OMAHA, Neb.-Berkshire Hathaway Inc. said federal investigators have made several requests for information from Berkshire subsidiary General Reinsurance Corp. related to an investigation of Glen Allen, Va.- based Reciprocal of America, a malpractice insurer that was seized by Virginia regulators in 2003 and subsequently put into liquidation.
According to a filing made Tuesday by Berkshire with the Securities and Exchange Commission, in October 2003, Gen Re and four of its current and former employees, including its former president, received subpoenas for documents from the U.S. Attorney in Richmond, Va.
In December 2004 and on several occasions since then, the U.S. Attorney and the Department of Justice in Washington requested additional information concerning ROA and its related offshore reinsurer, First Virginia Reinsurance Ltd., as well as information related to transactions between Gen Re or its subsidiaries and other insurers, according to the SEC filing.
Gen Re has been cooperating fully with the ongoing investigation, according to the SEC filing, which also says it cannot predict the investigation’s outcome, nor whether it will have a material adverse effect on its financial statements.
ROA had three related Tennessee-domiciled risk retention groups, also now in liquidation, that reinsured virtually all of their business with ROA. In turn, ROA retroceded most of the business to Gen Re.
Gen Re acted only as a fronting reinsurer, though, ceding the business to First Virginia, a Bermuda-based captive controlled by Reciprocal Group officers, according to court records. Gen Re withdrew as ROA’s reinsurer and commuted its contracts with First Virginia Re in early 2002.
In 2003, Virginia Insurance Commissioner Alfred W. Gross, ROA’s deputy receiver, filed a 121-page complaint that leveled racketeering charges against former ROA executives, Gen Re, auditor PricewaterhouseCoopers L.L.P., actuarial consultant Milliman USA Inc. and several others in U.S. district court in Richmond.
The suit charged that the defendants participated in schemes designed to evade regulator scrutiny and cover up ROA’s deteriorating financial condition by entering into undisclosed reinsurance arrangements, recording false assets in the insurer’s books and doctoring ROA’s reserve levels.
Similar litigation was filed by Tennessee Insurance Commissioner Paula Flowers in U.S. district court in Memphis in 2004 on behalf of the three RRGs’ policyholders. Both suits are now in federal court in Memphis, where class action lawsuits filed on behalf of the risk retention groups’ policyholders also have been filed.
Jay Aughtman, an attorney with Montgomery, Ala.-based Beasley, Allen, Crow, Methvin, Portis & Miles P.C., which is representing the Tennessee Insurance Department in the litigation, said U.S. District Court Judge Daniel Breene is expected to rule in May on motions filed by the defendants to dismiss the litigation.
Last month in federal court in Richmond, meanwhile, former ROA President and Chief Executive Officer Kenneth R. Patterson and former ROA Executive vp Carolyn B. Hudgins pleaded guilty to conspiracy to commit insurance fraud.
Mr. Patterson also pleaded guilty to two counts of mail fraud. Sentencing is scheduled for June 28.