Harmon’s Letters to Insurance Commissioners
Bribes, Bid-Rigging, Kickbacks, Racketeering and Unfair Claims Settlement Practices involving Marsh & McLennan, Chubb Group, Kamehameha Schools/Bishop Estate and other birds of a feather.
Sightings from The Catbird Seat
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California Department of Insurance
Consumer Services Division
300 South Spring Street
Los Angeles, CA 90013
RE: Request for Review – Unfair Claims Settlement Practices
Policy Number: 8146-79-11
Case: P&C Insurance Company, Inc. et al vs. Bobby N. Harmon
Venue: First Circuit Court/HI/Civil No. 97-0512-02
Company: Federal Insurance Company
Gentlemen:
Pursuant to the California Code of Regulations, Title 10, Chapter 5, Subchapter 8, Unfair Claims Settlement Practices Regulations, I am requesting your review of the referenced matter.
It is my belief that the Federal Insurance Company; the insured organizations, P&C Insurance Company, Inc. and Kamehameha Schools Bishop Estate; their insurance broker, Marsh & McLennan, Inc.; their captive manager, M&M Insurance Management Services, Inc.; and certain officers, directors and employees of these entities, have conspired to wrongfully decline coverages under the referenced policy. In the process, the Federal Insurance Company, in collusion with these entities, has fraudulently altered and misrepresented the terms of the policy; has engaged in deceptive claims practices; and has acted in bad faith by declining to defend me in the referenced lawsuit.
Enclosed for your information and review are the following documents:
02/08/97 Copy of my letter (w/o encls.) to Michael Goolsby, tendering the claim to the Chubb Group.
02/19/97 Copy of letter from Patrick Richard, Chubb Group, to Bobby Harmon, acknowledging receipt of tender of claim.
03/04/97 Copy of letter from Tony Rangel, Chubb Group, to my attorney, John Marshall, enclosing a copy of the subject policy.
03/27/97 Copy of letter from Tony Rangel to John Marshall declining coverage, including defense.
04/14/97 Copy of my letter to Tony Rangel advising that I am in disagreement with Chubb’s coverage position for the reasons stated in my letter.
04/22/97 Copy of Tony Rangel’s letter to John Marshall acknowledging my letter and stating that they are undertaking a review.
My primary concern is that the insurance company, in collusion with the insured organizations and the broker, Marsh & McLennan, Inc., knowingly and deliberately back-dated an exclusion endorsement in order to deny coverages for the referenced claim.
Endorsement No. 6 was issued on February 13, 1997 and is shown to be retroactive to October 27, 1995. This endorsement replaced Endorsement No. 4 which was issued on April 12, 1996 with an effective date of October 27, 1995. It is my contention that I have coverages under the terms of the policy as endorsed with Endorsement No. 4 which was in effect at the time of the lawsuit. By retroactively deleting this endorsement and replacing it with Endorsement No. 6, the company has knowingly and deliberately attempted to deceive and defraud its insured; has misrepresented the terms and conditions of the policy; and has engaged in unfair claims practices.
I consider the company’s refusal to defend this claim based upon the retroactively revised wording in Endorsement No. 6 to be one of the most extreme examples of fraud and bad faith that I have encountered in my 35 years of experience in the insurance business. If I were a typical insured without this background and experience in insurance matters, this retroactive revision in the terms of the policy would probably have gone unnoticed. By bringing this matter to your attention, I hope that your office will take prompt and appropriate action in this case in order to protect the public from similar unfair claims settlement practices.
Please advise if I can provide any additional information regarding this matter. You may reach me by phone at (808) 839-0654. (Note: I have tried to reach your office at your 800 number, but apparently it is not operative when calling from Hawaii.)
Thank you very much for your assistance.
Very truly yours,
Bobby N. Harmon, CPCU, ARM, AAI
encls.
cc: Insurance Commissioner, State of Hawaii
John D. Marshall, Esq.
M. Tony Rangel, Chubb Group
Elizabeth K. Kellner, Associate Litigation Counsel, Marsh & McLennan, Inc.
J. Craig Collins, Assoc. Claims Officer
California Department of Insurance
Consumer Services Division
300 South Spring Street
Los Angeles, CA 90013
RE: Request for Review – Unfair Claims Settlement Practices
File Number: C-9753131
Policy Number: 8146-79-11
Case: P&C Insurance Company, Inc. et al vs. Bobby N. Harmon
Venue: First Circuit Court/HI/Civil No. 97-0512-02
Company: Federal Insurance Company
Dear Mr. Collins:
Thank you for your letter dated May 6, 1997.
My reason for writing the California Department of Insurance on April 28, 1997, was due to advice of Tony Rangel, Federal Insurance Company, in his letter dated March 27, 1997, to my attorney, John Marshall, Esq., which stated:
“Pursuant to the California Code of Regulations, Title 10, Chapter 5, Subchapter 8, Unfair Claims Settlement Practices Regulations, we must notify you that you may have this matter reviewed by the:
California Department of Insurance
Consumer Services Division
300 South Spring Street
Los Angeles, CA 90013″
As the insurance policy was arranged through the offices of Marsh & McLennan, Inc. in California; with the policy underwritten and issued by the Federal Insurance Company offices in California; and with the claim being handled by adjusters in California; I relied on this advice of the insurance carrier to have your office investigate my complaints of possible fraud, collusion between the insurance broker and the insurance carrier, misrepresentations by the broker and carrier, and deceptive and unfair claims settlement practices.
My primary concern was that the insurance company, in collusion with certain individuals in the insured organizations and the broker, Marsh & McLennan, Inc., knowingly and deliberately back-dated an exclusion endorsement in order to deny coverages. By filing this complaint, I hoped to help protect others from being victimized by such deceptive practices. Unfortunately, my reporting this matter apparently has resulted in even further unfair claims settlement practices, much to my detriment.
To briefly explain, this case involves an “insured vs. insured” situation with both defendants claiming coverages under the same policy. The carrier stated to me that they would assign separate adjusters to each side in order to create a “Chinese wall” in this case, so that any knowledge gained or actions taken by one adjuster would not be disclosed to the other.
At the time of my letter to your office, my attorney and I had just met with the other parties and they had suggested a settlement proposal which I was considering. It was after this meeting that I went back to review the insurance policy and discovered that Federal’s denial of coverages had been based on the back-dated endorsement. I subsequently wrote to the adjuster pointing out this deception and followed-up on his advice that, under California statutes, I could report this matter to your office.
Somehow, the fact that I had registered a complaint with the California Department of Insurance was passed on to the plaintiff’s attorney in Hawaii. I was informed that he was very upset at my action and was considering withdrawing the proposed settlement offer.
I am not familiar with the California insurance statute to which Mr. Rangel refers; however, Hawaii statute ¶431:13-103 (10) states that the following is an unfair claim settlement practice:
(O) Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;
I do intend to follow-up with the Hawaii Insurance Commissioner on this matter, as you suggested. Due to the unusual circumstances of this case, however, I felt that your office should also be kept informed.
In light of this new information, I would appreciate further clarification of the jurisdictional issues you raised. Thank you very much for your consideration.
Very truly yours,
Bobby N. Harmon, CPCU, ARM, AAI
cc: Tony Rangel, Federal Insurance Company
Cecelia Chock, Investigator
State of Hawaii, Insurance Division
P.O. Box 3614
Honolulu, Hawaii 96811-3614
RE: Complaint – Unfair Claims Settlement Practices
Policy Number: 8146-79-11
Case: P&C Insurance Company, Inc. et al vs. Bobby N. Harmon
Venue: First Circuit Court/HI/Civil No. 97-0512-02
Company: Federal Insurance Company
Dear Ms. Chock:
Thank you for your letter dated May 14, 1997.
I recognize the fact that the State of Hawaii Insurance Division does not have jurisdiction over the denial of a claim or interpretation of coverages. My reason for writing the California Department of Insurance on April 28, 1997, however, was due to advice of Federal Insurance Company’s claims adjuster, Tony Rangel, in his letter dated March 27, 1997, addressed to my attorney, John Marshall, Esq., which stated:
“Pursuant to the California Code of Regulations, Title 10, Chapter 5, Subchapter 8, Unfair Claims Settlement Practices Regulations, we must notify you that you may have this matter reviewed by the:
California Department of Insurance
Consumer Services Division
300 South Spring Street
Los Angeles, CA 90013″
As the insurance policy was arranged through the offices of Marsh & McLennan, Inc. in California; with the policy underwritten and issued by the Federal offices in California; and with the claim being handled by adjusters in California; I relied on this advice of the insurance carrier to have the California Department of Insurance investigate my complaints of possible fraud, collusion between the insurance carrier and their agent, misrepresentations by the broker and carrier, and other deceptive and unfair claims settlement practices.
My primary concern was that the insurance company, in collusion with certain individuals in the insured organizations and the broker, Marsh & McLennan, Inc., may have knowingly and deliberately back-dated an exclusion endorsement in order to deny coverages. If this is true, then by filing this complaint, I hoped to help protect others from being victimized by similar deceptive claims practices.
Contrary to the information provided by Federal’s claims adjuster, it now appears that my complaint should have been addressed to the State of Hawaii Insurance Division. Therefore, I am formally filing this complaint at this time in accordance with ¶ 431:13-103 of the State of Hawaii insurance statutes.
It is my belief that the Federal Insurance Company; Marsh & McLennan, Inc. (M&M), and it officer, Rocco Sansone; Marsh & McLennan Insurance Management Services, Inc. (MMIMS), and its officer, Peter Lowe, may have made false, deceptive and misleading statements regarding the insurance coverages provided to me as an insured person in order to improperly influence the settlement of the referenced claim.
The following sections of ¶ 431:13-103 Unfair methods of competition and unfair or deceptive acts or practices appear to apply in this case:
(a) The following are defined as unfair methods of competition and unfair or deceptive acts or practices in the business of insurance:
(1) Misrepresentations and false advertising of insurance policies. Making, issuing, circulating, or causing to be made, issued, or circulated, any estimate, illustration, circular, statement, sales presentation, omission, or comparison which:
(A) Misrepresents the benefits, advantages, conditions, or terms of any insurance policy…
M&M and Federal represented that the referenced Directors and Officers Liability policy would defend claims made against directors and officers of P&C and against employees of KSBE for “wrongful acts” as defined in the policy. I consented to serve as President of P&C based partially on the conditions that: 1) P&C would indemnify and hold me harmless for acts performed in connection with my services to the company; 2) that Directors and Officers Liability insurance would be provided to defend me in the event of claims for any wrongful acts arising from my serving in this capacity.
(10) Unfair claim settlement practices…
(A) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue:
Prior to purchasing the referenced policy, M&M and Federal represented to me in my capacity as the Risk/Insurance & Safety Manager of KSBE, and as the President of P&C, that the policy had a duty to defend trustees, officers, directors and employees against claims for “wrongful acts”. I relied on the representations of M&M and Federal that the policy that was issued and in force at the time of P&C and KSBE’s claims against me provided this coverage. M&M, Federal and the plaintiffs in this case have apparently conspired and caused the policy to be changed through a “back-dated” endorsement in order to deny this defense.
(O) Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;
This case involves an “insured vs. insured” situation with both defendants claiming coverages under the same policy. The carrier stated to me that they would assign separate adjusters to each side in order to create a “Chinese wall” in this case, so that any knowledge gained, or actions taken, by one adjuster would not be disclosed to the other.
Apparently, this duty has been breached. A meeting was recently held with plaintiff’s attorney regarding a proposed settlement. It was after this meeting that I again reviewed the insurance policy and discovered that Federal’s letter denying coverages had been based on the back-dated endorsement. After reporting this fact to the adjuster, I relied on his advice that, under California statutes, I could report this matter to the California Department of Insurance for investigation. The fact that I had registered a complaint with the California Department of Insurance was somehow passed on to Robert Katz, Esq., the plaintiff’s attorney. I was informed that he was very upset at my action–to the point that the plaintiff’s were considering withdrawing the proposed settlement offer.
Consequently, it appears the purported “Chinese wall” has been breached to the advantage of the plaintiffs, as well as to the benefit of the insurance agents and carriers, P&C, M&M and Federal. It appears possible that the delays and refusal of Federal to provide defense coverages to me under the policy may have been deliberate and intentional in order to influence the settlement of my counter-claim covered under other portions of the insurance policy.
As stated earlier, I recognize that your office would not get involved in the court case or in the settlement negotiations. However, I believe that under these Hawaiian insurance statutes, your office would be responsible for investigating complaints against the insurance companies and their agents for unfair and deceptive practices. I also hope that your office will discourage and appropriately deal with any attempts by the plaintiffs, the insurance company or broker to retaliate against me in any manner for filing this complaint.
You may contact me by phone at 839-0654 in the event you have additional questions. Thank you very much for your consideration.
Very truly yours,
Bobby N. Harmon, CPCU, ARM, AAI
cc: J. Craig Collins, Assoc. Claims Officer
California Department of Insurance
Consumer Services Division
300 South Spring Street
Los Angeles, CA 90013
Mr. Tony Rangel
Federal Insurance Company
15821 Ventura Blvd, Suite 220
Encino, CA 91436-2924.
Elizabeth Keliner, Esq.
Marsh & McLennan, Inc.
1166 Avenue of the Americas
New York, NY 10036-2774
Board of Directors
P&C Insurance Company
c/o M&M Insurance Management Services, Inc.
P.O. Box 38
Honolulu, HI 96810
Trustees of Kamehameha Schools Bishop Estate
567 South King Street, 2nd Floor
Honolulu, HI 96813
Richard Wong, President
Pauahi Holdings Corporation
c/o Royal Hawaiian Shopping Center, Inc.
2201 Kalakaua Avenue, A-500
Honolulu, HI 96815
Rey Graulty, Insurance Commissioner
State of Hawaii
P.O. Box 3614
Honolulu, Hawaii 96811
RE: Complaint/Request for Inquiry – P&C Insurance Company, Inc.
Dear Commissioner Graulty:
In my letter dated November 20, 1996, addressed to Mr. Cary Okawa, of the accounting firm of Coopers & Lybrand, I described several financial transactions which I felt may have been improper and possibly illegal. These transactions involved P&C Insurance Company, Inc. (P&C); Marsh & McLennan, Inc. (M&M); M&M Insurance Management Services, Inc. (M&MIMS); Henry H. Peters; Nathan Aipa; Louanne Kam; Rocco Sansone; and Peter Lowe. Enclosed with my letter were documents which provided evidence of these improper activities. A copy of this letter with the enclosures was sent to your office.
As new information has recently come to light as a result of ongoing investigations by the Internal Revenue Service, the State Attorney General and the court-appointed master, Colbert Matsumoto, into Kamehameha Schools Bishop Estate (KSBE) and its related entities, I am filing this new complaint against P&C in hopes that your office will investigate further into the matter and take prompt action to halt any statutory misconduct.
Although a variety of questionable activities were reported in my previous letter, this complaint will focus on apparent conflicts of interest and a conspiracy among the above individuals to improperly divert funds from P&C and related companies for personal gain. The persons adversely affected by these diversions include lessees of Bishop Estate properties, beneficiaries of the estate and the general public. Another issue questioned is the issuance of an “insurance policy” by the estate to U.S. Secretary of Treasury, Robert Rubin.
In order to understand the relationships between KSBE, its subsidiaries, the M&M entities, and other individuals, P&C’s corporate structure was as follows:
DIRECTORS:
Henry Peters, Chairman of the Board (and Trustee, KSBE)
Gilbert Tam (former KSBE manager; currently an officer of Bank of Hawaii)
William S. Richardson (former KSBE trustee and current consultant to KSBE)
OFFICERS:
Bobby N. Harmon, (former) President (and former Risk/Insurance & Safety Manager for KSBE)
Peter J. Lowe, Vice Pres. (current officer of M&M IMS)
William S. Richardson, Secretary/Treasurer
Nathan T. K. Aipa, Asst. Sec./Asst. Treasurer
Henry H. Peters also holds the following positions, among others:
Trustee, Bishop Estate
Chairman, Board of Directors, Pauahi Holdings Corp.
Chairman, Board of Directors, Royal Hawaiian Shopping Center
Member/Manager, Sino Finance Group LLC
Chairman, Board of Directors, Unison Pacific Investment
Chairman, Board of Directors, Konia, Inc.
Chairman, Board of Directors, Treyburn GP, Inc.
Chairman, Board of Directors, Autofuel Company (AFCO)
Chairman, Board of Directors, Paradise Petroleum, Inc.
Chairman, Board of Directors, Ranray Properties, Inc.
Chairman, Board of Directors, Allred Oil Company, Inc.
Director, SoCal Holdings
Director, Mid-Ocean Reinsurance Co.
Director, Goldman Sachs
Director, Underwriters Capital (Merrett) Ltd.
Peter Lowe is an officer of M&M Insurance Management Services, Inc. (M&M IMS), a subsidiary of Marsh & McLennan, Inc. William Richardson is a former trustee and current consultant for KSBE. Nathan Aipa is also the General Counsel for KSBE.
Excessive and Improper Fees Charged by M&M; Conflicts of Interests. At the time the captive was formed, I signed a management agreement between P&C and M&M Insurance Management Services, Inc. for captive management services. This contract specified that M&M IMS would provide services on a time and expense basis. In addition to these fees, M&M was billing an annual $200,000 flat charge to P&C for “brokerage services”. There was never, however, any contract negotiated with M&M for any additional services.
The conflict of interest arises due to the fact that Peter Lowe of M&M IMS was an officer of P&C and arranged contracts on behalf of P&C with the various vendors. These vendors included companies that were directly related to M&M, including William Mercer & Co. (the actuary), M&M Insurance Protection Services (safety & loss control), and Marsh & McLennan, Inc. (the agent). The $200,000 flat fee that was billed to P&C by M&M was repeatedly questioned by me. Mr. Lowe approved of the charges, but never justified them to my satisfaction and never arranged a contract for these services.
In correspondence to KSBE, M&M stated that their $200,000 flat fee had included services that had been provided directly to KSBE. They also stated that the fee included their brokerage services in obtaining reinsurance for P&C. As I pointed out to M&M, they were already receiving commissions from the reinsurer for this placement, and that charging a fee in addition to this commission was double billing and was not acceptable.
Other relationships with M&M existed during this period which were not disclosed to me. According to KSBE’s tax returns for the period 1/1/94 to 1/1/95, KSBE and Marsh & McLennan Risk Capital Holdings, Ltd. were co-investors in Underwriters Capital (Merrett) Ltd., a Bermuda reinsurance company. This corporation was managed by Marsh & McLennan Management Services (Bermuda) Limited. During this one year period, Underwriters Capital had a net loss of $5,887,378. Most of this loss appears to be from investments rather than from insurance claims. From the tax return, it appears that M&M received sizable management fees from this venture.
Deceptive Business Practices; Conflicts of Interest; Mail Fraud. At the direction of Henry Peters and other managers for KSBE, premiums that should have been charged to subsidiaries were actually paid by KSBE. One example is Eric Martinson’s memorandum of September 24, 1996 to Ramona Hinck regarding the reallocation of premiums for the SoCal, AFCO, Unison and SINO subsidiaries. As a result of this directive, premium charges that had been previously allocated by me to these subsidiaries were transferred to KSBE. Eric Martinson was the Financial Assets Manager for KSBE, and was also the Secretary/Treasurer, Sino Finance Group LLC, and Vice President, Unison Pacific Investment (US) Limited.
Under the lease agreements for various commercial properties that are owned and managed by the estate, insurance costs are directly passed on to the lessees and tenants through monthly maintenance fees. As a result of the overcharges by M&M, and the improper allocations of premiums and claims costs to the various subsidiaries, these lessees and tenants were wrongfully and deceptively billed a share of these higher costs. The various commercial properties would include Royal Hawaiian Shopping Center, Windward Mall, Bishop Commerce Center (Georgia), Desert Springs Marketplace (California), and Velvet Cloak Inn (North Carolina), among others.
These monthly maintenance billings and payments are normally done by mail and involve interstate commerce since many of KSBE’s properties, and the home offices of various lessees, are located on the mainland. As a result, these acts may be subject to the 1994 Federal Insurance Crimes Act, which covers crimes by persons engaged in the business of insurance whose activities affect interstate commerce.
Conflicts of Interest: the “Insurance Policy” for U.S. Treasury Secretary, Robert Rubin; Goldman Sachs; Former U.S. Treasury Secretary, William Simon. An article appearing in the February 28, 1995 edition of The Honolulu Advertiser reported that the Estate had issued an insurance policy for Robert Rubin. As the insurance manager of KSBE and president of P&C, I was not informed of any details of this transaction. If this were an insurance transaction, actuarial studies should have been made to determine proper premium charges; policies should have been issued; premiums billed; premium taxes paid, etc. To my knowledge, none of these actions were taken. This raises the question of whether or not this transaction violated any insurance statutes of the State of Hawaii.
To quote from the article:
“Robert Rubin, U.S. Treasury secretary, has an important personal financial connection to Hawaii’s Bishop Estate, as does one of Rubin’s predecessors at the Treasury, former secretary William E. Simon.”
“The estate has guaranteed an undisclosed rate of return on Rubin’s holdings in Goldman, Sachs & Co., the giant New York-based investment bank in which Bishop Estate has invested $500 million…”
“Rubin was co-chairman of Goldman, Sachs from 1992 through 1994, the same period in which the Bishop Estate made two separate $250 million investments in the firm.”
“When Rubin left the bank to join President Bill Clinton’s cabinet last month as Treasury Secretary, he secured an `insurance policy’ from the estate that underwrites the value of his personal holdings in Goldman, Sachs…”
“…former Treasury Secretary Simon has been the estate’s business partner in several major banking deals both in Hawaii and in Asia in recent years.” (The banking deal in Hawaii was HONFED, which was later sold to Bank of America. State Insurance Commissioner Wayne Metcalf took legal action against Bank of America and Goldman Sachs, along with other brokerage companies, in connection with the failure of Investors Equity Life Insurance Company, which had sold annuities through HONFED. Mert Chillingworth, former president of Marsh & McLennan, Hawaii, also served on the board of directors of HONFED.)
“Simon also personally invested, along with four estate trustees and numerous senior estate staffers, in a Houston-based methane gas drilling project…”
“The estate itself invested some $85 million in the same energy deal.”
An article in the March 23, 1995 issue of USA Today states:
“In an unusual deal, Rubin pays hundreds of thousands of dollars a year to the Bishop Estate in exchange for a guarantee that he’ll never lose money on a multimillion-dollar investment in his former firm, Goldman Sachs investment bank.”
“Treasury officials won’t give details either, except to say Rubin pays the estate hundreds of thousands of dollars a year.”
“To avoid a conflict of interest, he sold his Goldman Sachs partnership to the firm. A price wasn’t disclosed, but the value of a senior partnership could exceed $50 million.”
“When buying out partners, Wall Street firms are reluctant to deplete cash reserves, the lifeblood of an investment bank. So Goldman Sachs gave Rubin a note that promised to pay principal and interest over a number of years.”
“This still left Rubin with a potential conflict: a gigantic investment in Goldman Sachs that could be affected by his official government actions.”
“If Goldman Sachs had financial troubles, Rubin might not get paid, possibly costing him tens of millions of dollars.”
“Rubin’s solution was to buy an insurance policy on his investment, so he would get paid even if Goldman Sach’s finances ran into trouble.”
“Rubin got the insurance from the Bishop Estate, rather than a major financial firm, because it was least likely to be affected by his government work, says Treasury general counsel Ed Knight.”
Goldman Sachs continues to be involved in lawsuits accusing the firm of questionable dealings. The Honolulu Star-Bulletin reports in its December 11, 1996 edition:
“A Circuit Court judge has approved a settlement between state Insurance Commissioner Wayne Metcalf and Gary Vose, the sole shareholder of Investors Equity’s parent company at the time the insurer was placed into liquidation in June 1994…”
“The state seized the insurance company after its management ran up a $90 million deficit largely because Vose lost policyholders’ money in highly speculative leveraged investments known as derivatives, the state charges...” (I have been advised that an exception was granted to Investor’s Equity by former insurance commissioner, Robin Campiano, which permitted investment in these high-risk instruments.)
“Metcalf said the settlement is part of a series of actions against Bank of America, several brokerage companies including… Goldman Sachs, accountants and attorneys associated with the failure of Investors Equity Life…”
“A state lawsuit accused Vose of racketeering, fraud and other misconduct… The suit alleges that the holding company that controlled Investors Equity conducted sham real estate deals and used the insurance firm’s assets to pay large fees to Vose and companies connected with him…”
Conflicts of Interest: Bank of Hawaii. P&C’s director, Gil Tam, was a co-investor along with KSBE, in the McKenzie Methane deal in Texas. Tam is currently an officer of Bank of Hawaii. P&C’s checking and savings accounts are with the bank, and its investments are handled by the bank’s subsidiary, Hawaiian Trust.
The Honolulu Advertiser reported in its April 3, 1995 issue under the headline, “Estate had $26.9 million in AutoFuel – Its investment coincides with bank loans”:
“According to paperwork filed by the Bishop Estate at the Bureau of Conveyances here, the estate and AutoFuel signed a business agreement October 16, 1990. On the same day, the Bank of Hawaii and Bank of New York signed a revolving credit agreement and loan agreement with AutoFuel…”
“The Bank of Hawaii was also involved in another estate deal in Texas. According to bankruptcy records in Houston, the estate guaranteed loans made by the Bank of Hawaii to individuals and companies that invested in McKenzie Methane Inc. The estate later assumed those loans when the borrowers failed to make payments to the bank.”
To tie these statements into this inquiry regarding conflicts of interest, all three of P&C’s board of directors, Gil Tam, William Richardson and Henry Peters, were co-investors in this McKenzie Methane deal, as were William Simon and Eric Martinson.
Relief sought. The relief being sought is as follows:
► The return to P&C of all charges made by M&M or other independent contractors that are determined to have been improper or excessive. This return should then be refunded to KSBE, its covered subsidiaries, and to their affected lessees and tenants, by the appropriate reallocation of these insurance costs.
► If it is determined that officers and directors of P&C have acted improperly, P&C’s license to operate as a captive insurance company should be suspended or revoked until such time as proper restitution has been made and any officers and directors who are found to be guilty of misconduct are replaced by responsible individuals who have no conflicts of interest.
► Anyone found to have violated any insurance statutes should be prosecuted to the full extent of the law.
Thank you for your cooperation. Please feel free to contact me if I can further assist you in your investigation.
Very truly yours,
Bobby N. Harmon
cc: Margery Bronster, Attorney General, State of Hawaii
Colbert Matsumoto, Master
Henry H. Peters, Chairman of the Board, P&C; Trustee KSBE
Gilbert Tam, Director, P&C
William Richardson, Director, P&C
Peter Lowe, Vice-President, P&C
Nathan Aipa, Asst. Treasurer/Asst. Secretary, P&C
Oswald Stender, Trustee, KSBE
Gerard Jervis, Trustee, KSBE
Richard S. H. Wong, Trustee, KSBE
Lokelani Lindsey, Trustee, KSBE
Richard Wong, President, Pauahi Holdings, Inc.
Rey Graulty, Insurance Commissioner
State of Hawaii
P.O. Box 3614
Honolulu, Hawaii 96811
RE: Complaint/Request for Inquiry – P&C Insurance Company, Inc.
Dear Commissioner Graulty:
In my letter of January 28, 1998, I requested an inquiry into several questionable acts that occurred during the time I was the president of P&C Insurance Company, Inc. (P&C). This letter is to request an inquiry into a separate issue that I also raised in my letter dated November 20, 1996, to Coopers & Lybrand.
This issue involves the Articles of Incorporation for P&C, and P&C’s application to your office for a license to operate as a captive insurance company. As required in the license application, I was listed as the intended president of the company and a personal biography indicating my experience and professional credentials in the insurance field was submitted for review and approval.
It is assumed that the subsequent approval P&C’s license to operate was granted, at least in part, due to the statements in the application that I was qualified to be an officer of the company, and that I would be responsible for complying with all insurance regulations. Although my eventual appointment as president of the company gave me the responsibility and legal authority to approve and sign contracts and checks, and to perform other authorized acts on behalf of P&C, the reality of the situation was that I was set up as a “straw man” by Henry H. Peters and Nathan Aipa. Detailed evidence of this fact was provided in my November 20, 1996 letter.
Even acting as a “straw man” for this corporation, I could be held legally liable for any wrongful acts and any breach of my fiduciary duties connected with the operations of P&C. This was a major reason that I refused to follow certain directives of Henry Peters, Nathan Aipa and Louanne Kam which I felt would have violated Internal Revenue Service regulations, state insurance statutes, and other federal and state laws.
This was also the reason that I declined to sign my approval to P&C’s annual financial statement that had been prepared by Peter Lowe, M&M Insurance Management Services, Inc. As you are aware, this financial statement was reviewed by the auditor, Coopers & Lybrand, and was filed with your office as required by law. It is my understanding that the financial statement was eventually approved and signed by Nathan Aipa. The fact that Coopers & Lybrand accepted this financial statement despite the evidence that I had provided indicating violations of law and breaches of fiduciary responsibility, gives further indication of possible collusion among these various entities with the intent to defraud.
It is also my understanding that the position of president of P&C has not been filled since my termination on November 20, 1996. This apparently leaves Vice President Peter Lowe, as the highest ranking officer of the corporation. As Mr. Lowe is also an officer of M&M Insurance Management Services, Inc., this would appear to be a continuing conflict of interest situation to the detriment of P&C, its parent, Pauahi Holdings Corporation, and all entities connected with this captive insurance company.
Relief sought. The relief being sought is as follows:
► P&C’s license to operate as a captive insurance company should be suspended or revoked.
► Any officers, directors, trustees or employees of Kamehameha Schools/Bishop Estate, Pauahi Holdings Corporation, P&C Insurance Company, Inc., M&M Insurance Management Services, Inc., Marsh & McLennan, Inc. and Coopers & Lybrand who have violated any insurance statutes or other laws should be prosecuted.
Please feel free to contact me if I can provide any additional information to aid in your investigation.
Very truly yours,
Bobby N. Harmon
cc: Margery Bronster, Attorney General, State of Hawaii
Colbert Matsumoto, Master
Oswald Stender, Trustee, KSBE
Gerard Jervis, Trustee, KSBE
Richard S. H. Wong, Trustee, KSBE
Richard Wong, President, Pauahi Holdings Corporation
Insurance Commissioner
VIA FAX – 586-2806
State of Hawaii
P.O. Box 3614
Honolulu, Hawaii 96811
RE: Complaint/Request for Inquiry – P&C Insurance Company, Inc.
Dear Commissioner:
This transmission is to provide you with a copy of my latest correspondence dated January 21, 1999, addressed to Matt Tsukazaki, Esq. of the law firm of Torkildson, Katz, Fonseca, Jaffe, Moore & Hetherington.
This additional information is to supplement my original complaint letters to your office dated January 28, 1998, and February 5, 1998. Commissioner Rey Graulty acknowledged receipt of these letters on February 24, 1998.
In his letter, Commissioner Graulty stated: “We will investigate your complaint to determine whether provisions of the insurance laws were violated.” I would greatly appreciate your informing me of the status of this investigation.
Thank you very much for your pursuit of this matter.
Sincerely,
Bobby N. Harmon
cc: Margery Bronster, Attorney General, State of Hawaii
Colbert Matsumoto, Master
Oswald Stender, Trustee, KSBE
Gerard Jervis, Trustee, KSBE
Rodney Park, President, P&C Insurance Co.
Mr. Wayne Metcalf, Insurance Commissioner
State of Hawaii
P.O. Box 3614
Honolulu, Hawaii 96811
RE: Complaint/Request for Inquiry – P&C Insurance Company, Inc.
Dear Mr. Metcalf:
I have previously written to your office regarding serious misconduct involving P&C Insurance Company, Inc, it’s captive manager Marsh & McLennan, and its auditors PricewaterhouseCoopers.
In a response to one of my earlier letters, your office advised that it was your policy not to investigate complaints if the complainant had an attorney and the case was being litigated. This is to inform you that the litigation in this case has now been settled.
A second purpose of this letter is to advise that P&C Insurance Company apparently continues to operate in a manner that raises serious questions of fraud and misconduct. As you are aware, the activities of Kamehameha Schools have been thoroughly investigated and documented by the Attorney General’s office and others, and the previous trustees have resigned. Unfortunately, it appears that no action has been taken to correct the suspected illegal activities of P&C Insurance Company.
On May 5, 2000, in the Matter of the Estate of Bernice P. Bishop, Equity No. 2048, the Attorney General of Hawaii filed a Report of Attorney General Concerning May 7, 1999 Order, which stated in part:
“The May 7, 1999 order regarding orders to show cause requires the former trustees immediately to resign offices and directorships in the trust’s subsidiary and affiliated organizations. P&C Insurance Company, Inc., is a captive insurance company, the sole stock holder which is Pauahi Holdings Inc.”
“The Attorney General respectfully invites the court’s attention to the annual report publicly filed on March 28, 2000 by P&C (Ex. 1). The annual report lists Henry H. Peters as a director.”
The Attorney General goes on to state, “The annual report is required to reflect the corporation’s state of affairs “as of December 31″ of the preceding year. Hawaii Revised Statutes § 415-126(c). The court may recall that Louanne Kam attended the February 8, 2000 status conference and represented to the court that she was an officer of P&C. Yet, the annual report suggests that Kam resigned before year’s end.”
The Annual Report contains this Certification, “I certify under the penalties of Section 415-136, Hawaii Revised Statutes, that I have read the above and the information is true and correct.” This was dated 2/28/00, and signed by Peter J. Lowe, Vice President.
From all information and belief, P&C Insurance Company, Marsh & McLennan, and PricewaterhouseCoopers have violated, and continue to violate, a multitude of the state’s insurance laws and should be held accountable.
Therefore, I am again requesting that your office pursue an investigation and audit of this company for the protection of its owners and policyholders as well as the general public.
Thank you very much for your prompt action to this matter.
Sincerely,
Bobby N. Harmon, CPCU, ARM
cc: Dorothy Sellers, Deputy Attorney General
Mr. Wayne Metcalf
Insurance Commissioner
State of Hawaii
P.O. Box 3614
Honolulu, Hawaii 96811
RE: Requests for Inquiry – Federal Insurance Co. and P&C Insurance Co., Inc.
Dear Mr. Metcalf:
Over the past four years, I have written to your office on numerous occasions regarding serious misconduct involving Federal Insurance Company, and P&C Insurance Company, it’s captive manager, Marsh & McLennan, and its auditors, PricewaterhouseCoopers.
In my letter dated May 26, 2000, I informed you that the litigation in my case had been settled, so that your office would be free to pursue your own independent investigations into these matters. To date, I have not received a response— even an acknowledgment of the receipt of my letter– from your office.
As I stated in my letter, from all information and belief, P&C Insurance Company, Marsh & McLennan, and PricewaterhouseCoopers have violated, and continue to violate, a multitude of the state’s insurance laws and should be held accountable. Recent events involving the settlement negotiations between Kamehameha Schools and Federal Insurance Company lead me to believe that these companies continue to ignore the law, with little or no concern that they will ever be called to task by any state regulatory agency. It is my belief that this laxity in pursuing any sanctions against these companies has resulted in the possible loss of tens of millions of dollars to Kamehameha Schools because of the simple fact that the entities negotiating the settlement were many of the same entities that perpetrated and participated in the alleged fraudulent schemes in the first place.
Therefore, I am again requesting that your office promptly and diligently pursue an investigation into the activities of these companies for the protection of the beneficiaries of Kamehameha Schools, the insurance company stockholders and policyholders, and the general public.
In order to keep you informed of my efforts involving other regulatory agencies, I am enclosing copies of my two letters dated December 2, 2000, addressed to Janet S. Hughes of the Internal Revenue Service.
I sincerely hope that your office will now take prompt and reasonable action to enforce Hawaii’s insurance statutes.
Sincerely,
Bobby N. Harmon, CPCU, ARM
encls.
cc: Robert K.U. Kihune, Trustee
Ronald D. Libkuman, Trustee
Constance H. Lau, Trustee
David P. Coon, Trustee
Francis A. Keala, Trustee
Dr. Hamilton McCubbin, CEO
Janet S. Hughes, Mgr., IRS
Federal Bureau of Investigation
Tai K. Lee, U.S. Dept of the Treasury
Dorothy Sellers, Esq., Office of the Attorney General
Robert P. Richards, Esq., Kamehameha Schools Master
Dr. Randy Roth, University of Hawaii
STATE OF HAWAII
INSURANCE DIVISION
DEPARTMENT OF COMMERCE & CONSUMER AFFAIRS
P.O. BOX 3814
HONOLULU, HAWAII 96811-3614
Mr. Bobby N. Harmon, CPCU, ARM
2920 Ala Ilima Street, #1103
Honolulu, Hawaii 96818
Re: Requests for Inquiry – Federal Insurance Co. and P&C Insurance Co., Inc.
Dear Mr. Harmon,
We have received your letter of December 4, 2000, and would like to take this opportunity to advise you that we are unable to locate the letter (dated May 26, 2000) which you make reference to.
Our records indicate that, on March 20, 2000, we turned over a substantial amount of documents and information that you had previously sent to this office. Pursuant to your written request dated March 11, 2000, these items were sent to Kamehameha Schools, in care of Mr. Robert S. Katz, Esq.
Please contact us if you have any questions or comments about this matter.
Very truly yours,
(signed)
Wayne Metcalf
Insurance Commissioner
Mr. Wayne Metcalf
Insurance Commissioner, State of Hawaii
P.O. Box 3614
Honolulu, Hawaii 96811- 3614
RE: Requests for Inquiry – Federal Insurance Co. and P&C Insurance Co., Inc.
Dear Mr. Metcalf:
Thank you for your letter of December 22, 2000, in which you advised that you were unable to locate my letter dated May 26, 2000 . You go on to state that you turned over a substantial amount of documents and information that I had previously sent to your office, pursuant to my written request dated March 11, 2000, to Kamehameha Schools in care of Mr. Robert S. Katz, Esq.
I wish to advise you that my letter dated March 11th referred only to the copy of my letter dated November 20, 1996, and its enclosures, which was addressed to Coopers & Lybrand. This letter involved only P&C Insurance Company, Inc. and Marsh & McLennan, Inc. I stated in that letter that, as President of P&C, I was not signing-off on the 1995-96 financial statements, which were required to be filed with your office, due to certain fraudulent activities. The numerous enclosures with that letter provided written evidence of this fraud.
My first complaint letter to your office regarding the alleged Federal Insurance Company fraud of back-dating exclusion endorsements in order to deny coverages, was not sent until early 1997. To my knowledge, these subsequent complaint letters regarding Federal Insurance, P&C, Marsh & McLennan, PricewaterhouseCoopers, Henry Peters, Nathan Aipa, Esq., William S. Richardson, Gilbert Tam, Rodney Park, Louanne Kam, Esq., Rocco Sansone, Peter Lowe and others were NOT subject to the Court’s injunction.
Therefore, I would suggest that your office contact either Mr. Robert S. Katz or Kamehameha Schools as soon as possible in order to obtain the return of any and all complaint letters dated after November 20, 1996. In the event these are not promptly returned, copies of many of these letters are available on the following web-site:
My letter dated May 26, 2000, was only to inform you that the litigation in my case had been settled, so that your office would be free to pursue your own independent investigations into these matters. I also stated that, from all information and belief, P&C Insurance Company, Marsh & McLennan, and PricewaterhouseCoopers have violated, and continue to violate, a multitude of the state’s insurance laws and should be held accountable.
I still believe that laxity in pursuing any sanctions against these companies has resulted in the loss of tens of millions of dollars to Kamehameha Schools, to their leasehold tenants, to the taxpayers of Hawaii, and to the general public.
Therefore, I am again requesting that your office act promptly and diligently to pursue an audit and investigation into these questionable activities that I have reported over the past four years.
Very truly yours,
Bobby N. Harmon, CPCU, ARM
encls.
cc: Robert K.U. Kihune, Trustee
Constance H. Lau, Trustee
J. Douglas Ing, Trustee
Nainoa Thompson, Trustee
Diane Plotts, Trustee
Dr. Hamilton McCubbin, CEO
Janet S. Hughes, Mgr., IRS
Federal Bureau of Investigation
Tai K. Lee, U.S. Dept of the Treasury
Dorothy Sellers, Esq., Office of the Attorney General
Robert P. Richards, Esq., Kamehameha Schools Master
Dr. Randy Roth, University of Hawaii
SOME NOTES FROM BOBBY N. HARMON:
To my knowledge, no action was ever taken against Marsh & McLennan, Federal Insurance Company or P&C Insurance Company by either the California Insurance Department or the Hawaii Insurance Commissioner for their roles in the Kamehameha Schools/Bishop Estate litigations.
On September 29, 2000, Hawaii Probate Judge Kevin Chang approved a mediated global settlement between the Attorney General’s office and Federal Insurance Company to settle all of the state’s long-running civil claims against the former trustees of Bishop Estate. The court ordered all court documents sealed.
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On Oct 31, 2000, the Honolulu Star-Bulletin revealed that: FORMER TRUSTEES FUNNELED DONATION TO LAWMAKERS….
Former trustees of the Kamehameha Schools operated an underground political network that funneled money to the campaigns of dozens of key Hawaii lawmakers, according to trust documents obtained by the Honolulu Star-Bulletin….
In the 1994 elections alone, the internal trust logs show about $23,000 in contributions from trustees, vendors and staffers…. The list of recipients for that election year reads like a Who’s Who of island politics. They include …
> > Former State Sen. Rey Graulty: On March 22, 1994, Wong bought $250 worth of tickets for a Graulty fund-raiser . . . The check was delivered by a staffer. Graulty, now a state Circuit judge, could not be reached for response. . . .
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Not stated in the article is the fact that prior to being appointed a Circuit judge, Rey Graulty was Hawaii’s insurance commissioner.
The insurance commissioner for California at the time of my complaint against Federal Insurance Company was the justly disgraced Chuck Quackenbush.
– Bobby N. Harmon, February 11, 2002
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Last update December 29, 2004, by The Catbird