Insurance Claims and Bad Faith Law Blog

If it Walks Like a Fiduciary ...? Part 2 -- In The News.

   The previously posted Federal Jury case between American International Group and Mr. Maurice Greenberg has just resulted in a Jury verdict in Mr. Greenberg's favor:

    The eight-member jury rejected a contention by A.I.G. that Mr. Greenberg had improperly removed the stock from a fund for top performers' retirement benefits.  He was therefore not required to reimburse the company, the jury concluded, deciding the first of two questions at trial.

    In a second, advisory decision, the jury found that Mr. Greenberg did not violate a trust when he removed the stock.  The federal judge presiding over the trial, Jed S. Rakoff, will now write the controlling decision on whether a trust was violated, taking the jury's finding into account.

    It is also reported that the Judge said that he will issue his decision by the end of August, 2009.  Mary Williams Walsh, "Jury Decides For Greenberg in A.I.G. Case Over Shares" p. B1, col. 6 (New York Times Nat'l ed., "Business Day" Section, Wednesday, July 8, 2009).

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Bad Faith Settlement in Florida: Surety Law, Insurer Bad Faith Law.

   "Whether a surety has settled a claim in good faith or not, of course, depends on the particular facts of the case."  Download Auto-Owners Insurance Co. v. Southeast Floating Docks, Inc. (11th Cir. Opinion Filed June 16, 2009).

    The implications of this holding on the law of Insurer Bad Faith are pretty clear:  Whenever a settlement is even remotely suspicious, and is used as the basis for a claim of Bad Faith against an Insurance Company which is why the underlying claim was settled as it was, that settlement is potentially subject to the legal standards imposed under the holding in this new Eleventh Circuit decision.

A post explaining and addressing this new decision is on Insurance Claims and Issues Web Log at www.insuranceclaimsissues.typepad.com.

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If it Walks Like a Fiduciary ... ?

    If an executive retirement plan at a large Group of Insurance and other Companies is described by the person who is also the Group's CEO as a "trust," and that person describes the Group itself as a "beneficiary," is the CEO in law and in equity what he described in fact, a self-described "fiduciary"?

    These are apparently the major issues being worked out by a Jury in a Federal Courtroom in New York City.  American International Group maintained an executive retirement plan, and the evidence shows that AIG's plan was used "as a potent recruiting tool, " and "was well known in the insurance industry."  An unusual feature of AIG's retirement plan was that it was "operated" by Starr International Company rather than by AIG itself.  AIG sued its former CEO, Maurice Greenberg, when Mr. Greenberg and other persons allegedly acting on behalf of Starr or others and not AIG, used monies from the plan for purposes which AIG alleged was not the purpose of the plan, in basic terms.  See Mary Williams Walsh, "Closing Arguments Made in the A.I.G. Case/Was Money in a Trust or a Private Company?" p. B3, col. 5 (New York Times Nat'l ed., "Business Day" Section, Tuesday, July 7, 2009).

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Confronting the Black Swan and Avoiding Fiduciary Breach.

    For ten useful points to put on any self-respecting Fiduciary's "To Do" list for confronting supposedly unusual but totally predictable events, see generally Nassim Nicholas Taleb, "Ten Principles for a Black Swan-proof World" (Financial Times Online, April 7, 2009).

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Fiduciaries, Financial Professionals, Insurance and the Courts.

    "Fiduciary" is a word.  For a report reflecting on the use of that word by some financial professionals, see Ron Lieber, "Your Money Column/Finding Financial Advice in an Age of Bad Behavior" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, June 6, 2009).  Some financial professionals have been critical in the past, it is reported, of "other financial professionals who accept commissions and fees from insurance companies and mutual fund firms."  Id.  [Emphasis added.]

    The linked report reflects the filing of a civil action by the Securities and Exchange Commission over alleged kickbacks taken by persons investing other people's money.  Id.

    Courts will work out the length and height of Fiduciary Duties in the final analysis.

See also "Insurance Claims and Issues," at www.insuranceclaimsissues.typepad.com, Category:  Fiduciary Duties.

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Warrants, Wealth, reduction, and Wall Street: Which One for Taxpayers?

    As consideration for loaning large Banks and other financial institutions Federal Taxpayer Funds, i.e., Bailout money, the Banks gave back so-called "warrants" to the Federal Taxpayers.   Actually, the Banks provided those warrants to the Treasury Department which stood in for the Taxpayers.

    The warrants carry with them the right to purchase stock at a certain price, even if the stock price goes higher when the warrants are sold.  This means that the Federal Taxpayers theoretically could earn interest on the Bailout loans made in their name to the Banks.

    "Diamond Jim" Jamie Dimon of JP Morgan wants to give the Bailout Money back now.  There are many announced reasons for that.  With respect to the warrants in particular, here is what he reportedly said yesterday, the 1st day of June, 2009:

    The Federal Government should cancel half of the warrants "out of fairness".

Eric Dash, "Banks May Soon Get Approval to Leave the Bailout Program" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Tuesday, June 2, 2009).  [Emphasis added.]

    Chutzpah, meet Diamond Jim!

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UPDATE: "Fiduciaries Flip-Flop Federal Financing".

    This is an UPDATE to a post here on May 19, 2009.

      In addition to the implications for the exercise of Fiduciary Duties during the Current Collapse, it appears to be a fact as certain as the sun that Mr. Timothy Geithner does not have good negotiation skills.

    Separately and in addition, Mr. Geithner clearly does not have the stomach to negotiate for people making anything less than, say, $500,000 a year.

    TARP borrowers are reportedly taking note.  See Mark Pttman, "TARP Warrants Show Banks May Reap 'Ruthless Bargain' (Update 2)" (Bloomberg.com, Friday, May 22, 2009).

There is a connected post on this update at http://www.insuranceclaimsissues.typepad.com.

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UPDATE on "AIG, the Feds, the Trust and the Trustees: Who?"

This is an update of a post here on April 21, 2009:  "AIG, the Feds, the Trust and the Trustees:  Who?"

The experience base of Trustee Jill Considine has become clearer through this report by Mark Pittman, James Sterngold and Hugh Son, "AIG Trustees Should Answer to Taxpayers, Not Fed, Towns Says" (Bloomberg.com, Wed., May 12, 2009).  Ms. Considine is described in the linked report as "lead director of Ambac Financial Group, Inc., the New York-based bond insurer whose shares have dropped 98 percent from a 2007 peak."

See also www.insuranceclaimsissues.typepad.com, Categories:  "Fiduciary Duties, Market Performance".

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Fiduciaries Flip-Flop Federal Financing.

    At the same time that some Life Insurance Companies have been approved to apply for Federal TARP or Bailout funds, some original recipients of TARP funds want to pay them back early.  There are Fiduciary considerations involved.  The executives, Officers and Directors of these publicly held borrowers likely need to take the interests of the corporations' shareholders into account, and give the interests of the shareholders at least equal consideration with their own.

    To begin with, TARP funds are loaned at lower interest rates than corporations can obtain anywhere else.  "For starters, it's cheap capital."  Antony Currie and Dwight Cass, "Breakviews.com/Shareholders Hurt in Bailout Payback" p. B2, col. 1 (New York Times Nat'l ed., Wed., May 13, 2009).  It is in the best interests of the shareholders for the corporation they own to obtain capital at low interest rates.

    A second negative effect on shareholders besides returning cheap capital is that the value of their holdings is diluted when the corporations they own issue more stock as an alternative way to raise capital to pay back the low-interest Federal loans at this time.  See id.

    On the other hand, there are two rationales advanced in favor of paying TARP funds back at this time:  (1) limits on bonus payments to executives, officers and directors of the borrower and (2) the fear that other, unknown, unspecified limitations might be imposed on TARP loans in the future.  See id.

    Are these reasons enough to require Fiduciaries to pay back low-interest loans that cannot be obtained anywhere else, weighing the interests of the shareholders against the interests of the Fiduciaries, i.e., the executives, officers and directors?

A parallel post is on Insurance Claims and Issues Web Log at www.insuranceclaimsissues.typepad.com.

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Postscript to "Hedge Funds Find Fiduciary Responsibilities, Hold Up Chrysler For Nothing".

    This is a postscript to a May 4, 2009 post.

    The hedge funders in question in Chrysler's Bankruptcy proceeding are now disbanding.  See  Michael J. de la Merced, "Creditors Opposing Chrysler's Overhaul Plan End Alliance" p. B2, col. 1 (New York Times Nat'l Ed., "Business Day" Section, Saturday, May 9, 2009).

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