St. Paul executive says company didn't cheat W.Va. doctors

CHARLESTON – Jay Fishman, chief executive officer of St. Paul Travelers insurance, swore to a Kanawha County jury that his company did not cheat West Virginia doctors out of millions of dollars when it stopped selling medical malpractice insurance.

"We did nothing wrong," Fishman testified Jan. 12 in the trial of a class action suit before Circuit Judge Paul Zakaib Jr.

In the suit, doctors Eric Mantz, Willis Trammel and Todd Witsberger allege that in 2001 the insurer, then named St. Paul Fire and Marine, withdrew from the malpractice market in a plot to convert a portion of doctors' premiums to the company's own uses.

Fishman told jurors it did not happen that way. He told them St. Paul withdrew because it faced years of big losses on malpractice claims.

"The company was beginning to lose its credibility in the financial marketplace," he testified. "It was just beginning to run out of time."

He said, "These are not little decisions. These are big time decisions."

Fishman took the stand although the doctors did not compel his testimony by subpoena.

"I don't have to be here," he said, speaking directly to the six jurors and four alternates in Zakaib's courtroom.

He said he came to Charleston because accusations against the company upset him.

St. Paul, prior to its withdrawal, offered a "reporting endorsement" that would keep a policy in force after a doctor's death, disability or retirement, at no further charge.

For this benefit, nicknamed "tail coverage," Mantz, Trammell and Witsberger paid a two percent surcharge on quarterly premiums.

After St. Paul withdrew, the three doctors closed their private surgical practice and joined the West Virginia University faculty.

They applied for tail coverage. St. Paul billed them for it.

The doctors retained former Supreme Court of Appeals Justice Richard Neely. He filed suit in 2002, arguing that his clients deserved free tail coverage.

Zakaib in 2003 certified the plaintiffs as representatives of a national class of about 43,000 doctors. Last year, he limited the class to about 1,240 West Virginia doctors.

Neely, in a pretrial memorandum, predicted that a jury would award class members about $5.3 million in compensatory damages and $45 million in punitive damages.

Neely intended to convince jurors that on Dec. 7, 2001, when St. Paul announced it would withdraw from the market, its executives had planned for months to withdraw.

Fishman countered this charge by testifying that before Oct. 11, 2001, when he took over the management of the company, leaving the market was not an option.

Two days before the announcement, he said, his managers still pursued ideas for staying in the market.

Neely did not question Fishman. That job fell to John B. Williams, of the Jones Day firm in Washington, D. C.

Williams displayed a St. Paul advertisement that stressed its financial credibility and stability. He asked if it was important for doctors to know about that. Fishman said yes.

Williams asked if it was important for doctors to now that an insurer would stay in business in their state. Fishman said, "Less so, sire."

Fishman said someone who buys automobile insurance would not ask an agent if the company plans to stay in business in that state.

He said, "You take it for granted that if that company is no longer there, you will buy from someone else."

He said it was important to know that a company has the wherewithal to pay claims. He said some companies go out of business and still pay claims.

Williams asked how important tail coverage was, on a scale of one to ten. Fishman said, "Five."

Williams quoted a document on terms and conditions, but when he asked for a comment Fishman said the document apparently was written before 1995.

Fishman said, "These are very old terms and conditions and this is an old document."

Williams quoted a company statement on commitment to markets and said, "One day you're committed and the next, you're not?"

Fishman said, "Companies have strategies." Williams demanded a yes or a no. Fishman said, "Yes. I recommended to the board that we change strategy December the seventh."

Williams asked if it was okay to say they were committed while they thought about not being committed. Fishman said, "To say otherwise would have been misleading." He said until December, they tried to find a way to stay in the business.

Williams asked if they considered leaving before that. Fishman said no. He said they evaluated it.

Williams said, "What is the difference between consider and evaluate?" Fishman said evaluation was an analytical process of assembling facts.

Fishman said, "December fifth, we had meetings where we were still making decisions that day to stay in the medical malpractice business."

Williams asked how long Fishman's predecessor, Doug Leatherdale, had been chief executive officer. Fishman said about 15 years.

Williams asked Fishman if he said that under Leatherdale, leaving was not an option. Fishman said, "Everything I know would tell me that that is correct."

Williams gave Fishman a consultant's report of May 5, 2001. Williams said it cost $5 million. He asked Fishman if he had ever seen it. Fishman said he did not think he had.

Williams showed jurors that a headline on page 27 said, "Option 1: Exit." He asked Fishman, "Is it still your testimony that leaving was not an option?"

Fishman said, "To spend five million on a study without an analysis of every option would be ridiculous."

Williams asked if management rejected the exit option. Fishman said, "Management to my knowledge never considered the exit strategy."

Williams asked Fishman when he started to consider an exit. Fishman said, "Doug Leatherdale was never going to accept an exit strategy and it was my recommendation to the board that made the difference."

Williams asked what "runoff" meant. Fishman said it meant an insurer would not issue new policies or renew old ones, but it would not cancel premiums and it would pay claims as long as there were claims.

Williams asked for an explanation of reserves. Fishman said they were an estimate the company was required to make of losses.

Williams asked for an explanation of reserves for tail coverage. Fishman said they were an estimate of the cost of providing free reporting endorsements. He said the rules for them were very complex.

Williams asked if St. Paul received complaints over its withdrawal. Fishman said he was sure it did.

Williams asked if St. Paul internally discussed its position. Fishman said St. Paul looked at the facts and determined that it had done nothing wrong, that it owed no refunds, and that it had gone above its duty to policyholders.

Williams displayed an internal e-mail from Kevin O'Brien stating that requiring all doctors to pay for tail coverage was "an argument we would ultimately lose."

Fishman said he did not know Kevin O'Brien and had never seen the e-mail.

"I don't know if Kevin O'Brien was involved in decisions," Fishman said. "This was never presented to me and I am the decision maker."

Williams said he had no further questions.

Defense attorney Neil Dilloff, of Baltimore, told Fishman he had testified for two and a half hours about things that happened before he showed up.

Dilloff asked Fishman why he had come. Fishman said, "We did nothing wrong. We actually went above and beyond."

He said St. Paul made its exit from West Virginia with the blessing of the state insurance commissioner.

"I don't have to be here," he said. "I was upset that we were accused."

As late as June 2003, he said, St. Paul extended coverage of West Virginia doctors at the request of the insurance commissioner.

Dilloff asked a series of questions to allow the jurors get to know the witness. Fishman testified that he was born in the Bronx, his father ran a print shop, and his sister was the first person in the family to go to college.

He said he graduated from the University of Pennsylvania in 1974, and passed a certified public accountant examination.

He said he worked for Coopers and Lybrand accounting firm, American Can Company, and Shearson Lehman Brothers investment firm.

He said that in 1989, he became chief financial officer for the consumer finance section of Primerica Bank, now Citigroup. He said he became one of the top ten managers in a bank with about 300,000 employees.

Dilloff asked why he took the job at St. Paul. Fishman said he wanted to be "the guy who made sure the payroll got met at the end of the week."

Dilloff asked if he stayed current on certified public accounting. Fishman said he did not. He said, "My CPA stands for cleaning, pressing and alterations."

Dilloff asked if he talked to Leatherdale about medical practice. Fishman said he did not. Dilloff asked why not.

Fishman said, "I knew Doug was committed to medical malpractice. St. Paul had once been the largest writer of medical malpractice in the United States. His view on it was biased. It was really an attachment."

Dilloff asked if St. Paul wrote other business. Fishman said it wrote substantial personal and commercial business. He said St. Paul Travelers earns about $20 billion a year in premiums. He said it is the nation's second largest commercial insurer.

Dilloff asked if St. Paul Travelers does business in West Virginia. Fishman said, "In virtually all the lines we are in."

Dilloff asked if he did homework on the company before taking the job. Fishman said he read in the annual report for 2000 that medical malpractice was a difficult problem.

Dilloff asked if West Virginia doctors had computer access to the annual report. Fishman said yes.

Dilloff asked what happened from Oct. 11 to Dec. 7, to lead to his decision. Fishman said the company's results were disappointing and he came to fix that. He said he ordered a 60 day study of every line of business.

Dilloff asked if managers held differing views about staying in, partially withdrawing or withdrawing. Fishman said, "Yes, and their thinking changed as information came together. It was a tough call. These are not little decisions. These are big time decisions."

Dilloff displayed a chart showing that St. Paul lost more than $1 billion on medical malpractice from 1997 to 2001. He asked if St. Paul lost $1.50 for every dollar it took in. Fishman said that from 1998 to 2001 it did.

Dilloff said that to a big company, a billion dollars might not be much. Fishman said St. Paul's lost $600 million in the attacks of Sept. 11, 2001.

He said, "We insured a portion of the World Trade Center building and we insured a lot of the shops." He said St. Paul carried workers compensation on injured workers.

He said the company had lost credibility with Wall Street, banks and rating agencies. He said, "It was just beginning to run out of time."

Dilloff displayed a list of 12 jury awards greater than $20 million in medical malpractice cases, with a $269 million verdict at the top.

Fishman said jury awards and settlements escalated from an average of less than $400,000 in 1994 to more than $800,000 in 1999.

Dilloff displayed minutes of the Dec. 7 meeting in which the board withdrew from medical malpractice. Fishman said, "I did not see any opportunity for the business to be successful, not even in any segment."

Dilloff asked who watches over the reserves. Fishman said independent accountants, the Securities Exchange Commission, the Internal Revenue Service, state insurance commissioners and the National Association of Insurance Commissioners.

Dilloff asked if insurance commissioners and the IRS view reserves differently. Fishman said, "They are actually 180 degrees in different directions."

He said regulators want reserves as high as possible, but higher reserves mean less taxable income. IRS, he said, often asks to reduce reserves.

Dilloff asked if St. Paul tried to sell its malpractice line. Fishman said, "We attempted to sell it to virtually anybody at virtually any price." He said, "Any price was actually better than keeping it and running it off ourselves."

Dilloff asked if St. Paul still pays claims of West Virginia doctors. Fishman said that since 2002 it has paid $55 million.

Dilloff displayed a press release that announced the withdrawal. It showed that St. Paul increased reserves by $600 million and planned to add $450 million more to reserves the next two years.

Dilloff asked what that meant. Fishman said, "To increase reserves you have to take a charge against your earnings. That reduces your capital. It reduces your net worth. It reduces your earnings."

Dilloff said he had no further questions.

Williams stood and asked Fishman if he understood that the doctors did not challenge the decision to exit. Fishman said yes.

Williams asked if people below the chief executive officer discussed an exit. Fishman said, "I'm sure they did. You would have to be an idiot not to at least ask the question."

The trial would continue with many more witnesses, but by the time Fishman finished the jurors had heard the star witness for each side.

Lead plaintiff Eric Mantz had testified a day before Fishman. Mantz's lawyer, Neely, began the examination by drawing out personal facts.

Mantz said his father was a surgeon for 35 years, and was medical director at St. Francis. He said he graduated from Washington and Lee University, and from the West Virginia University medical school.

He said he practiced five years at Tulane University's Charity Hospital of Louisiana, caring for indigent patients. He said he set up practice in Charleston in 1978.

Mantz said, "I'm a people person. I like to deal with people, dealing with emotional highs and lows, dealing with good news and bad news."

Neely asked what form his business took. Mantz said he started with Trammell. He said Dan Foster joined them in 1979 and Todd Witsberger joined them in 1992. He said they practiced as Charleston Surgical Group.

Neely asked if Foster retired. Mantz said, "He stopped patient care but he was employed full time." Neely asked if Foster held political office. Mantz said Foster was a Senator.

Neely asked Mantz why he left private practice. Mantz said, "At the time St. Paul abandoned us, we had options available to us to decide what to do."

Neely asked what malpractice policy he carried in 1997. Mantz said he carried an MMI policy through local insurance agency Commercial Insurance Service.

Neely asked what happened to MMI. Mantz said St. Paul bought it.

Neely asked if St. Paul raised the rate. Mantz said his annual premium went from $26,709 with MMI to $59,946 with St. Paul.

Neely displayed a letter from Mantz's agent, dated Dec. 19, 2000. It said, "Although the price is 'ugly,' I'm thankful your group has a viable renewal with a carrier providing impeccable financial security to you and your group."

Neely displayed a letter from the agent dated May 4, 2000, announcing St. Paul's purchase of MMI. It said, "St. Paul needed MMI and MMI needed St. Paul." It said MMI gained an asset base and a surplus to weather cyclical trends.

Neely asked what he thought. Mantz said, "I was very surprised that they did the purchase and very surprised that they got into the market for high risk services."

Neely asked him to explain tail coverage in his policy for 2001. Mantz said that for any suit arising after 2001, St. Paul would cover it with no additional premium.

Mantz said, "I assumed that this would be ongoing year to year, that at some point in time I would be able to make use of it."

Neely displayed a letter Mantz wrote to West Virginia Attorney General on Sept. 2, 2001, after St. Paul announced that it would no longer insure general surgeons.

"I was dumbfounded," Mantz said. "Why would they enter a market and then leave?" He said, "To me this looked like a scam."

Neely asked what happened at the end of the year. Mantz said he had an option to buy tail coverage from St. Paul or from a new plan that the Legislature created.

He said he chose St. Paul because it offered three years to pay, with interest.

Neely asked how much St. Paul charged. Mantz said more than $89,000. With interest, he said, the charge came to more than $100,000.

Neely displayed a letter Mantz wrote to a deputy insurance commissioner, dated Oct. 4, 2001, asking if the state could cover the surgical group as unpaid university faculty. Neely asked if he was offered a hearing. Mantz said no.

Neely displayed a letter Mantz wrote to the Attorney General, dated Jan. 5, 2002, after St. Paul withdrew completely from medical malpractice.

"I wanted some answers," Mantz said. "I never got any explanation of how these things happened. I questioned whether there was illegality."

Neely asked if he got a response. Mantz said no.

Neely asked if the withdrawal caused a public problem. Mantz said, "It was devastating."

Neely asked if the Legislature responded. Mantz said it formed a program that offered stopgap coverage.

Neely asked if he worked through his agent to find an insurer. Mantz said, "People that were contacted at that time were not taking any new customers."

Neely turned the witness over to defense attorney Michael Farrell of Charleston.

Farrell said, "This is about money? Are you asking this jury to award money to this class of doctors?" Mantz said yes.

Farrell said, "This is not about any suffering. It's not about any inconvenience you may have had. It's about money. Is that correct?" Mantz said yes.

Farrell said that according to Mantz's lawyer, the case was about two percent. He said, "The other 98 percent, you got exactly what you paid for?" Mantz said, "I can't say."

Farrell said, "Is it about the two percent - yes or no?" Mantz said, "Two percent."

Farrell said two percent of his 2001 policy equaled $1,198.92. He asked Mantz to check his math. Mantz checked it. Farrell said, "I'm right?" Mantz said yes.

Farrell asked if the 2001 policy was his only policy ever with St. Paul. Mantz said yes.

Farrell asked if he was sued eight times before St. Paul insured him. Mantz said, "That is correct. Those were claims, yes."

Farrell asked if Insurance Corporation of America said it would not renew his policy because he had too many claims. Mantz said that was true.

Farrell asked if ICA went into liquidation. Mantz said, "I don't know the details. I know they went out of business."

Farrell asked if PIE insured him. Mantz said it did. Farrell asked if PIE went bankrupt. Mantz said yes.

Farrell asked if he had five insurers before St. Paul. Mantz said yes. Farrell said, "Two out of five went bankrupt. Was the litigation climate mildly adverse or very adverse?" Mantz said, "I would say it was very adverse."

Farrell said, "There were so many suits that doctors were thinking of leaving the state?" Mantz said that was correct.

Farrell asked if he had to carry $1 million of coverage to practice at any hospital. Mantz said, "That was a requirement, yes."

Farrell said even if insurance was not required, he would need it to protect his home, car and bank accounts from exposure. Farrell said, "Do you have millions and millions of dollars that you could pay off judgments if somebody sued you?" Mantz said no.

Farrell said, "You worked hard for what you got and you want to keep it?" Mantz said that was correct.

Farrell said, "St. Paul gave you protection that was essential to your being a doctor?" Mantz said yes.

Farrell displayed a list of options that Mantz's agent wrote in 2000. It showed that Medical Assurance "declined to quote due to claims."

Farrell said, "Did that come as a surprise to you?" Mantz said no. He said, "They had basically stopped insuring any new people."

The list showed that PHICO declined to quote due to claims. Farrell said, "He told you to your face, didn't he?" Mantz said yes.

The list showed SCPIE as "quote pending." Farrell asked if he ever got a quote. Mantz said he did not know.

Farrell said, "The only company willing to insure you was St. Paul? All these boxes in here and not one document says any other company was willing to insure you. Isn't that true?" Mantz said, "That's true."

Farrell quoted Mantz's Sept. 2 letter to the Attorney General that St. Paul's actions appeared "devious and perhaps fraudulent." Mantz said, "I was asking for information."

Farrell said, "You are not asking for information. You are asking for an investigation." He asked what facts Mantz wanted them to investigate.

Mantz said St. Paul presented itself as a strong leader and then, a year later, it left. He said, "Why come in at all? It seemed on the surface they were coming in to scoop up a bunch of profits and then leave."

Farrell said, "Where would you have been without St. Paul? If St. Paul had not insured you and no one else would have, where would you have been?"

Mantz said,"I would have had to take one of those other options."

Farrell asked if Charleston Surgical Group would have ceased to exist. Mantz said they could have continued as primary care physicians, doing minor surgery.

Farrell said, "But that is not what you are about. You all wanted to be surgeons." Mantz said, "That would have been our first choice."

Farrell quoted Mantz's letter asking the Attorney General to investigate whether St. Paul "defrauded subscribers or used underhanded tactics."

Farrell said, "The Attorney General never even responded?" Mantz said, "There was basically no follow up."