State Farm must pay $2.5 million in punitive damages to a couplewhose house was destroyed by Hurricane Katrina, a Mississippifederal jury ruled yesterday. The panel's finding came hours afterU.S. District Court Judge L.T. Senter Jr. ruled the homeowners,whose claim had been denied by the insurer, were entitled to$223,292 for their house.

At that time he also rejected arguments from the Bloomfield,Ill.-based insurer's attorneys and ruled the jury could considerpunitive damages against State Farm.

Judge Senter, whose rulings on the issue of insurance policyflood exclusion language previously have impacted carriers, madehis finding in a case brought by Norman and Genevieve Broussard ofBiloxi, Miss. The Broussards had sought $5 million in punitivedamages.

One legal expert said yesterday's ruling could impede StateFarm's ongoing efforts to reach a global settlement for similarKatrina cases. The company said it was disappointed with thepunitive damage finding and will evaluate its next steps, “whichwill likely include an appeal.” Kim Brunner, State Farm executivevice president, secretary, and general counsel, said the companyhad not expected the jury's decision. “Testimony of expertwitnesses showed that damage to the Broussard home wasoverwhelmingly caused by water and not wind,” said Brunner.

However, Judge Senter ruled the company did not presentsufficient evidence to prove how much damage to the home was causedby water and how much by wind and said the plaintiffs needed toprove only a direct physical loss.

The Consumer Federation of America (CFA) said it will releasenew data showing insurers overcharged and shifted costs toconsumers to reach record profit and surplus levels in recentyears. In addition, the CFA said it will provide detailedinformation on the strategies it says insurers have used to shifttheir costs onto consumers and will make recommendations for stateand federal policymakers to limit these practices.

Robert P. Hartwig, president of the Insurance InformationInstitute, took strong exception to the CFA's assertions. “It'sunfortunate the CFA would find it necessary or appropriate torelease a report that is effectively a complete fiction,” hesaid.

The profit numbers cited by the CFA in its report aremeaningless, according to Hartwig, who said in using return onequity, which provides a better gauge, insurers will “at best meetand likely fall short of” other Fortune 500 companies.

California Gov. Arnold Schwarzenegger wants to use the taxsystem to encourage employers to provide health coverage and to usea new healthcare tax to subsidize expansion of Medi-Cal, thestate's Medicaid program.

The fact that 6.5 million California residents now lack healthcoverage hurts all state residents, not simply the uninsured,according to Schwarzenegger. “More than 60 emergency rooms haveclosed over the past decade because they didn't want to keeptreating people without insurance,” he said. “Unpaid medical billsmean billions of dollars in hidden taxes for the rest of us becausethose services all have to be paid for.”

Schwarzenegger, a Republican, pleased health insurers andbrokers in 2004 when he vetoed a universal health insurance billthat year. That bill would have applied mainly to large and midsizeemployers. Schwarzenegger said at the time the state should tacklethe problem of the uninsured with a comprehensive plan, instead ofputting most of the responsibility for fixing the health financesystem on larger employers.

The new chairman of an organization lobbying the government toallow federally regulated risk retention groups to expand theircoverage areas said he expects to see the effort gain ground thisyear. “Momentum has been building. Optimistically, I'd like to saywe'll get the attention of Congress, and I think we'll see if thisyear we can't make some good inroads,” said Larry L. Smith, whoheads the American Risk Retention Coalition (ARRC).

The group was formed to facilitate expansion of the federalLiability Risk Retention Act (LRRA) to include property insuranceand other coverages. Smith noted ARRC's urgency to expand the LRRAwas heightened by the withdrawals of major insurers from propertymarkets including coastal areas in several states following therecent hurricanes. “This is one of those priorities crying out tobe addressed,” he said.

While not a panacea, self-insurance through risk retentiongroups has provided an alternative and has allowed “new vehiclesand risk management techniques to be developed,” said Smith.

The people who help U.S. insurers and pension plans peer intothe future need a broader education and more attention from theirdisciplinary board. Those are the views of a task force of theCritical Review of the U.S. Actuarial Profession (CRUSAP), whichpresented those conclusions in its new CRUSAP report, makingrecommendations about ways the U.S. actuarial profession canaddress the risks and opportunities facing actuaries.

The American Academy of Actuaries set up the seven-member taskforce in May 2005 in an effort to strengthen the actuarialprofession and make sure it meets the needs of the public. The taskforce and its advisory panel include representatives from the majorU.S. actuarial groups and many other for-profit, nonprofit, andgovernmental organizations.

One concern is a “widespread perception” the Actuarial Board forCounseling and Discipline is getting fewer complaints than itshould because clients and others are reluctant to file complaints,the task force members write. The actuarial profession shouldconsider addressing this issue by setting up “automatic triggers”that would lead to reviews of an actuary's work, according to thetask force.

Wal-Mart Stores Inc. says it has succeeded at increasing thepercentage of workers who are signing up for medical insurance.During the fall 2006 open-enrollment period, 636,391 employeessigned up for Wal-Mart health plans, up about eight percent fromthe number who signed up for the retailer's coverage a yearearlier, according to Wal-Mart.

The number who signed up for “associate plus children” coverageincreased more than 11 percent, Wal-Mart says. About 9.6 percent ofWal-Mart employees lack health coverage, but only 3.1 percent gethealth coverage from Medicaid or from state health insuranceprograms other than Medicaid, Wal-Mart reports. About half of thenew plan enrollees were uninsured before they signed up forWal-Mart plan coverage, and 7.8 percent were enrolled in Medicaidplans, Wal-Mart says.

The owner of a variable annuity or variable life insurancecontract does not necessarily have to be taxed as an owner of aninterest in a regulated investment company the contract invests in,as long as the other owners are the right sorts of owners,according to Chris Lieu, an official in the Internal RevenueService chief counsel's office who reported the interpretation inRevenue Ruling 2007-7.

Lieu sorts out the variable contract ownership question by usingSection 1.817-5(f)(3) of the Income Tax Regulations, whichdescribes four classes of investors who do not count as members ofthe “general public” for purposes of analyzing variable contractdiversification.

Historically, the IRS treated variable contract holders asowners of the underlying funds if the underlying funds wereavailable to members of the general public. In 2003, an IRSofficial ruled in Revenue Ruling 2003-92 it would think of a“regulated investment company” as being open to the general publiceven if a regulated investment company simply sold interests towealthy individuals through private placements as well as tovariable life and variable annuity contracts.

The U.S. Supreme Court declined to review a lower court rulingthat allows companies to change traditional defined benefit pensionplans into cash balance plans and other types of hybrid plans. The7th U.S. Circuit Court of Appeals ruled in favor of IBM Corp., andagainst an IBM pension plan participant, Kathi Cooper, in August,in Cooper v. IBM.

The 7th Circuit held IBM's efforts to convert to a cash-balanceplan did not constitute age discrimination, and Congress recentlyincluded a provision in the new Pension Protection Act thatdeclares use of hybrid pension plan designs is not a form of agediscrimination.

The Supreme Court refusal to grant certiorari to Cooper and thePPA provision “validate the view that cash balance and other hybridpension plans are perfectly legal and not age discriminatory,” saidJames Klein, president of the American Benefits Council, whichworked with another organization to submit a brief on behalf ofIBM. The 7th Circuit ruled the terms of IBM's cash balance planwere “age neutral” and “removing a feature that gave extra benefitsto the old differs from discriminating against them,” Kleinsaid.