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The Honolulu Advertiser
Posted on: Monday, October 28, 2002

Medical insurance settlement reached

By Frank Cho
Advertiser Staff Writer

Companies that insured executives of the defunct Pacific Group Medical Association, and the United Public Workers Union, have agreed to pay nearly $10 million to settle claims over the insurance company's failure and millions of dollars in unpaid premiums.

The agreement, one of the largest insurance settlements in recent years in the state, is the first related to the collapse of the medical insurer and caps more than five years of efforts.

Pacific Group Medical Association was one of the largest failures of an insurance company in state history. State regulators seized the troubled medical insurance company in March 1997 hoping to avert a financial collapse as auditors and consultants reviewed the firm's financial records. The company, which had about 12,000 members, was declared insolvent five months later.

The settlement means about 1,756 former members of Pacific Group Medical Association and 2,372 medical providers with claims against the failed company will be receiving payments, according to state records. Creditors have filed nearly $16 million in claims against the defunct company.

"The situation looked very bleak at the time PGMA collapsed. There appeared to be nothing left but ash," said Wayne Metcalf, the state's insurance commissioner. "But because of aggressive recovery efforts, we were able to recover significant amounts of money and that is heartening."

State officials said creditors should begin receiving checks of about 47 cents on the dollar of each claim by mid-December.

The settlement covers most of the claims against the company's former leadership, but does not affect a multimillion-dollar lawsuit by the state against Peter Wong, the medical insurer's former chief executive officer.

Wong, who now lives in California, filed for bankruptcy protection in March. The civil lawsuit by the state against Wong is set to go to trial in March.

Executive Risk and the John Alden Life Insurance Co. and other defendants agreed to settle claims against former PGMA executives for more than $6.8 million. Voluntary Employees Benefit Association, an affiliate of the United Public Workers union, agreed to pay nearly $875,000 to settle unpaid insurance premiums to PGMA.

"We are continuing our best efforts to recover more monies through settlements and litigation so that additional payments may be made to creditors in the future," Metcalf said. "While we have no timetable as to when the conclusion of this case may be reached, we are confident future recoveries of assets of distribution to PGMA creditors will occur."

Metcalf said a separate settlement was reached with the United Public Workers union for $1.7 million for unpaid health insurance premiums, but that settlement is still awaiting court approval.

Defendants who have still not settled include Wong, his wife Susan, Pacific Benefit Services and Four Winds RSK Inc., a company owned by Robin Rodrigues Sabatini.

Sabatini, and her father, UPW union leader Gary Rodrigues are on trial on charges of mail fraud, conspiracy to defraud a healthcare benefit program, conspiracy to launder money and money laundering related to their dealings with PGMA and other Hawai'i health insurers.

PGMA at one time provided healthcare coverage for the United Public Workers, which Rodrigues heads as statewide director. The union eventually dropped PGMA and stopped paying premiums after the insurer failed to pay providers.

The state said it believes Wong and other PGMA officials pocketed millions of dollars in member premiums while leaving the company without enough money to pay claims.

"There was a lack of effective checks and balances by the board of directors at PGMA which enriched Mr. Wong to the detriment of the company," said Metcalf. "That is really the PGMA story."

Reach Frank Cho at 525-8088 or fcho@honoluluadvertiser.com.