On February 16, 2007, Chief U.S. District Judge Garrett Brown, Jr. of Newark, New Jersey finalized and approved the terms of a voluntary settlement among Zurich, 10 state AGs & Plaintiffs.  The order addresses the settlement’s aspects that relate to policyholder restitutions ($121 million+ split among 3.8 million plaintiffs). Zurich was the only one of 37+ defendants involved in this case to volunteer to settle.

On September 15, 2006 PIA filed an amicus curiae (friend of the court) brief with the United States District Court for the District of New Jersey, in opposition to certain limited aspects of the proposed settlement involving Zurich Insurers.

Because PIA filed our brief of Amicus Curiae:

• The Zurich class addressed under this settlement was resolved by this federal court for the policyholder restitution issues only.
• The Zurich producer disclosure form to which we objected was withdrawn. The specific demand for Zurich to use the actual words that we objected to was dropped, so long as an alternative meeting content requirements is approved and ready to go by May 7, 2007. This effectively removed these issues from the federal court class action.
• In the November hearing, the judge acknowledged our position that state regulatory matters are issues for state courts, not the federal courts. Zurich had wanted to secure federal court approval for all the reforms that Zurich was being required to issue under their various state settlements, and in so doing, be able to use them without need to consider state-by-state law differences. Judge Hochberg expressed her informal opinion that the regulatory issues were matters of state law and for state courts, and not subjects for federal review.

Due to the fact that PIA was bold enough to make the case and keep pressing it, we have established that we were correct about the language concerns relating to the form; that there are clear distinctions between federal vs. state authority; and, specifically, that there is a limit to the scope of state AGs’ authority in matters of insurance regulatory reforms.

PIA is continuing to pursue a coordinated strategy centering on additional legal action as it is necessary and advantageous to our position, together with opposition to current abuses of the settlement process by some state Attorneys General. The settlement process is being used by these AGs to, in effect, have the courts enact legislation.

While the phenomenon of “legislating from the bench” has been a problem for a long time, only recently has a new twist developed in which firms that have not been charged with wrongdoing, but have only been the subjects of investigations into potential wrongdoing, feel pressured into signing supposedly voluntary agreements to settle the investigations.

These agreements often include provisions that go far beyond providing restitution to victims of alleged abuses; they effectively impose regulatory sanctions and dictate the future business practices of the firms signing the agreements.  Then, the broad nature of the provisions have the effect of extending those sanctions beyond the firms signing the agreements to an entire industry generally. Firms or individuals who were never suspected of abuses can get swept into marketplace changes prompted by the settlements.

That’s how a few State Attorneys general can attempt to dictate nationwide “reforms.” The approach is pretty slick. But in addition to it being clever, PIA believes it is an unconstitutional usurpation of the policymaking authority of the legislative branch of government.

The PIA National Board of Directors will be briefed in detail on this issue during its next meeting on April 1, 2007 in Arlington, Virginia.

Posted March 6, 2007. Edited April 6, 2007