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  Robert Burns testified in an August deposition in the Estee Lauder Inc. case against the OneBeacon Insurance Group, which transferred its asbestos and environmental claims to two Berkshire Hathaway Inc. subsidiaries. SHNS photo by Matt Anzur
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  Oct. 1, 2013 –J. Robert Hunter, head of the insurance division of the Consumer Federation of America, is a former Texas insurance commissioner. (SHNS photo by Matt Anzur)
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  Oct. 1, 2013 – Nancy Lopez was a young administrative assistant in the Jackson County Courthouse in Kansas City, Mo., when she inhaled deadly asbestos fibers during office renovations in 1983-84. She died in 2010 at age 56 from mesothelioma. SHNS photo courtesy Louis Accurso
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  Oct. 1, 2013 -- Attorney John Schryber of Dickstein Shapiro LLP in Washington, D.C., represents Estee Lauder Inc. and the Ford Motor Co. in separate cases involving claims against Resolute. (SHNS photo by Matt Anzur)
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  Oct. 1, 2013 -- Kansas City, Mo., attorney Louis Accurso represented judicial administrative assistant Nancy Lopez in her mesothelioma-damages case stemming from asbestos exposure in the Jackson County Courthouse. (SHNS photo by Matt Anzur)
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  Charles Lute and two other maintenance engineers allege their thickened lungs were caused by exposure to asbestos from “limpet,” a fire retardant sprayed throughout the iconic BMA Tower in Kansas City, Mo. (SHNS photo courtesy Louis Accurso)
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Risk Business: Berkshire Hathaway subsidiaries deny, delay asbestos, hazard claims, suits, insiders allege Insight from the Court House Steps
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Ford, Berkshire Hathaway subsidiary settle insurance dispute

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Robert Burns: a former insider testifies

The Ford Motor Co. announced Monday it settled a lawsuit with Berkshire Hathaway Inc. subsidiary National Indemnity Co. for $22.1 million -- $2 million more than the automaker sued for in the dispute related to unpaid claims from rollover deaths.

“When you sue for $20 million in unpaid claims and you receive a settlement for $22.1 million, it’s a good day,” said Scott Oostdyk, an attorney for Ford. The case had been set for trial later this month in the United States District Court for the Eastern District of Virginia.

 “We filed the complaint because we were experiencing no pay and slow pay,” Oostdyk said, claiming National Indemnity intentionally delayed paying Ford’s claims as part of a larger pattern of wrongful conduct.

A Scripps News national investigation quoted sworn testimony from a former claims executive who criticized Berkshire’s National Indemnity and its claims-handling arm, Resolute Management Inc., for intentionally delaying and denying claims to cancer victims and others.

Scripps discovered National Indemnity, through 25 known deals, has agreed to assume tens of billions of dollars in so-called “long-tail” insurance risk from insurers like Lloyd’s of London and OneBeacon Insurance Group.

The long-tail policies cover asbestos and other health hazards that might take years or decades to develop into illness or a covered claim.

In exchange for taking on the risk, Berkshire asks insurers to hand over something called “float,” the money an insurance company gets to hold between the time customers pay premiums and the time the insurer pays claims on their policies.

Berkshire can invest the money until it has to pay out a claim.

Scripps reviewed dozens of cases nationwide. In the majority of similar settlements involving National Indemnity or Resolute, the settlement amount remained confidential.

In this instance, Oostdyk said, Ford wanted to send a message, and refused in negotiations to settle the claim until National Indemnity agreed to let it announce the amount of the settlement.

New York asbestos attorney Joe Belluck said the scrutiny of Berkshire’s business practices leading up to the publication of the Scripps investigation “likely played a part” in the Ford settlement before a public trial.

“Settling keeps any additional information from the public eye,” he said.

J. Robert Hunter, head of the Consumer Federation of America’s insurance division and former Texas insurance commissioner, agreed.

 “Even Buffett reacts to press coverage,” Hunter said. “Clearly, Buffett wanted to settle out while the (Scripps) story was imminent, knowing that the extra $2 million was required. After the story, it jumps much higher.”

An attorney for National Indemnity, Trey Sibley, disputed Ford’s claim that the automaker received more compensation in the settlement than it sued National Indemnity for.

 “Ford made no specific claim for any sum in its complaint other than punitive and treble damages and attorneys’ fees,” he said. “The settlement was agreed to be confidential. So we do not believe any further comment about the case by either party to be appropriate. Ford apparently disagrees.”

An attorney for National Indemnity, Trey Sibley, disputed Ford’s claim that the automaker received more compensation in the settlement than it sued National Indemnity for.

“Ford made no specific claim for any sum in its complaint other than punitive and treble damages and attorneys’ fees,” he said. “The settlement was agreed to be confidential. So we do not believe any further comment about the case by either party to be appropriate. Ford apparently disagrees. But to remove any confusion about the terms of the settlement agreement, we would be amenable to waiving the confidentiality if Ford agreed to do so.”

 (Contact Scripps national investigative correspondent Mark Greenblatt at mark.greenblatt@scripps.com.)

payments to potential profits.

“How will Berkshire fare?” Buffett wrote. “That depends on how much ‘known’ claims will end up costing us and how many yet-to-be presented claims will surface and what they will cost, how soon claim payments will be made and how much we earn on the cash we receive before it must be paid out. Ajit and I think the odds are in our favor.”

Hunter spotted another area of concern in Buffett’s 2011 shareholder letter where he writes that Berkshire gets to invest the float “for our own benefit.”

Hunter says laws in most states require investment earnings from the float be used “to make policies cheaper for people buying insurance” and not go “to the benefit of the insurer, as Buffett seems to be bragging about.”

He cites a California rule that reads: “... the commissioner shall consider whether the rate mathematically reflects the insurance company's investment income.”

George Washington University law professor Lawrence Cunningham cautions that float is an “inherent feature” of insurance, and it’s not unusual to see lawsuits in which policyholders or claimants say an insurer or claims administrator acted in bad faith by delaying payment.

Cunningham, who is also a Berkshire shareholder and has edited several editions of “The Essays of Warren Buffett,” said Berkshire corporate culture rests on “unwavering commitment to integrity.”

He said it would be “antithetical for the company to jeopardize that reputation by wrongfully delaying or denying claims or acting in any way inconsistent with faithful administration and payment of claims.”

According to Berkshire executive Jain, his division pays $1.4 billion annually for asbestos claims and expenses. And “as is the case with any insurance company, the vast majority of claims are settled without trials,” he said.

Nancy Lopez spent most of her shortened life -- she died at age 56 -- working in the Circuit Court in Kansas City. At her funeral in October 2010, she was remembered as the “heart of the division.” But she never got her own day in court. The money her attorney eventually won on Lopez’s behalf went to her family more than a year after her death.

 

For more on this investigation, go to wcpo.com/risky-business

(Contact Scripps national investigative correspondent Mark Greenblatt at mark.greenblatt@scripps.com.)

 

Copyright 2013 Scripps Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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