National Heritage Life Insurance Company (Delaware)
Magistrate Refuses to Overturn NHL Liquidator's Victory Against Bear Stearns
On August 1, 2008, the Orange County (Florida) Circuit Court declined to reopen the case decided earlier this year in favor of the National Heritage Life estate. The case, Denn v. Bear Stearns & Co., involved the estate's claim against Bear Stearns for breach of its contractual and fiduciary duties as an investment advisor and was tried before a Florida magistrate late last year. In April, the magistrate ruled in favor of the estate and entered judgment in the amount of $26.8 million plus interest in "expectation" damages calculated as a combination of the dollars invested plus the expected return on those dollars. With the defendant's Motion for Rehearing denied, an appeal is now anticipated.
The details of the case, as previously reported, concern the estate's claim that in response to flawed investment advice from Bear Stearns, NHL purchased high-risk volatile securities products that resulted in millions of dollars in losses to the company and ultimately "deepened the hole" of the eventual insolvency. Bear Stearns argued that its relationship with NHL was that of a "broker" and did not rise to the level of "investment advisor." In addition, Bear Stearns noted that NHL was aware of the investment risks and that all investments had been approved by the commissioner.
In its April 15 opinion, the court rejected the estate's "deepening of the insolvency" argument but otherwise ruled in favor of the estate, finding that the contractual relationship between Bear Stearns and NHL included investment advisor and brokerage services and created a duty of good faith and fair dealing. Holding that duty was breached, the court stated, "the investments recommended and selected by Bear Stearns were high-risk, extremely volatile, and completely inappropriate for NHL. Bear Stearns knew this from the outset of the relationship and through its actions and inactions prevented NHL from determining the extremely risky nature of its investments until it had suffered significant financial losses." For a copy of the opinion, please contact Meg Melusen at NOLHGA ([email protected]).
Task Force Chair - Dan Orth; Staff Contact -Guaranty Association Law Summaries Updated on NOLHGA's Web Site
NOLHGA has updated its state guaranty association law summary reports to reflect legislative changes that took effect between December 31, 2007, and June 30, 2008. The changes recorded include the following:
Connecticut: clarified the scope of its stop-loss exclusion
Iowa: modified its coverage limits and clarified that health insurance policies include long-term-care and disability insurance policies
Louisiana: recodified its guaranty association statute
South Carolina: added the coverage exclusion for policies where the assessment of the product is preempted by federal or state law
Wisconsin: clarified that specialty HMOs are excluded from coverage and modified its assessment base and interest rate adjustment provisions
The Guaranty Association Law Summaries are available under "Facts & Figures" on the NOLHGA Web site homepage in addition to being accessible under the "Member Resources" section of the password-protected portion of the site. Users can generate individual state reports by choosing from the "Law Summaries by State" drop-down menu. Alternatively, the summaries can be viewed and printed by selecting a specific report from the "Law Summaries by Provision" drop-down menu, which lists all states by topic. Finally, the Guaranty Association Laws page provides users with state guaranty association contact information as well as links, where applicable, to the state guaranty association's Web site and the corresponding state insurance department's site. Changes or corrections should be submitted to Meg Melusen at [email protected].
Staff Contact -