain Sales Commissions. The Enterprises shall prohibit sellers and servicers from receiving, directly or indirectly, remuneration associated with placing coverage with or maintaining placement with particular insurance providers.

2. Certain Reinsurance Activities. The Enterprises shall prohibit sellers and servicers from receiving, directly or indirectly, remuneration associated with an insurance provider ceding premiums to a reinsurer that is owned by, affiliated with or controlled by the sellers or servicer.

 Id. at 4.

           The Comment period will end 60 days from publication of the FHFA Notice in the Federal Register.  In an abundance of caution, I am calendaring Friday, May 24, 2013 or the 60th day by my calculations after the Notice was signed by the FHFA Acting Director on March 25, 2013, in order to be absolutely certain my input makes the FHFA deadline.

          Here are the portals through which the FHFA will receive our incoming input:

FHFA will accept public input through its Office of Housing and Regulatory Policy (OHRP), no later than [INSERT DATE 60 DAYS AFTER PUBLICATION IN THE FEDERAL REGISTER], as the agency moves forward with its deliberations on appropriate action. Communications may be addressed to Federal Housing Finance Agency, OHRP, Constitution Center, 400 Seventh Street SW., Ninth Floor, Washington, DC 20024, or emailed to [email protected] Communications to FHFA may be made public and posted without change on the FHFA Web site at http://www.fhfa.gov, and would include any personal information provided, such as name, address (mailing and email), and telephone numbers.

Id. at 4-5.

This is our opportunity to have our voices heard!  Won't you  join me in insuring that this opportunity is placed on Lender Placed Insurance?

A similar announcement will be posted tomorrow, Thursday, March 28, 2013, on Insurance Claims and Bad Faith Law Blog.

Please Read The Disclaimer.

Affordable Care Act: Some Provisions Take Effect; Some, Oral Arguments.

    Monday, March 26, 2012 is the first of three consecutive days of oral arguments scheduled by the United States Supreme Court on the Affordable Care Act.

    Many webinars and online-access webcasts have appeared on the subjects to be addressed by the Supreme Court.  Which provisions of the ACA may reasonably be expected to remain, and how they would function independently of the key provision in controversy -- the individual purchasing mandate -- has received a lot of attention from lawyers in particular.  Here, for example, is the American Bar Association's web seminar on demand, and here is the portal to the forthcoming web seminar on demand provided by West Legal Ed Center.  In the spirit of full disclosure:  The author accepted the ABA's invitation, and West Legal Ed Center's invitation, to speak on their respective panel CLE presentations.

    The key provision in controversy is of course the individual purchasing mandate.  Compelling arguments have been made on the issue of severability of other ACA provisons from the individual mandate, should that mandate be held unconstitutional.  See Abbe R. Gluck and Michael J. Graetz, "The Severability Doctrine" p. A25, col. 2 (New York Times Nat'l ed., Friday, March 23, 2012).

    The most concise summary I have read of the likely outcomes, and the sum of the legal precedents that compel those outcomes on the law, is by Lincoln Caplan and Philip M. Boffey, "Sunday Observer / A Moment of Truth for Health Care Reform" p. 12, col. 3 (New York Times Nat'l ed., "SundayReview" Section, Sunday, March 25, 2012).

    Another presentation of the legal issues is this one by Noam N. Levey, "In Healthcare Case, Supreme Court Weighs Entwined Provisions" (Los Angeles Times Online, Saturday, March 24, 2012).

    An examination of the political, even practical, as distinguished from the legal issues, is offered by Michael Hiltzik in "The Truth About Healthcare Reform" (Los Angeles Times Online, Saturday, March 24, 2012).

    In the end, the state of health care in the United States will be very different, whatever the outcome of the case now pending in the Supreme Court.  Perhaps other things will be different too. 

    Time will tell.

The author is Co-Chair of the Health, Life and Disability Insurance Subcommittee of the American Bar Association's Insurance Coverage Litigation Committee.

Please Read The Disclaimer.

Municipal Bond Insurer MBIA Back In The Headlines.

    After being out of the newspaper headlines for a couple of years, Municipal Bond Insurance Company MBIA is back.  Take a look at this report by Peter Lattman, "Insurer is Said to Forgo Bonuses Under Pressure" p. B5, col. 1 (New York Times Nat'l ed., "Business Day" Section, Tuesday, March 20, 2012).  This print report was slightly rewritten and posted online in "Dealbook" Blog on the New York Times website.

    Since dropping out of the headlines temporarily, MBIA has been a Plaintiff and a Defendant as a result of straying into fields full of Mortgage-Backed Securities.  It has been sued by investment Banks alleging Fraud, and it has sued Bank of America and Countrywide Financial alleging Fraud.  Id.

    More important, MBIA was allowed by the then-Department of Insurance of the State of New York to split into two MBIA's if you will:  a comparatively healthy MBIA, which contained its still profitable, and traditional, "municipal bond insurance business" and a very sick MBIA, with "crippling exposure to toxic mortgage-backed securities."  Id.

  Reportedly, the New York Department of Insurance (whose functions are performed in 2012 by the New York State Department of Financial Services) has done MBIA a more recent good turn.  The Department successfully convinced the persons who operate MBIA not to give themselves "bonuses" under the circumstances.

    Some people can learn to carry a tune, even if at first they seem to be tone deaf.

Please Read The Disclaimer.

Part 3 of 4: Residential Mortgage-Backed Securities Working Group ...

... Is the Fix In?

This is the Third in a series of Four posts.  The series began on Insurance Claims and Issues Web Log on Monday, January 30, 2012 and continued on Insurance Issues and Bad Faith Law Blog on Tuesday, January 31, 2012.

   After HUD Secretary SHAUN DONOVAN had his meeting with Democratic Attorneys General in Chicago to try to convince them to settle with the Banks for their unknown liabilities from the Great Financial Fiasco (see post 1), the Illinois Attorney General joined the Residential Mortgage-Backed Securities Working Group.  However, she is not listed as one of the five (5) Co-Chairs appointed to run the Group, even in her own press release.  None of the press releases released to date clarify her participation.  See, e.g., Illinois Attorney General's Press Release, January 27, 2012, "Attorney General Madigan Joins National Mortgage-Backed Securities Working Group"; Jim Puzzanghera, "New Initiative Will Coordinate Probes of Mortgage Meltdown" (Los Angeles Times Online, January 27, 2012).

   The Attorney General of Delaware is the son of the Vice President of the United States.  However, Attorney General Biden has carefully crafted his statements about the Federal Residential Mortgage-Based Securities Working Group, and about the scope of the Great Financial Fraud settlement with the Banks that is so highly favored by the Administration of which his father is a member.

   Attorney General Biden has made it clear that he will support the Federal RMBS Working Group, and even participate in it, but his participation in the Working Group does not include participating in any settlement demanded by the Banks before the State investigations are concluded into what the Banks actually did, and for which they now demand immunity in a settlement.   See Interview of Delaware Attorney General Joseph "Beau" Biden, III with Dylan Rattigan, entitled, "DE AG Beau Biden:  Too Big to Fail Banks Believe The Enforcement Side is 'Scared'".

The "New Golden Rule":  "The One Who Has The Gold, Makes The Rules."

      Even if further staffing of the RMBS Working Group may include some State or other non-Federal employees, apparently the Federal Government will fund it.  See Edward Wyatt, "New Fraud Investigation Group Issues Subpoenas to Financial Companies" p. B3, col. 1 (New York Times Nat'l ed., "Business" Section, Saturday, January 28, 2012).

Not Participating, Yet, But Continuing to Pursue Investigations They Began Long Before the Federal Government's New Working Group.

   As of the beginning of this week, or as of Monday, January 30, 2012, there was no announcement, let alone a press release, about the Federal RMBS Working Group, on the websites of any of the three other State Attorneys General who have expressed reservations about, or withdrawn from the current Mortgage Servicer Fraud settlement talks with the Banks:

1. California;
2. Massachusetts; and
3. Nevada.

As noted, they filed lawsuits long before the Federal Government got around to releasing press releases about the new Federally headed Residential Mortgage-Backed Securities Working Group.

To be continued in the final installment of this series, on Insurance Claims and Bad Faith Law Blog.

Please Read The Disclaimer.

Mortgage Foreclosure Fraud ... Again?

   The Fix is almost in.  Maybe.

   As these words are written, the 2012 State of the Union Address has not yet been given.  2012 is also an election year for the President, of course.

   Obama Administration officials, chiefly the Secretary of Housing and Urban Development, are reportedly engaged in pressuring State Attorneys General to release Mortgage Servicers not only from fraud claims or causes of action based on their conduct as Mortgage Servicers, but also from all their liability to all civil claims based on their conduct in lending and securing Mortgages in the first place including subprime Mortgage lending.  See Nelson D. Schwartz and Shaila Dewan, "Political Push Moves a Deal On Mortgages Inches Closer" p. B1, col. 5 (New York Times Nat'l ed., "Business Day" Section, Tuesday, January 24, 2012) .

   The current Banks a/k/a Mortgage Servicers involved in these talks include:

1. Bank of America;
2. Citigroup;
3. JPMorgan Chase;
4. Wells Fargo; and
5. Ally Financial.

The current payment configuration would be for an average payment of "about $20,000" to "[a]bout one million homeowners".  There are 8 million Homeowners currently in Foreclosure.  Id.

   In addition, there are 11 million Homeowners whose home value exceeds the Mortgaged amount.  On average, they alone owe two to two-and-one-half times the average amount payable to 1/19 of all the Homeowners in question.  See id.  Even with that average amount of $20,000.00 which would be paid by the Banks-Mortgage Servicers, in other words, eleven million more Homeowners are still subject to Foreclosure if this deal is accepted, leaving a total of 19 MILLION Homeowners still subject to Foreclosure.

   Some deal.  But that is not all.

   The "average amount" payable by the Banks-Mortgage Servicers fluctuates depending on how many States agree to release the Banks-Mortgage Servicers from unknown liabilities.  It may be less.

   In any event, at this time, the Attorneys General of California, Massachusetts, Nevada, and New York, among other States, are having none of it.  The Homeowners and all citizens of their States are fortunate to have them on the job.

Please Read The Disclaimer.

Silence on the Mortgage Fraud Settlement Front, For Now.

This updates posts here and on Insurance Claims Bad Faith Law Blog addressing why and how the Attorney Generals of California, Massachusetts and Nevada, among other jurisdictions, have all rejected the idea of engaging in settlement talks over uninvestigated, unknown liabilities of Mortgage Servicers and their Banks as a part of settlement negotiations over established fraudulent Mortgage lending and servicing practices.

   Talks led by the Iowa Attorney General, with assistance and a push from the Obama Administration, apparently continue with Mortgage Servicers and Lenders to settle potential claims over their Mortgage servicing and lending practices.  The talks apparently continue even without the California Attorney General, and without the approval of Attorneys General from other jurisdictions including Massachusetts and Nevada:

Why strike a deal -- one that would, say, shield banks from new litigation over toxic loans, flawed securitizations and the mess at MERS, the registry that has made such a jumble of land records -- without knowing what happened?

Gretchen Morgenson, "Fair Game / From East And West, Foreclosure Horror Stories" p. 1, col. 1 (New York Times Online, "SundayBusiness" Section, Sunday, January 8, 2012).

   Why, indeed?

Please Read The Disclaimer.

D&O Wars II.

"Instead of an attack on the 1 percent, let's call it an attack on the very productive."

Max Abelson, "Bankers Join Billionaires to Debunk 'Imbecile' Attack on Top 1%" (Bloomberg Online, Tuesday, December 20, 2011), quoting what is described as a current Director [Chairman of the Board] and a former CEO of BB&T Corporation, "the ninth-largest U.S. bank".  [Emphasis added to quotation.]  The individual is also a current "Distinguished Professor of Practice" at Wake Forest.

   Some Directors and some Officers are very productive in producing D&O Claims at this time.  See generally "D&O WARS:  CORPORATE SHAREHOLDERS PAY PREMIUMS; DIRECTORS, OFFICERS DO NOT," posted here on December 21, 2011.  Without the unfortunate conduct of some Directors and some Officers before and during the Great Economic Fiasco through which we are all now living, there would definitely be many fewer opportunities for Courts to decide D&O Insurance Coverage issues. 

HAPPY HOLIDAYS TO ALL, AND TO ALL A HAPPY NEW YEAR!

   Please Read The Disclaimer.

"Put Your Hands Up, Or ... We'll SETTLE!" Not Hardly, Pilgrim.

   The Securities and Exchange Commission "enforcement chief" says settlements leave your client better off than what they could get if they went to Trial.  Edward Wyatt, "House Panel to Examine Settlements By S.E.C." p. B6, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, December 17, 2011), quoting "Robert Khuzami, the S.E.C.'s director of enforcement".  That is true only when you lose at Trial all the time.

   Anyone who has actually litigated cases knows that you settle when the risks to your client are greater than the chances of recovery.  No active practitioner ever consistently recommends settlements of potentially successful lawsuits because the amount of the settlements is equal to the amount or as much as your clients could get if they went to Trial.

   Evidence of this truth is clear.  Private lawsuits against "banks" return far more money than settlements negotiated by the S.E.C. and other currently staffed Federal agencies.

   What Insurance Coverages such lawsuits will trigger is even now  being litigated, along with the lawsuits themselves.  The plaintiffs are voting with their filing fees that they will be made whole faster and more efficiently by doing the recovery actions themselves, you might say: 

   If the bank settled with the investors using the same loss ratio that was applied in the Bank of America settlement [of a lawsuit filed by private investors], it would cost JPMorgan about $1.9 billion.  Still the bank would have other exposure outstanding.  JPMorgan faces about $31 billion in class-action cases, according to McCarthy Lawyer Links, a legal consulting firm.

   Elizabeth Nowicki, a professor of securities law at Tulane University and a former lawyer at the Securities and Exchange Commission, said that the efforts by investors might turn out to be the costliest and most important way that banks are held accountable for their mortgage security creations, because the push for accountability is coming from bank clients.  For instance, in the one mortgage security case the S.E.C. has brought against JPMorgan, the bank settled the allegations in June for $153.6 million.

Louise Story, "Investors Scrutinizing JPMorgan's Mortgages" p. B1, col. 6 (New York Times Nat'l ed., "Business Day" Section, Saturday, December 17, 2011).

Please Read The Disclaimer.

Derivative Investments Dive, Reinsurance Raises Warren Buffett Insurance Profits.

   In the past, Mr. Warren Buffett famously described derivatives as weapons of financial destruction.  Now, derivatives are partially accountable for a drop in 3Q 2011 Profit reported by Berkshire Hathaway, Mr. Buffett's huge conglomerate.  See "Derivatives Cut Into Berkshire Hathaway's Profit" p. B5, col. 1 (Reuters Report published in New York Times Nat'l ed., "Business Day" Section, Saturday, November 5, 2011).

   Other factors nibbled at the margins, however.  "But Berkshire was hurt, like many other insurance companies in particular, by sharp declines in a broad range of market values."  Id.

   Reinsurance provides Mr. Buffett's companies with protection against profit-killing policies, however (pun intended).  "Profits in the insurance business rose as a rebound in reinsurance results offset sharp declines at the auto insurer Geico."  Id.

 Please Read The Disclaimer.