State Farm must pay $2.5 million in punitive damages to a couple whose house was destroyed by Hurricane Katrina, a Mississippi federal jury ruled yesterday. The panel's finding came hours after U.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 consider punitive damages against State Farm.

Judge Senter, whose rulings on the issue of insurance policy flood exclusion language previously have impacted carriers, made his finding in a case brought by Norman and Genevieve Broussard of Biloxi, Miss. The Broussards had sought $5 million in punitive damages.

One legal expert said yesterday's ruling could impede State Farm's ongoing efforts to reach a global settlement for similar Katrina cases. The company said it was disappointed with the punitive damage finding and will evaluate its next steps, “which will likely include an appeal.” Kim Brunner, State Farm executive vice president, secretary, and general counsel, said the company had not expected the jury's decision. “Testimony of expert witnesses showed that damage to the Broussard home was overwhelmingly caused by water and not wind,” said Brunner.

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

The Consumer Federation of America (CFA) said it will release new data showing insurers overcharged and shifted costs to consumers to reach record profit and surplus levels in recent years. In addition, the CFA said it will provide detailed information on the strategies it says insurers have used to shift their costs onto consumers and will make recommendations for state and federal policymakers to limit these practices.

Robert P. Hartwig, president of the Insurance Information Institute, took strong exception to the CFA's assertions. “It's unfortunate the CFA would find it necessary or appropriate to release a report that is effectively a complete fiction,” he said.

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

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

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

Schwarzenegger, a Republican, pleased health insurers and brokers in 2004 when he vetoed a universal health insurance bill that year. That bill would have applied mainly to large and midsize employers. Schwarzenegger said at the time the state should tackle the problem of the uninsured with a comprehensive plan, instead of putting most of the responsibility for fixing the health finance system on larger employers.

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

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

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

The people who help U.S. insurers and pension plans peer into the future need a broader education and more attention from their disciplinary board. Those are the views of a task force of the Critical Review of the U.S. Actuarial Profession (CRUSAP), which presented those conclusions in its new CRUSAP report, making recommendations about ways the U.S. actuarial profession can address the risks and opportunities facing actuaries.

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

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

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

The number who signed up for “associate plus children” coverage increased more than 11 percent, Wal-Mart says. About 9.6 percent of Wal-Mart employees lack health coverage, but only 3.1 percent get health coverage from Medicaid or from state health insurance programs other than Medicaid, Wal-Mart reports. About half of the new plan enrollees were uninsured before they signed up for Wal-Mart plan coverage, and 7.8 percent were enrolled in Medicaid plans, Wal-Mart says.

The owner of a variable annuity or variable life insurance contract does not necessarily have to be taxed as an owner of an interest 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 Revenue Service chief counsel's office who reported the interpretation in Revenue Ruling 2007-7.

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

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

The U.S. Supreme Court declined to review a lower court ruling that allows companies to change traditional defined benefit pension plans into cash balance plans and other types of hybrid plans. The 7th U.S. Circuit Court of Appeals ruled in favor of IBM Corp., and against 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-balance plan did not constitute age discrimination, and Congress recently included a provision in the new Pension Protection Act that declares use of hybrid pension plan designs is not a form of age discrimination.

The Supreme Court refusal to grant certiorari to Cooper and the PPA provision “validate the view that cash balance and other hybrid pension plans are perfectly legal and not age discriminatory,” said James Klein, president of the American Benefits Council, which worked with another organization to submit a brief on behalf of IBM. The 7th Circuit ruled the terms of IBM's cash balance plan were “age neutral” and “removing a feature that gave extra benefits to the old differs from discriminating against them,” Klein said.

Special Reports /

$2.7 Million Katrina Verdict Against State Farm; Insurers Accused of Overcharging; Schwarzenegger P

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