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Friday, June 25, 1999



New firm takes
PGMA case

Kobayashi Sugita & Goda
will lead the efforts to recover
$27 million from failed health
insurer PGMA

By Ian Y. Lind
Star-Bulletin

Tapa

State Insurance Commissioner Wayne Metcalf has dropped two law firms leading the legal effort to recover assets of the failed health insurer Pacific Group Medical Association.

All PGMA-related cases and files have recently been transferred to the law firm of Kobayashi Sugita & Goda, although the change has not yet been recorded in court, Metcalf confirmed this week.

The Kobayashi firm is one of the 10 largest in the state, with about 30 attorneys.

Metcalf declined to publicly discuss the reasons for the sudden change, but court records indicate rapidly mounting legal fees were a potential problem.

Metcalf said the move would not delay the complicated series of legal actions, which includes liquidation of PGMA and several related lawsuits against the insurer's officers, directors, accountants, lawyers and insurers.

"This doesn't affect our determination to recover all sums owed creditors. We intend to be very aggressive in our pursuit of all legal claims," Metcalf said.

The insurance commissioner serves as the court-appointed liquidator of PGMA's remaining assets, as provided by state law.

PGMA was insolvent when seized by state regulators in March 1997, leaving an estimated $27 million in outstanding bills.

The company once provided health insurance coverage to 28,000 island residents, including thousands of members of the two largest public employee unions, the Hawaii Government Employees Association and the United Public Workers, which offered PGMA plans directly to their members.

More than 10,000 individuals, companies and medical providers are known to have outstanding claims against PGMA, court records show.

Metcalf was reappointed to the state's top insurance post after his predecessor, Rey Graulty, was named a Circuit Court judge by Gov. Cayetano earlier this year.

The law firms hit by Metcalf's decision were both selected by Graulty.

Attorneys Don Gelber and Simon Klevansky of Gelber Gelber Ingersoll Klevansky & Faris did the bulk of the legal work after PGMA collapsed more than two years ago.

A second law firm, Davis Levin Livingston and Grande, was brought into the case in September 1998 to assist in the litigation.

Gelber declined to comment, and Mark Davis could not be reached for comment.

Gelber's firm had received $644,000 in legal fees through October 31, 1998, and may have earned an additional $200,000 since that time, court documents show.

Also, the Davis firm was promised legal fees of $150 an hour plus a contingency fee of 23 percent of any amounts they successfully recovered, Metcalf said. Fees paid to the Davis firm have not yet been disclosed in court records.

In legal notices describing the procedure for filing claims against PGMA, Metcalf says funds are not available at this time to pay off the insurer's debts, and any future payments will depend on the outcome of "time-consuming and uncertain" litigation.

Thomas Hayes, a financial investigator serving as special assistant to Metcalf, said this week that a tentative settlement with a reinsurer promises to boost available funds by $3.25 million.

But another company that provided a $5 million liability insurance policy for PGMA's officers and directors has filed suit in federal court to rescind the policy and block any payout.

The company, Executive Risk Indemnity Inc., claims PGMA "made material misrepresentations, materially incorrect statements and omitted or concealed material facts" when applying for insurance.

Executive Risk also pointed to repeated allegations of fraud that have surfaced in court proceedings as further reason for rejecting claims against its policy.

Hayes has repeatedly alleged in court filings that millions of dollars were fraudulently diverted from PGMA into a network of for-profit companies controlled by PGMA founder Peter P.S. Wong.



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