Keeping lawsuits mum
exposes estate, says
former Bishop official

The trust is vulnerable to millions
in damage claims and legal fees

By Bruce Dunford
Associated Press

The $10 billion Bishop Estate trust that supports Kamehameha Schools is exposed to hundreds of millions of dollars in damage claims and millions of dollars in legal fees because trustees wanted to keep a lid on embarrassing lawsuits, according to a former executive of the trust.

Failure to disclose details of these lawsuits to insurance companies jeopardized insurance coverage of damage judgments or settlements as well as legal fees in defending against them, said Bobby Harmon, who headed the estate's insurance program until last year.

Harmon, who was fired last November as president of the estate's for-profit captive insurance subsidiary, P&C Insurance Co. Inc., has been talking to state attorneys investigating allegations of irregularities in the management of Bishop Estate by its five trustees.

Gov. Ben Cayetano ordered the probe.

The Bishop Estate won't respond to Harmon's specific allegations but is prepared to challenge them in court, said estate spokeswoman Elisa Yadao.

The estate's 1989 $85 million investment in McKenzie Methane Inc., a Houston-based energy venture in which several trustees and estate executives piggybacked another $3 million of personal investment, resulted in a $2.3 billion lawsuit brought in Texas in 1993 against the trustees, the Bishop Estate and other investors.

The venture went into bankruptcy, whittling Bishop Estate's investment down to some $20 million, according to attorneys in Texas.

The estate, its involved subsidiaries, the trustees and estate officers were entitled to legal defense under United Educators Insurance Co., which carries the estate's legal liability policy, Harmon said.

Despite repeated efforts of the insurance company's claims manager to get details on the lawsuit from Bishop Estate's top attorney, Nathan Aipa, no information was provided and the company closed its files, not paying some $500,000 in legal fees that would have been covered, Harmon said.

It could also foreclose the insurance company paying for a settlement or judgment, he said.

Another $500,000 was spent defending against a $86.7 million lawsuit brought in 1995 by movie producer Fredrick Field stemming from his partnership with Bishop Estate in investments dating to 1984, Harmon said.

Actor Wayne Rogers, an investment partner with Bishop Estate and several trustees in Kona Enterprises, filed a lawsuit in North Carolina in 1993 that was not reported to United Educators, which therefore paid no defense costs, Harmon said.

Although a subsequent lawsuit filed in Utah was reported to the insurance company, the company disallowed many of the legal fees due to noncompliance with the policy terms, he said.

U.S. District Judge David Ezra dismissed Rogers' lawsuit last year, but his ruling was reversed on appeal, and the case remains pending.

Total costs of defending Rogers' lawsuit could have been limited to Bishop Estate's $250,000 self-insured retention, Harmon said.

While the total costs of the defense covered by insurance are not yet known, one Honolulu firm, Cades Shutte Fleming & Wright, had billed the estate more than $750,000 as of September of last year, he said.

A lawsuit was brought in March of 1996 by members of the exclusive Robert Trent Jones Golf Club near Washington, D.C., in which Bishop Estate was a development partner and guarantor on a $40 million loan.

Bishop Estate trustee Henry Peters became a director and trustee of the golf club and negotiated the sale of the golf course and adjacent residential property to club members, according to the lawsuit, which has since been settled.

The lawsuit says those buying memberships were not informed that the club was stuck with the $33 million development loan from Bishop Estate.

Harmon said he doesn't know who paid for the legal defense fees in that case or how much they totaled.

Yadao said Harmon was fired last year for work-associated misconduct and therefore was denied unemployment compensation.

Harmon is seeking up to $1.8 million in compensation from Bishop Estate for what he claims was his wrongful termination.