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Four insurance companies have agreed to pay $14 million to settle a national class action suit that accused the insurers of reneging on a promise to pay partial refunds of premiums to a class of about 900 employers if their workers filed a low number of workers’ compensation claims. Lead plaintiffs attorneys Joseph F. Roda and Eric L. Keepers of Roda & Nast in Lancaster said the case, Highland Tank and Manufacturing Co. v. Bankers Standard Insurance Co., was the first national class action ever certified in the Lancaster County Court of Common Pleas, and only the second national class in an insurance bad-faith case to be certified by a Pennsylvania trial judge. Roda said the case was about to go to trial before Lancaster County, Pa., Judge Louis J. Farina when the proposed settlement was struck with all four defendants — Bankers Standard Insurance Co.; Pacific Employers Insurance Co.; ACE P&C and ACE American Insurance Co. All four of the defendant companies are wholly owned subsidiaries of ACE INA Holdings Inc., which is in turn owned by ACE Ltd., a Cayman Islands company based in Bermuda but traded on the New York Stock Exchange. In the suit, Highland represented a class of employers who originally purchased workers’ compensation policies in the late 1990s from CIGNA Corp. The suit said the policies were provided by two CIGNA subsidiaries — Bankers Standard and CIGNA Property and Casualty Insurance Co. — and were sold as “guaranteed cost retention dividend” policies. According to the suit, the policies offered employers the prospect of partial premium refunds in payments called “dividends,” depending on an insured’s loss ratio during the policy year. The suit said CIGNA “emphasized the dividends in marketing the policies” by giving each insured a document called a “net cost exhibit,” which correlated specific loss ratios with specific dividends for that insured. Under the policies, the loss ratios and dividends were to be calculated 15 months after the policy period ended. As a result, the suit said, the policies “contemplated a total relationship of 27 months between CIGNA and its insured: 12 months for the policy year and 15 additional months for the loss ratio/dividend calculation.” But in late 1998, the suit said, CIGNA sold the policies while they were still in effect to ACE Ltd. as part of a $3.45 billion sale of CIGNA’s property and casualty business. ACE has since filed suit against CIGNA alleging that the sale price was “inflated.” But Roda contends in the class action suit that ACE took out its anger against CIGNA on the policyholders by refusing to honor the promises made in the policies. Soon after the sale, the suit said, ACE announced that it would not renew any of the workers’ compensation retention dividend policies and that it would not be paying out any dividends — regardless of loss ratios. Roda said ACE attempted to justify its decision on the grounds that the CIGNA division through which the policies were handled was not “profitable.” In the suit, Roda flatly refuted ACE’s alleged justification. “There was no condition in the contracts … that this division had to be profitable in order for dividends to be paid,” the suit alleged. The suit alleged that the “real reason” for ACE’s refusal to pay the dividends was that it “never intended to pay dividends in the first place, because it saw the non-payment of those dividends as a convenient way to ‘recapture’ part of the inflated purchase price that it paid CIGNA. In an alternative theory of ACE’s motive, the suit alleged that ACE “decided not to pay the dividends after it discovered what it has alleged to be fraud on the part of CIGNA, for which ACE Ltd. has now sued CIGNA Corporation and CIGNA Holdings.” ACE filed suit against CIGNA in U.S. District Court in New York, seeking $218 million in damages. The federal suit alleges that CIGNA breached its purchase agreement with ACE by withholding $49 million due to ACE under a tax-sharing agreement among CIGNA and its subsidiaries, and that it failed to represent the true financial condition of the CIGNA companies that ACE had acquired. In the Lancaster County suit, the ACE defendants were represented by attorney Paul R. Koepff of O’Melveny & Myers in New York, with attorney Robert M. Frankhouser of Hartman Underhill & Brubaker in Lancaster acting as local counsel. Roda said the dividends that ACE refused to pay ran from the last quarter of 1999 through the first quarter of 2002. He said ACE had estimated that the unpaid dividends totaled about $14 million — roughly the same amount that ACE has now agreed to pay in the settlement. The case was assigned at the outset to Farina, who managed the case throughout four years of litigation and was “ultimately instrumental in getting it settled,” Roda said.

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