Spitzer subpoenas St. Paul Travelers

Insurer is among 6 probed over policies for lawyers

Dropped coverage alleged

December 11, 2004|By BLOOMBERG NEWS

St. Paul Travelers Cos. Inc., the second-largest U.S. commercial insurer, said yesterday that it received a subpoena from New York Attorney General Eliot Spitzer about malpractice insurance sold to lawyers.

St. Paul Travelers is the biggest insurer among at least six that have disclosed the subpoenas.

Spitzer's antitrust investigators are probing lawyers' concerns that insurance companies may have improperly dropped liability coverage for class action attorneys, whom insurers blame for driving up the cost of litigation claims.

The subpoenas show Spitzer continues to expand his investigation of the insurance industry that began with accusations of bid-rigging and kickbacks among brokerages.

The attorney general, who is a Democratic candidate for governor of New York in 2006, has sued two brokerages and sent dozens of subpoenas.

"Every couple of weeks there's some new area," said Touk Sinantha, an analyst at Ariel Capital Management, which oversees about $18 billion in Chicago, including 5.6 million St. Paul Travelers shares as of September. "The question is whether it's an isolated case or more widespread."

St. Paul Travelers disclosed on Oct. 28 that the attorney general of Connecticut had subpoenaed information in an investigation of alleged bid-rigging and kickbacks in the insurance industry. The company, based in St. Paul, Minn., has significant operations in Baltimore, employing about 700 workers in the area.

St. Paul Travelers shares rose 24 cents to $36.85 on the New York Stock Exchange. They have fallen 7.1 percent this year, compared with a 4 percent gain in the Standard & Poor's 500 Insurance Index.

CNA Financial Corp., General Electric Co.'s Employers Reinsurance Corp., Hartford Financial Services Group Inc., American Financial Group Inc. and Arch Capital Group Inc. have also received subpoenas about the coverage. All six have said they will cooperate with the requests.

Insurers have sparred with plaintiffs' attorneys over efforts to limit damage awards and legal fees.

Class action lawsuits have surged since the collapse of companies such as Enron Corp. in 2001, driving up costs for insurers.

Robert P. Hartwig, chief economist for the industry-sponsored Insurance Information Institute in New York, said there was nothing inappropriate about insurers backing away from policies covering class action lawyers.

The average cost of claims from shareholder lawsuits rose 12 percent this year from 2003, according to a survey this week by Tillinghast-Towers Perrin on insurance for company directors and executives.

Spitzer has interviewed lawyers at several firms in the National Association of Shareholder and Consumer Attorneys over the past few weeks, according to the trade group's president, Fred T. Isquith.

Lawyers in the association started having difficulty in renewing their malpractice coverage about two years ago, Isquith said.

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