How the Federal Family Medical Leave Act and Workers' Compensation Laws Interact

Recent DOL letter rulings have clarified the interaction between FMLA and workers' compensation laws.

The federal Family and Medical Leave Act (FMLA) and state workers’ compensation laws may both cover an employee who suffers a serious health condition while on the job. The Department of Labor (DOL) has issued revised regulations that implement the FMLA. Though the interplay between the FMLA and workers’ compensation leaves was addressed within those regulations, a number of DOL letter rulings have also clarified the interaction of these laws.

Sabal Insurance Group will answer common questions regarding employee leaves that qualify for protection under both the FMLA and workers’ compensation laws.

Does FMLA leave run concurrently with a workers’ compensation absence?
The employee’s FMLA leave entitlement may run concurrently with a workers’ compensation absence when the injury is one that meets the criteria for a “serious health condition.” Thus, an employee could receive workers’ compensation benefits to replace lost wages, while at the same time having health benefits maintained under the FMLA. However, if appropriate, the employer must be sure to designate this leave as FMLA-qualifying leave and must give notice of the same to the employee. If the employer fails to designate this leave as FMLA leave, the employee may still be entitled to FMLA leave once the workers’ compensation absence has ended.

Can an employer require an employee to substitute accrued paid leave if the employee is on workers’ compensation and FMLA leave?
Since the workers’ compensation absence is already considered paid leave, the FMLA provision for substitution of the employee’s accrued paid leave for unpaid FMLA leave does not apply. More specifically, if the employee has elected to receive workers’ compensation benefits, the employer cannot require the employee to substitute any accrued paid leave for any part of the absence that is covered by the payments under a workers’ compensation plan. However, an employee is also precluded from relying upon the FMLA’s substitution provision to insist upon receiving both workers’ compensation and accrued paid leave benefits during such an absence. However, employers and employees may agree, where state law permits, to have paid leave supplement the disability plan or workers' compensation benefits, such as in the case where a plan only provides replacement income for two-thirds of an employee's salary.

What benefits is an employee entitled to while on concurrent workers’ compensation and FMLA leave?
If the employer designates the workers’ compensation absence as FMLA leave, then the employee is entitled to all employment benefits accrued prior to the date on which the leave commenced. The FMLA does not entitle the employee to the accrual of any seniority or employment benefits during any period of FMLA leave, nor to any right, benefit or position of employment other than that to which he or she would have been entitled had the employee not taken the leave. Thus, an employee on FMLA leave does not accrue seniority or employment benefits during the absence by operation of the FMLA. Nevertheless, in addition to the group health benefits guaranteed under the FMLA, an employee on FMLA leave, whether paid or unpaid, may be entitled to additional benefits while absent, depending on the employer’s established policy for providing such benefits when employees are absent on other forms of leave.

How may an employee on concurrent workers’ compensation and FMLA leave pay for group health coverage? For other non-health benefit premiums?
An employee who is receiving payment as a result of a workers’ compensation injury must make arrangements with the employer for payment of group health plan benefits when simultaneously taking unpaid FMLA leave. It is important that the employer make such arrangements with the employee in advance of the leave or shortly after the leave begins since the FMLA provision for recovery of the employer’s share of health insurance premiums does not apply. That is, the FMLA statute only authorizes the recovery of the employer’s share of insurance premiums that are paid to maintain coverage for the employee under a group health plan during any period of unpaid leave. Leave taken pursuant to a workers’ compensation plan is not unpaid leave within the meaning of the FMLA.
Likewise, an employer will also want to make prior arrangements for employee payment of other non-health benefit premiums when an employee is receiving payment as a result of a workers’ compensation injury and is simultaneously taking unpaid FMLA leave. Again, neither the FMLA statute nor its regulations provide for the employer’s recovery of any such premiums paid during a paid leave as opposed to during an unpaid leave.

What may an employer do if it questions the adequacy of a medical certification?
If an employee is on FMLA leave running concurrently with a workers’ compensation absence, and the provisions of the workers’ compensation statute permit the employer or the employer’s representative to have direct contact with the employee’s workers’ compensation health care provider, the employer may follow the workers’ compensation provisions. That is, the employer may have direct contact with the employee’s health care provider in the manner in which the workers’ compensation statute provides. Further, the revised FMLA regulations also provide that an employer can contact an employee’s health care provide to authenticate or obtain clarification of the medical certification, so long as the employer has first given the employee a chance to cure any deficiencies.

Is an employee required to return to a “light duty” job when it is not the same job or is not equivalent to the job the employee left?
If the health care provider treating the employee for the workers’ compensation injury certifies the employee is able to return to a light duty job, the employee may decline the employer’s offer of a light duty job if it is not the same or is not an equivalent job to the job the employee left. However, as a result of turning down such light duty job, the employee may lose workers’ compensation payments, but is entitled to remain on unpaid FMLA leave until the FMLA entitlement is exhausted. Additionally, when the workers’ compensation benefits cease, the employee may elect or the employer may require the use of accrued paid leave.

If the employee accepts the light duty position in lieu of FMLA leave or returns to work before the FMLA leave entitlement ends, the employee retains the right to the original or to an equivalent position. However, the period of time employed in a light duty assignment cannot count against FMLA leave entitlement. The right to restoration is held in abeyance during the period of time the employee performs a light-duty assignment. That right is not unlimited and ceases at the end of the applicable 12-month FLMA leave year. Restoration is dependent on the employee’s ability to perform the essential functions of the same or equivalent position at the end of FMLA leave.

What happens to an employee on concurrent workers’ compensation and FMLA leave once the FMLA leave entitlement has run out?
If the employee is unable to return to work or is still in a light duty job after the FMLA leave entitlement has run out, the employee no longer has the protections of the FMLA and must look to the workers’ compensation statute or to the federal Americans with Disabilities Act (if the employee is a “qualified individual with a disability”) for any further relief or protections.

Please contact Sabal Insurance Group with any questions.

Property/Casualty Insurers Dispute Consumer Group Over Claims That It Overcapitalized

“The Insurance Industry’s Incredible Disappearing Weather Catastrophe Risk” is a new report released by the Consumer Federation of America (CFA). The consumer group claims insurers aren't paying their fair share of weather-related claims, arguing that insurers have shifted costs to consumers by increasing deductibles and capping the amounts they will pay if a home is damaged or destroyed.


But property/casualty insurers aren't seeing eye to eye with the CFA on this one. Final numbers aren't in yet, but it looks like 2011 will be one of the most expensive years on record for private P/C insurers for U.S. catastrophe losses. Private U.S. insurers’ net losses on underwriting grew to $34.9 billion in nine-months 2011 from $6.3 billion in nine-months 2010. The 2011 numbers, insurers say, clearly illustrate that they took on a record amount of risk last year.


The CFA is calling on state regulators to block insurer rate hikes.

Read the rest of this article, originally published in the Insurance Journal, here.

Insurer's 'Duty to Defend' Reexamined in 10th Circuit's Ruling on Late Night Bar Brawl

The 10th Circuit Court of Appeals' ruling in a recent case involving a late night bar brawl at the Okmulgee Inn forced one insurer to reexamine the standard for duty to defend in light of unusual extrinsic evidence.

In Mount Vernon Fire Ins. Co. v. Okmulgee Inn Venture, LLC, the Tenth Circuit Court of Appeals recently demonstrated how an "extrinsic evidence" duty to defend standard can create a duty that unquestionably did not exist based on a "four corners" standard. Not to mention that the court did not exactly search high and low to locate the extrinsic evidence that it used to create the duty to defend.

In Okmulgee Inn Venture, the court addressed coverage under the following scenario:

Okmulgee Inn Venture leased space to a nightclub-bar and was a named insured on a liquor liability insurance policy. Okmulgee was insured against injuries caused by "the selling, serving or furnishing of any alcoholic beverage." Okmulgee Inn Venture at 2.

"In 2006, three bar patrons sustained gunshot wounds during a fight at the nightclub and sued Okmulgee, alleging, among other things, that Okmulgee failed to ensure the safety of the bar's patrons, properly train the bar's staff, or investigate the bar's operator. The only specific allegations pertaining to alcohol were that two of the three victims were under-age but were admitted to the bar and served alcohol. Mt. Vernon refused to defend Okmulgee in these suits. Mt. Vernon asserted there was no coverage under the policy, and thus no duty to defend or indemnify, because the allegations did not indicate the injuries were caused by the selling, serving, or furnishing of alcoholic beverages. Mt. Vernon then initiated this declaratory judgment action to determine its obligations." Id. at 3.


In other words, Mt. Vernon refused to defend Okmulgee because there was no allegation that the shooter was drunk or that the shooter was served alcohol. Rather, it was only alleged that the victims were served alcohol. Thus, Mt. Vernon asserted that there were no indications that alcohol caused the injuries. Id. at 4. The District Court agreed that no duty to defend was owed because the "precise facts alleged against the insured did not demonstrate there was coverage under the policy." Id. at 2. The Tenth Circuit reversed: "We agree the facts fail to conclusively demonstrate coverage, but we think there is still a potential for coverage as permitted by Oklahoma law." Id.


At the heart of the Tenth Circuit's decision was Oklahoma's duty to defend standard: "[T]he insurer's duty to defend its insured arises whenever the allegations in a complaint state a cause of action that gives rise to the possibility of a recovery under the policy; there need not be a probability of recovery." Id. at 5 (citations and internal quotes omitted; emphasis in original). However, this "analysis is not restricted to the four-corners of the complaint; rather, an insurer's defense duty is determined on the basis of information gleaned from the petition (and other pleadings), from the insured and from other sources available to the insurer at the time the defense is demanded." Id. (citations and internal quotes omitted). Moreover, "[t]he insurer has a duty to look behind the third party's allegations to analyze whether coverage is possible." Id. at 6 (citations and internal quotes omitted).


Applying this standard, the Tenth Circuit concluded that a defense was owed:


The parties dispute whether the facts demonstrate that alcohol caused the injuries, but the issue is whether the facts establish a potential for coverage, that is, whether the circumstances alleged give rise to the possibility that the injuries were suffered by reason of the selling, serving, or furnishing of alcoholic beverages. And on this score, we have little difficulty concluding that they do. The victims entered the bar and were served alcohol; a bar-fight ensued and witnesses recalled beer bottles shattering; then gunshots were fired by a shooter who had been previously arrested at the same bar for being drunk in public. These known and undisputed facts establish the possibility that alcohol contributed to the injuries. We do not mean to suggest, of course, that the potential for coverage exists because "later-revealed facts" may show coverage[.] . . . But the known and undisputed facts in this case, standing alone, establish a credible possibility that the injuries sustained were caused by the selling, serving or furnishing of alcoholic beverages.

Id. at 5-6 (emphasis in original).


While there is nothing unusual about a court looking to extrinsic evidence to determine a duty to defend, Okmulgee Inn Venture seemed to take it a step further - considering extrinsic evidence that might exist. The court seemed to be saying: "Come on, look at these facts, how could alcohol not have played a part in this." The court didn't explicitly say that, but that was its clear message nonetheless.


The Okmulgee Inn Venture court was quick to add that, by its decision, Mt. Vernon's duty to indemnify was not yet ripe. But having found a duty to defend - that admittedly did not exist based on the four corners of the complaint - the underlying plaintiff is now in a position to use the insurers' exposure for defense costs as leverage to secure a settlement than may otherwise be subject to coverage or liability defenses. Read the full story here

Miami Herald's new blog shines light on south Florida's entrepreneurial spirit

Entrepreneurs are the engine of the economy, and their fundamental role is especially highlighted during tough economic times. The innovators--individuals whose fear of losing does not prevent them from acting--these are the people who put Americans back to work.

Becoming a successful entrepreneur is no small feat. But it just got a little easier for south Floridians. The Miami Herald has just launched a new blog, “The Starting Gate,” self-described as “news, views and tools for startups and small businesses.”

Workers’ Compensation Turn a Profit? Fahgettaboudit!

Workers’ compensation carriers with visions of profits over the next few years are dreaming.

It ain’t goin’ to happen, according to insurance analysts at Standard & Poors Ratings Services.

“All signs are pointing to more unprofitable years ahead for the workers’ compensation insurance industry,” the firm said in its report titled “For The U.S. Property/Casualty Industry, Making Workers’ Compensation Profitable May Be Mission Impossible.”

Why the negativity?

S&P blames continued high unemployment, a sluggish economic recovery, potential for higher inflation on future claims payments, adverse reserve developments, and a volatile investment environment with historic low investment yields.

What’s more, the workers’ compensation industry hasn’t been great at making a profit in the recent past.

All of that could add up to many years of unprofitability for the workers’ compensation industry.

S&P said that this industry has a “dismal track record” of underwriting results as illustrated by only three years of underwriting profits over the past two decades (1991-2010). Between 1991 and 2010, the industry statutory combined ratio was below 100 percent in 1995, 1996, and 2006.

A combined ratio of more than 100 percent signifies an underwriting loss. Although many property/casualty (P/C) insurers, especially those writing workers’ compensation, rely on investment incomes to offset underwriting losses, current historically low investment yields could also hinder such dependence going forward.

In light of these factors, Standard & Poor’s Ratings Services said it remains bearish on this line. Despite pockets of rate increases in a few states, S&P said it believes the negative factors point to years of unprofitability in this line.

S&P also said it believes many P/C insurers with meaningful concentration in workers’ compensation will continue to report underwriting losses in this line over the next few years, primarily arising from recent accident years (2007-2010).

Workers’ compensation pricing showed a modestly improving trend in the latter part of last year. If it persists, it could potentially lead to industrywide rate improvements for many casualty lines. However, S&P said it is unsure whether the current pace of rate increases in workers’ compensation will be sustainable over the next few years, and, if so, whether it will be sufficient to overcome increased loss costs.

The workers’ compensation industry’s reserves will remain inadequate over the next few years, in S&P’s view. Its analysts expect many insurers with meaningful concentration in workers’ compensation to strengthen their prior year reserves, especially for accident years 2007-2010.

S&P, which monitors quarterly reserve developments for all P/C insurers, said that if certain P/C insurers substantially strengthen their reserves, especially for recent accident years, such that their operating earnings fall materially below expectations, its analysts would consider lowering some ratings.

Face-to-Face Encounters: Avoiding Liability for Abandonment

Providers are at risk for legal liability when they terminate services to patients. Termination of services has historically been warranted by the following circumstances, among others: violence or threatened violence, noncompliance by patients and/or primary caregivers, inability to provide adequate assistance, or inappropriateness for services. Providers are understandably concerned about the possibility of legal liability associated with the termination of beneficial services.

Specifically, they frequently express concern about the possibility of liability for abandonment of patients. The Office of the Inspector General (OIG) of the U.S. Department of Health and Human Services (DHHS), the primary enforcer of fraud and abuse prohibitions, has indicated that abandonment of patients may also constitute fraudulent conduct.

Providers now have new concerns regarding liability for abandonment in light of requirements for face-to-face encounters. Specifically, providers may not be paid for services rendered if patients have not had appropriate face-to-face encounters with physicians during required time periods. It is important, therefore, for providers to understand how to terminate services without liability for abandonment.

Practitioners often speak of abandonment as though it is equivalent to termination of services. On the contrary, patients who want to hold providers liable for abandonment must show that:

1. Providers unilaterally terminated the provider/patient relationship;
2. Without reasonable notice;
3. When further action was needed.
Patients who fail to prove any one of these requirements are likely to lose their lawsuits against providers.

The second requirement of abandonment provides a key basis for avoiding liability for abandonment. Providers will not be liable for abandonment as long as they give patients reasonable notice prior to termination of services. The key question is: what is "reasonable" notice, especially in view of new face to face encounters?

Many providers historically viewed thirty days as the minimum number of days required for reasonable notice. This period of time is too long for most patients, including patients who have not had required face-to-face encounters. A more reasonable period of time for most patients, unless a specified period of notice is mandated by state statute or regulation, is probably one to three days.

After staff members agree upon a reasonable notice period, patients and attending physicians should receive verbal and written notice. Written notices should be hand-delivered to patients’ homes. Although it is desirable, it is unnecessary to obtain a signature verifying receipt. Written notices to physicians should be faxed to them.

When the date for termination of services arrives, providers must terminate care as planned. Practitioners are sometimes tempted to continue in the face of pleas from patients, physicians, and/or family members. Providers must bear in mind, however, that their organizations, whether for-profit or not-for-profit, simply cannot afford to render unlimited amounts of uncompensated care. The consequence of lack of attention to fiscal limitations may be the disruption or unavailability of care to many patients.

Finally, providers can defeat claims of abandonment if patients for whom services are discontinued need no further attention. How do providers know whether further attention is needed? Is this requirement as subjective as it appears? On the contrary, judges are likely to make retrospective determinations about whether further attention was needed. The basis for such determinations will probably be whether patients were injured as a result of termination.

In other words, the law is likely to conclude that no further attention was needed, so long as patients are not injured as a result of termination of services. What kind of injury must patients prove? Can patients who attempt to prove emotional damage only as a result of termination of services by case managers win lawsuits?

The "good news" for providers is that courts generally require proof of physical injury or damage before they will find providers liable for abandonment. Providers must, therefore, take appropriate steps to make certain that patients are not physically injured as a result of termination of services. In rare instances, appropriate action may include sending an ambulance to take the patient to the nearest hospital. If the patient refuses transport by ambulance, the patient will have been contributorily negligent or will have assumed the risk, so providers are likely to avoid liability.

Now is the time for providers to educate themselves about the possibility of liability for abandonment. Positive steps must be taken in order to prevent this type of legal liability in view of the uncertainty of the impact of requirements for face-to-face encounters.

by Elizabeth E. Hogue, Esq.

Florida Arrests Alleged Citizens Property Scammer

Florida Chief Financial Officer Alex Sink today announced the arrest of Aylin Hernandez, 23, of Miami, for fraudulently diverting mail and stealing payments intended for Citizens Property Insurance Corporation.

Hernandez was arrested this morning and booked into the Turner Guilford Knight Correctional Center in Miami-Dade County on charges of organized fraud and grand theft. The arrest results from an investigation by the Division of Insurance Fraud, with assistance by Citizens Property Insurance Corporations' Special Investigations Unit. If convicted, Hernandez faces up to 45 years behind bars.

"This fraudster is getting exactly what she deserves—serious jail time," said Sink, in a statement. "I am grateful for the work of my investigators and Citizens' Special Investigations Unit for working together to put her behind bars. Would-be scammers out there need to know that this kind of action will not be tolerated."

Working with investigators from Citizens Property Insurance Corporation, the Division of Insurance Fraud established that Hernandez created her own corporation named Citizens Property Insurance, Inc., and opened an account under that name at Check Cashing USA.

Using information she obtained while working as a clerk in several local insurance agencies, Hernandez sent invoices to various law offices and title companies, which were handling homeowners insurance escrow and service payments. The victims, believing their payments were going to the legitimate Citizens Property Insurance Corporation, sent eight checks totaling over $12,000, which were then cashed by Hernandez.

Departure of Insurer from Florida Points Up Fraud Problem

With a letter sent out a few weeks ago, Explorer Insurance announced that it will no longer write private automobile policies in Florida because there is too much fraud.

"The company is taking this action in light of poor ongoing business results in Florida, particularly in the area of private passenger automobile no-fault coverage, in which loss fraud has been rampant with no signs of abatement," Explorer vice president, Steve Frisina, said in the letter to Florida's Office of Insurance Regulation.

The letter said Explorer intends to send termination notices to agents who sell its coverage within a week of the Office's acceptance of its plan. Policy holders will begin receiving non-renewal notices also within one week. And, by January 2012, no Explorer policies will remain in effect.

The Office has deferred accepting Explorer's plan for the time being present, until the company can fix some of the details of its exit.

In the meantime, however, Explorer has severely restricted the number of policies its agents are allowed to write and has told agents it is no longer paying commissions as of this week, according to a Tampa agent.

"They were going to be over $100,000 in premiums for us this year," said John Guthrie, of the John Guthrie Agency, Tampa. He has had severe restrictions on the number of policies he can write for Explorer since May.

Guthrie said that fraud is a big problem that is chasing many auto insurance carriers out of the market. Last year at this time, his agency represented 16 or 17 carriers, he said. Now the agency is down to three.

"The companies are all just pulling out or they are making underwriting so restrictive that you can't get the people through the approval," he said.

In May, the National Insurance Crime Bureau released a report that said that Florida has led the nation in suspected staged auto accidents the last three years in a row. According to the report, Florida had 3,006 suspicious claims from 2007 to 2009, and that was almost twice as many as the two states with the next most suspicious claims, New York and California.

The worst place in Florida was Tampa, the report said. Previously the worst place had been Miami and South Florida. But, in 2009, there were 487 questionable claims related to staged accidents in Tampa, while there were only 258 such claims in Miami.

Guthrie said he and some of his fellow agents in Tampa's Hillsborough County have gotten so frustrated by the situation, and by the lack of government action to crack down, that they have begun collecting petition signatures from new policy and renewal clients and forwarding that petition on to the Department of Financial Services, which houses the Division of Insurance Fraud.

"They need to do something about this fraud," he said.

Jack McDermott, a spokesperson from the Office of Insurance Regulation, said that fraud was not the responsibility of his agency so they do not know much about it. But "We have heard, anecdotally, from other companies that they have been having trouble with fraud," he said.

Explorer, which is based in Santa Clarita, Calif., is a member company of the ICW Group, San Diego. Until now, it has sold automobile policies only in California and Florida.

As of the end of July, the company had 16,576, in-force policies in the private passenger automobile insurance line in Florida, with direct written premiums of $16.1 million and a loss ratio of 124.2.

Eileen Beaudette, an agent in Naples who has been an Explorer representative, said that in her area fraud and staged crashes are not a big problem and she has not had carriers stop writing. But she has been aware that it is a big problem in Tampa and on the east coast of the state.

"We've been lucky," said Beaudette, of A Auto Buyers Insurance. "We still have a lot of carriers writing."

Beaudette said that Explorer was never a very big part of her agency's business because their rates were not very good.

AIG Settlement Covers $60 Million of Ex-CEO, Ex-CFO Costs

Former longtime AIG chief Maurice ''Hank'' Greenberg and another former executive will get $60 million from the company's insurers to cover legal and other costs as part of a proposed settlement of investor lawsuits, court papers show.

The payouts to Greenberg and former Chief Financial Officer Howard Smith are in addition to $90 million that American International Group Inc.'s insurers, as previously reported, will pay directly to the company as part of the proposed settlement.

The $150 million of payouts were revealed in an Aug. 25 agreement filed in Delaware Chancery Court, and obtained Friday by Reuters.

They stem from litigation in which investors accused more than 20 onetime AIG executives and directors of poor oversight and allowing improper bonuses. The Delaware lawsuit was filed by investors on behalf of AIG.

Greenberg left AIG in March 2005 after nearly four decades at the helm.

AIG in November 2009 said it had resolved all litigation with Greenberg, and agreed to reimburse him and Smith for as much as $150 million of legal fees and expenses, according to an agreement filed with U.S. regulators.

The $60 million payout by insurers is separate from that agreement, and Greenberg and Smith represented in the earlier agreement that no one else other than the insurers was obligated to indemnify them for the relevant costs.

AIG had $200 million of insurance for directors and officers, the Delaware agreement shows. None of the sums being paid go to investors, and Greenberg and Smith are also not responsible to pay out money in connection with the agreement.

In emailed statements, AIG said it was pleased the matter has been resolved, as did Lee Wolosky, a partner at Boies, Schiller & Flexner LLP who represents Greenberg.

A lawyer who signed the Aug. 25 agreement on behalf of Smith did not immediately return a call seeking comment.

The Delaware agreement requires approval of Vice Chancellor Leo Strine of the Delaware court. A settlement will be made final upon the dismissal of similar litigation in Manhattan federal court, the agreement shows.

Based in New York, AIG in September 2008 narrowly averted collapse after becoming overexposed to risky debt. It accepted a federal bailout that grew to $182.3 billion and left taxpayers owning a nearly 80 percent stake.

Six weeks ago, AIG agreed to pay $725 million to settle a shareholder class-action lawsuit led by Ohio Attorney General Richard Cordray, who accused it of accounting fraud and trying to manipulate its stock price.

AIG still faces shareholder class-action litigation in Manhattan federal court. Greenberg has sought to dismiss a civil fraud lawsuit by New York Attorney General Andrew Cuomo over a sham reinsurance transaction.

The case is In re: American International Group Inc Derivative Litigation, Delaware Chancery Court, No. CA 769.

Stanford Execs Deny Key Role in Alleged Fraud Cited by Lloyd's

Lawyers for Texas financier Allen Stanford and two accounting executives who worked for him sought to distance their clients Friday from the alleged financial wrongdoing insurer Lloyd's of London cites as a reason to void a policy covering their defense fees.

"Mr. Stanford was not really a hands-on guy,'' Robert Bennett, Stanford's attorney, said during closing arguments after four days of hearings in federal court. "Mr. Stanford was not at the center of anything illegal or wrong.''

The nondisclosure of a nearly $2 billion unsecured loan to Stanford, misrepresentations to investors and phony accounting are all grounds to stop paying claims under a directors and officers policy, the British insurer said.

Stanford, accounting executives Mark Kuhrt and Gilbert Lopez and Chief Investment Officer Laura Holt have sued Lloyd's of London over payment of the fees. But that policy has a money laundering exclusion, so Lloyd's must prove to U.S. District Judge Nancy Atlas in Houston that the plaintiffs committed that act.

Holt struck a deal with the insurer before the start of the hearings last Tuesday. She and the three other plaintiffs in this case are accused of participating in an alleged $7 billion Ponzi scheme centered around fraudulent certificates of deposit (CDs) issued by Stanford's offshore bank in Antigua.

"It is clear that the money collected for the CDs was criminal property as defined by the policy,'' said Barry Chasnoff, an attorney for Lloyd's. "There was no evidence offered to the contrary.''

BLAME DAVIS

Lawyers for Stanford and the accounting executives have placed a lot of the blame on James Davis, the former chief financial officer of Stanford International Bank Ltd. (SIB) who pleaded guilty last August to three felony counts related to the scheme.

Davis had the final sign-off on numerous financial documents from SIB, the institution the government claims is at the center of the alleged scheme, lawyers and witnesses said.

"I believe that Mr. Kuhrt and Mr. Lopez were middle-level accounting managers and it was Mr. Davis' responsibility to deal with the auditors on these issues,'' Alan Westheimer, an accountant hired by Kuhrt and Lopez as an expert witness, testified.

Stanford also relied on Davis -- his former No. 2 man at the company and former classmate from Baylor University -- as well as on the professional advice of accountants and lawyers, Bennett told the hearing.

Still, Atlas told the hearing it was clear to her that Lopez and Kuhrt "were close to the top,'' and were close to Davis.

She said she had a suspicion that Lloyd's would not be fronting legal fees to the men after the hearings.

Lloyd's has advanced as much at $6 million to pay for Stanford's attorneys, many of whom have left the case or been fired by their client.

Stanford, who is 60 and is in jail awaiting a January trial, faces one count of conspiracy to commit money laundering as part of a 21-count June 2009 indictment.

The hearings were seen as a preview of Stanford's criminal case. Many people involved in the case, including Stanford and Lopez, invoked their Fifth Amendment right and did not testify, so much evidence centered on documents that are part of the government's civil and criminal case.

The case is Laura Pendergest-Holt, R. Allen Stanford, Gilbert Lopez and Mark Kuhrt v Certain Underwriters at Lloyd's of London and Arch Specialty Insurance Co, U.S. District Court, Southern District of Texas, No. 09-3712.

Earl Now Major Hurricane, Headed Toward East Coast

Hurricane Earl has strengthened into a major Category 3 storm Monday and could arrive off the East Coast of the U.S. by the end of this week.

It is currently rocking the Caribbean's Northern Leeward Islands.

The National Hurricane Center said Earl is now the second major hurricane of the 2010 Atlantic season, with winds up to 120 miles per hour .

Hurricane warnings are in effect for Antigua, Barbuda, Montserrat, St. Kitts & Nevis, Anguilla, St. Martin and St. Barthelemy, St. Maarten, Saba and St. Eustatius, the British and the U.S. Virgin islands.

A hurricane watch is also in effect for Puerto Rico.

Hurricane Danielle has moved into the North Atlantic and is now more of a threat to Iceland than the U.S.

Florida Orders Halt to Sale of Warranty Products

Florida Insurance Commissioner Kevin McCarty today announced the Office of Insurance Regulation (Office) has issued an order to Auto Repair Warranty Inc. (ARW), Auto Repair Group LLC (ARG) and Michael R. Petruziello to Cease and Desist selling unauthorized motor vehicle service agreements in Florida.

Office investigators concluded that the aforementioned companies sold unauthorized and unlicensed motor vehicle service agreements through its website www.autorepairwarranty.com and through agreements sold by ARW. In addition, investigators concluded that the companies engaged in unfair methods of competition and unfair or deceptive acts.

Both companies are based in Ohio. Office records indicate ARW and ARG have never been authorized to sell warranty products in the State of Florida.

"Companies selling insurance products of any kind must adhere to Florida's stringent licensing process," said Insurance Commissioner Kevin McCarty. "Floridians should always verify the products they purchase are being offered by companies licensed in our state."

Obama Opposes Adding Wind Coverage to Federal Flood Insurance

The Obama Administration is again opposing a move to add wind insurance to the federal flood insurance program, as has been pushed by Rep. Gene Taylor, D.-Miss.

A statement from the Office of Management and Budget says Taylor's bill, HR 1264, would unnecessarily expand the government's role into an insurance area already served by private insurers.

"Although the Administration believes in strengthening the National Flood Insurance Program (NFIP) for the benefit of policyholders and taxpayers, the central rationale for the program – the difficulty of obtaining flood insurance through either the private market or state programs – simply does not apply to windstorm insurance in most markets," the OMB said.

OMB also said that because the legislation requires that a federal wind insurance program be actuarially sound, the insurance offered through a federal program may not be any less expensive, and could be more expensive, than what is currently offered by private insurers or by states.

"As a result, expanding NFIP to cover windstorm insurance would unnecessarily duplicate available insurance products and could 'crowd out" such products where they are offered, while offering little to no savings to the American public. At a time when the NFIP is already facing serious challenges, the Administration cannot support such an expansion."

The Obama Administration has opposed the wind insurance bill in the past as have various taxpayer, environmental and insurance groups. The measure is being reconsidered this week in Congress.

Private Firm WSI Cuts U.S. Hurricane Forecast to 19 Named Storms

Private weather forecaster WSI Corp cut its forecast for named storms in the 2010 Atlantic hurricane season on Tuesday, but still sees an active season with water temperatures and wind conditions conducive to violent storms.

In its latest tropical storm update, WSI called for 19 named storms, down from 20 in its June forecast, but maintained its outlook for 11 hurricanes and 5 intense hurricanes of category three or higher.

The 2010 forecast is well above the 1950-2009 averages of 10 named storms, 6 hurricanes, and 2 intense hurricanes.

"Record warm tropical Atlantic Ocean temperatures and an enabling wind shear environment should result in a very active tropical season this year,'' said Dr. Todd Crawford, WSI's chief meteorologist.

The disappearance of the El Nino event and a decrease in vertical wind shear both point to the potential for more Atlantic storms, WSI said.

A slow start to the hurricane season led to the downward revision in named storms. A pocket of dry air in the Atlantic is likely to limit development in the near term, WSI said, while August to October is expected to be a very active period.

WSI's models also indicate that the area from the Outer Banks of North Carolina northward to Maine is twice as likely as normal to experience a hurricane this year.

"Our model suggests that the threat to the Northeast coast this season is on a par with that in Florida and the Gulf coastal states,'' WSI said.

The Atlantic hurricane season runs from June 1 to Nov. 30.

In 2005, Hurricane Katrina was responsible for the deaths of around 1,500 people on the U.S. Gulf Coast and caused more than $115 billion in damages.

Katrina and Rita, which hit the same year, shut some oil refineries for months resulting in about 142 million barrels of oil product loss.

Offshore drilling in the U.S. Gulf of Mexico is responsible for roughly 30 percent of total domestic oil production and 11 percent of natural gas production, according to 2009 government figures.

Investor Face Uphill Battle with Liability Lawsuits Against BP

Shareholders angry about BP Plc's battered stock price are heading to the courthouse in hopes of reclaiming some of their losses, but they face an uphill battle.

Since the Deepwater Horizon oil rig exploded in April, several BP shareholders have filed lawsuits accusing the company of breaking securities laws and hiding the risks of its drilling operations. The stakes are potentially huge, with the BP's market value down as much as $100 billion since the disaster.

Some of the largest U.S. pension funds could join the battle. Already, the $132.6 billion New York State Common Retirement Fund has said it wants to be named lead plaintiff so it can direct the investor litigation.

"BP was telling the world that they are really a safe company,'' said Houston-based plaintiffs' lawyer Mark Lanier. ''What was being told to the public -- including the shareholders -- was a fraudulent facade.''

Lanier said he might get involved as an attorney for plaintiffs in the proposed shareholder class-action litigation. He said he already was preparing to file a lawsuit on behalf of former BP workers who hold company stock in their retirement plans.

But experts say investors will probably have a tough road ahead in court, since it could be hard for them to unearth any evidence about the company's disclosures on its safety procedures that rises to the level of securities fraud.

"It's entirely possible that (BP) made statements and honestly believed them and they were dead wrong,'' said James Cox, a professor at Duke University Law School. "That's not a basis for liability under securities law.''

A spokeswoman said BP does not comment on legal actions.

SMOKING GUN
Securities litigation represents only a small segment of the more than 300 total lawsuits brought against BP so far. A federal judicial panel is scheduled to meet on July 29 in Boise, Idaho, to consider how to consolidate the various cases.

Shareholder lawsuits must be certified as class-actions by a court before investors can sue collectively. Typically, about one-third of shareholder lawsuits are thrown out, and two-thirds settle. They rarely go to trial.

Cox said shareholders would be lucky to get a settlement of $10 million to $20 million, which would be a pittance divided among the large number of affected investors.

That would be a far cry from the biggest recoveries in class-action litigation, the $6 billion to $7 billion awarded in the cases of WorldCom Inc. and Enron Corp.

Those cases differed from BP in that they stemmed from financial fraud, such as claiming phantom profits, rather than potential misrepresentations about safety. Enron and WorldCom also sold lots of securities in the period covered by the case, and plaintiffs were able to target third parties such as banks and underwriters.

BP investors do have a potentially powerful ally: the U.S. government. U.S. investigations could do the heavy lifting for plaintiffs, possibly using broad subpoena powers to turn up damning evidence.

The U.S. Departments of the Interior and Homeland Security are jointly investigating the rig disaster, and congressional committees are as well. The U.S. Department of Justice has also said it would open civil and criminal probes.

"You want a smoking gun,'' said Adam Savett, director of securities class actions at the Claims Compensation Bureau in Conshohocken, Pennsylvania. "A document that goes to the board room and says: 'We're not living up to industry standards, and we're not safe, and on and on.'''

But even that type of evidence might not be enough to prove securities fraud, said Jill Fisch, a professor at the University of Pennsylvania Law School in Philadelphia.

Shareholders may have little recourse unless documents show that top management knew, for example, that the company was violating specific safety regulations while publicly stating it was exceeding them and that those rules were critical to their business.

BP has already scored one victory. The U.S. Supreme Court's recent ruling in an unrelated case involving National Australia Bank essentially limited BP's liability in the United States to losses suffered by U.S. shareholders.

By excluding foreign holders of BP shares, the universe of potential plaintiffs could be cut by as much as 80 percent, said University of Michigan Law School professor Adam Pritchard.

For BP, whose spill-related legal woes are expected to drag on for years, the stockholder lawsuits may end up being a relatively minor problem, said Savett, of the Claims Compensation Bureau.

"They have a public relations nightmare,'' he said, "but I don't think they have a securities litigation nightmare.''

AIG to Pay $725M to Settle Securities Fraud Lawsuit

American International Group Inc. agreed to pay $725 million to settle a long-running securities fraud lawsuit led by three Ohio public pension funds, in one of the largest class action settlements in U.S. history.

AIG, which is nearly 80 percent owned by the U.S. government, would pay $175 million within 10 days of preliminary court approval of the settlement with a class of AIG shareholders.

The company may fund the remaining $550 million through a stock offering or other means, including cash, when it decides it is commercially reasonable to make such an offering.

The litigation, which began in October 2004, involved allegations that AIG engaged in accounting fraud, bid-rigging and stock price manipulation, said Ohio Attorney General Richard Cordray, who represented the Ohio funds.

The settlement resolves allegations of AIG's wide-ranging fraud from October 1999 to April 2005 and brings the expected recovery for AIG shareholders to about $1 billion, Cordray said.

AIG, which was bailed out in September 2008 from near-collapse with a $182.3 billion taxpayer-funded rescue package, said it was "pleased to have resolved this matter."

"This settlement ends a long-standing lawsuit, allowing AIG to continue to focus its efforts on paying back taxpayers and restoring the value of our franchise for the benefit of all our stakeholders," spokesman Mark Herr said.

The class action suit in Manhattan federal court was led by the Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio and the Ohio Police and Fire Pension Fund.

As part of the overall case, the Ohio funds previously announced a $72 million settlement with General Reinsurance Corp, a $97.5 million settlement with PricewaterhouseCoopers LLP and a $115 million settlement with former AIG Chief Executive Maurice "Hank" Greenberg, other AIG executives and related corporate entities.

Cordray said together this was the tenth-largest securities class action settlement in U.S. history.

It comes a day after the U.S. Securities and Exchange Commission reached a $550 million settlement in a case against Goldman Sachs Group Inc.

That case stemmed from Goldman's marketing and packaging of a collateralized debt obligation that turned toxic during the financial crisis

LWCC Reducing Overall Rates by 4.1%

Louisiana Workers' Compensation Corporation (LWCC) announced tthat it will implement an overall rate reduction of 4.1 percent beginning Oct. 1, 2010.

This marks the sixth consecutive year that LWCC has reduced overall rates, and it comes on the heels of returning a $15 million dividend to qualifying policyholders for 2009. Once this year's rate decrease takes effect, LWCC will have reduced overall rates by more than 55 percent since its first year of operation in 1992.

The most significant reduction this year will be for policyholders in LWCC's Small Accounts Program tier that pay an annual premium of $5,000 and under. These policyholders will receive an overall 15.3 percent rate decrease, reflecting LWCC's ongoing commitment to lowering rates for small businesses through increased automation and other efficiencies achieved over the past two years.

The 15.3 percent reduction is an average for policyholders participating in the Small Accounts Program, so not all policyholders in this category will experience a decrease of that size.

More than 9,000 policyholders participate in the Small Accounts Program, according to LWCC President and CEO Kristin W. Wall.

Including its $15 million dividend returned to policyholders for 2009, LWCC has paid $136 million in dividends to policyholders over the past seven years.

Obama Administration Asks Health Insurers to Embrace Reforms Now

U.S. Health Secretary Kathleen Sebelius, who has bashed insurers over rate increases, is seeking their help in making medical coverage accessible for more patients in the years before major reforms take effect.

Sebelius, in an interview with Reuters, said she is pushing companies to help people gain insurance in the gap between now and 2014. That is when the healthcare law President Barack Obama signed in March mandates extensive changes.

Sebelius struck a cooperative tone after publicly chastising insurers for high rate hikes and after repeatedly calling them to the White House for highly publicized talks.

A more congenial relationship with insurers could help keep the major overhaul of the healthcare system on track and loosen strained relations between Democrats and big business ahead of the November midterm elections.

The goal in the next few years is to "stabilize the private sector to not only encourage those who have insurance today to keep it, but to hopefully bring additional folks back into the market,'' Sebelius said earlier this week. She talked with Reuters after speaking at a discussion on drug development.

Health insurers, which include WellPoint Inc., UnitedHealth Group Inc., Cigna Corp. and Aetna Inc., fought the healthcare law, which hits the industry with tighter regulation, higher taxes and caps on profits.

Now, the Obama administration is promising to keep a close eye on rates but also seeking to work with insurers to make the law successful.

Sebelius, a former insurance commissioner and governor of Kansas, said her approach is gaining traction.

She said one insurer recently reached out to small businesses and signed up 500 new customers from companies that had not been aware they were eligible for tax credits.

"That's exactly the kind of strategy I'm hoping will take hold,'' she said.

Sebelius said she has argued to insurers in recent weeks that practices that shut out patients or businesses with high rates are harmful to consumers as well as the companies.

"Some of those strategies I think are not particularly good business models. If they lose more and more market share as we move toward 2014, it's not really good for them,'' she said.

Roughly 46 million people in the United States lacked health insurance in 2008, according to the U.S. Census Bureau. Experts say many have lost coverage since then in the economic recession.

The new healthcare law includes measures aimed at "stopping the erosion of the private market'' before 2014, Sebelius said.

Employers can get financial help to keep early retirees covered, and small businesses can receive tax credits to defray insurance costs, she said. People denied coverage for serious medical problems can enroll in high-risk insurance pools set up as a temporary option.

Broader changes in 2014 are expected to extend coverage to more than 30 million Americans.

In past months Sebelius attacked big premium increases, and Obama warned companies not to impose unjustifiable rate hikes, adding to friction between the administration and industry.

Sebelius said she now hopes insurers will work with the administration. "I'm optimistic there is a real potential to do some important work over the next couple years in a collaborative fashion,'' she said.

Insurers said despite past opposition they are now committed to making the healthcare law successful.

"We are totally focused on implementation and making the legislation work,'' Karen Ignagni, head of the industry group America's Health Insurance Plans, told reporters.

Companies are aiming to boost coverage during the transition period but are pressing for more efforts to control rising medical costs that push premiums higher, said Robert Zirkelbach, a spokesman for the industry group.

State insurance commissioners also are advocating a gradual shift to a requirement that companies spend more of each dollar in premiums for the benefit of patients, he said. Otherwise, they worry insurers will leave the individual market.

"It's important that new requirements be structured in a way that doesn't cause significant disruption for people purchasing coverage on their own, particularly in the years leading up to 2014,'' Zirkelbach said.

Hurricane Alex Weakens to Tropical Storm

Hurricane Alex weakened to a tropical storm Thursday as it moved further inland over northeastern Mexico, dumping heavy rains that flooded cities but sparing U.S. oil facilities near its path.

Rain from the first named storm of the 2010 Atlantic season flooded about 80 percent of the port city of Matamoros, sent uprooted trees crashing down on parked cars and forced thousands to flee low-lying fishing villages. Inland in the industrial city of Monterrey, at least two people were killed by Alex's rains, which washed away cars, bridges and some houses and turned dry desert beds into turbulent rivers.

"The damage is enormous, a river burst its banks and we have people trapped on the roofs of their houses,'' said mayor Martin Zamarripa of the town of Hualahuises outside Monterrey.

Alex made landfall as a Category 2 Hurricane on the Tamaulipas coast around 9 p.m. Wednesday . U.S. oil installations have not been hit by the storm, which formed near the Yucatan peninsula Saturday, but some companies cut back production and evacuated staff.

As of Wednesday, oil companies had shut down production of more than 421,000 barrels per day, about a quarter of the Gulf's output, as a precaution.

They have also shut 919 million cubic feet per day of gas output, some 14 percent of the Gulf's total.

BP Plc said Thursday its Gulf oil and gas output was back to normal, although the passage of Alex slowed oil clean-up and containment efforts at its leaking deep-sea well off the Louisiana coast.

The Louisiana Offshore Oil Port, the nation's only deepwater oil supertanker unloading terminal, hopes to resume operations by late Thursday, a spokeswoman said.

Alex, which is expected to dissipate over Mexico's central mountain ranges over night, had maximum sustained winds of 50 mph and was located about 150 miles east of Zacatecas in central Mexico.

Across the border in Brownsville, Texas, at least three tornadoes swept through the area, tossing over tractor-trailers although no major damage was reported. "Isolated tornadoes are possible over portions of extreme southern Texas today,'' the U.S. National Hurricane Center said. Alex was the first and strongest Category 2 hurricane to occur in June since 1966.

Mexican marines evacuated thousands of people from fishing communities along the Gulf coast and into shelters, but some refused to leave their homes even as water ran in under doors.

However, local authorities will remain on high alert in case of rainfall as high as 20 inches. Alex killed a dozen people in Central America over the weekend.

Goodyear Tire, Mississippi Families Settle Over 2000 Accident

Goodyear Tire and Rubber Co. and the families of three men involved in a 2000 accident in which one of them died have settled a lawsuit.

The Mississippi Supreme Court last week dismissed the lawsuit. The court noted its order that both sides sought the dismissal because a settlement had been reached.

The young men's families -- and a Copiah County jury -- blamed the accident on a faulty tire on the Chevrolet Camaro rather than excessive speed and the beer the men had been drinking.

The state Court of Appeals agreed last April and upheld a $2.1 million verdict against Goodyear and Big 10 Tire Co.

Goodyear and Big 10 appealed.