Hartford Financial Services Group Inc. (HIG:US) went to trial in a lawsuit by a Texas lawyer who accuses the insurer of causing him to be prosecuted on bribery charges that were dropped after a mistrial.
The negligence lawsuit includes the lawyer’s accusation that the company’s former general counsel, Neal S. Wolin, now U.S. deputy treasury secretary, took part in a cover-up linked to alleged extortion by two employees, according to court filings.
Todd Hoeffner, the lawyer seeking $25 million in damages, sued the Hartford, Connecticut-based insurer in state court in Houston. Wolin, who isn’t named as a defendant in the lawsuit, testified against Hoeffner in a 2009 criminal trial that ended with a deadlocked jury. Wolin’s testimony will be part of the jury trial that began today with opening statements by lawyers.
Hoeffner was charged with making illegal payments to two claims processors to get inflated insurance settlements for clients suffering from silicosis. The charges followed an internal company investigation ordered by Wolin and given to federal prosecutors, according to court records.
Jurors at the 2009 trial couldn’t reach a verdict. Hoeffner, later faced with new charges that didn’t include bribery, agreed to pay prosecution costs and the criminal case was dropped.
Hoeffner sued Hartford in October 2011 on claims the insurer lied to the government about him. The motive, he said, was to hide the claims processors’ extortion of $3 million from the portion of the settlements paid to him as legal fees. He accuses Hartford of negligence, economic duress, interference with his attorney-client relationships and intentional infliction of emotional distress.
Hartford protected the employees to keep them from telling regulators the company lacked sufficient cash reserves to pay asbestos-related claims at the time of the scheme, and Wolin participated in the cover-up, Hoeffner said in court filings.
Wolin, through his attorney, denied Hoeffner’s allegations and said that when he learned of what appeared to be a bribery scheme involving rogue workers, he ordered company investigators to dig into the matter.
“He directed them to investigate the facts no matter where those facts led them, and if they deemed it appropriate, to refer the matter to law enforcement authorities for a full and complete investigation,” James E. Rocap, Wolin’s lawyer, said in an e-mail. “Any assertion to the contrary is ridiculous.”
Wolin left Hartford in early 2009 to become an adviser in President Barack Obama’s administration. He was named to the second-highest ranking post at the Treasury in May 2009.
As the No. 2 official behind Treasury Secretary Timothy Geithner, Wolin has helped lead the department’s efforts on the Dodd-Frank Act financial overhaul.
Chris Flood, Hoeffner’s lawyer, said in court papers that the internal probe “resulted in Hoeffner being indicted on bribery/kickback allegations that the government later abandoned because they were not true.”
“These charges ruined life as Hoeffner knew it and have destroyed his legal career,” Flood wrote.
Hoeffner, 48, said in court filings he was the victim of extortion by claims processors.
The processors, Rachel Rossow and John Prestage, demanded part of his 40 percent contingency fee from silicosis settlements with their company and threatened to scuttle his other agreements, Hoeffner said in court filings. He said he paid the two about $3 million including two $50,000 BMW automobiles, from 2002 to 2004 so they would recommend $34 million in settlements for hundreds of clients.
Hoeffner said in court filings that he believed Rossow’s threats because she was having an affair with her boss, an executive with veto power over all such settlements.
Hartford said in court papers that “Hoeffner had many options other than to give in to the criminal extortion,” which it maintains was actually a bribery scheme he concocted. Tainted settlements earned Hoeffner millions of dollars in fees beyond the $3 million he shared with Rossow and Prestage, the company said in court filings.
“This is a cynical attempt by a manipulative lawyer to turn common sense on its head,” Bob Schick, Hartford’s attorney, told jurors today. “He has no right to suggest he’s the victim here. He was playing this game freely and willingly.”
Hartford added $2.6 billion to its asbestos reserves in 2003 and strengthened them by $262 million in 2004, according to a filing with the U.S. Securities and Exchange Commission.
Flood told the jury of 10 women and two men today that Rossow’s lover and boss, David Cain, calculated that Hartford’s asbestos reserves were $7 billion too low in 2003, a time when most insurers were scrambling to set aside enough cash to cover such claims.
Hartford “buried” that first study, destroyed all evidence of it, and commissioned another showing the asbestos reserve shortfall was about $2 billion. When the payments from Hoeffner were discovered, Flood said Hartford chose to protect Cain to keep him quiet about the asbestos reserves.
“Hartford decided it couldn’t allow its senior vice president to be criminally charged in an extortion scheme, knowing what he knows,” Flood told jurors. “So there was an effort by the Hartford to call this a bribery and kickback scheme.”
“There is no evidence to support Hoeffner’s allegations,” Thomas Hambrick, a Hartford spokesman, said in a phone interview before the trial. He declined to comment specifically on the company’s asbestos reserves at the time.
Andy Drumheller, a lawyer for Cain, didn’t immediately respond to phone and e-mail messages today seeking comment on Flood’s statement. Drumheller didn’t respond to calls earlier this week seeking comment on the case. Cain hasn’t been charged with any wrongdoing.
Rossow and Prestage pleaded guilty in 2010 to conspiracy to commit mail and wire fraud. Each was sentenced to one year of probation, according to court records. Rossow’s lawyer, Dan Cogdell, didn’t respond to calls and e-mails seeking comment on Hoeffner’s lawsuit.
Prestage is expected to testify via video in Hoeffner’s civil case, according to his lawyer, Paul Nugent, who declined to comment further.
According to court filings, Hoeffner testified in the 2009 trial that he agreed to the processors’ demands to settle hundreds of claims before such cases could exhaust the carrier’s coverage.
“In protecting his client’s rights, he has suffered for decisions he should not have been forced to make,” Flood said in court papers.
In a 2004 internal draft memo reviewing Hoeffner’s settlements, the company described the deals as inflated and inappropriate, according to evidence produced in the criminal trial. The report, which the company said was never finished, was later given to prosecutors who used it in their case against Hoeffner, according to court records.
Wolin testified in 2009 that he hadn’t seen the document that Hoeffner’s lawyers call the Wolin Memo. He said the company determined that its settlements with Hoeffner’s clients were fair and reasonable.
The former general counsel testified that he did nothing wrong and followed company policy by turning the company’s findings over to law enforcement.
By the end of the five-week trial, the government had stopped referring to bribes and kickbacks and unsuccessfully moved to have the terms deleted from a copy of the indictment given jurors. Jurors deadlocked on charges of conspiracy, fraud and money-laundering.
After the mistrial, prosecutors sought to retry Hoeffner under a new indictment that didn’t mention bribery. He signed a pretrial diversion agreement, completed a year of court supervision, paid $2.5 million in prosecution costs and surrendered his law license for two years. All charges were dismissed in June, according to court records.
The federal judge who presided over the criminal trial barred lawyers from questioning Wolin about company asbestos reserves.
State Judge Jaclanel McFarland ruled this month that Wolin can be questioned by Hoeffner’s lawyers on those topics during the current trial. Wolin’s testimony and cross-examination will be shown to the jury on video.
The case is Sanchez v. Hoeffner, 2010-15489, 133rd Judicial District Court of Texas (Houston).
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