Big Insurance Broker Sued by Occidental : Oil Firm Claims It Paid Out $22 Million for a Bogus Policy
Occidental Petroleum has sued one of the nation’s largest insurance brokers, claiming that the firm’s Newport Beach office collected $22.5 million in premiums from Occidental for a bogus property insurance policy.
The Los Angeles-based oil company said the phony policy that it received was written by a non-existent company.
The Occidental suit, filed Aug. 9 in Orange County Superior Court, asks for return of the $22.5 million and a $1.1-million commission paid to the insurance brokerage, Bayly, Martin & Fay International. In addition, Occidental is demanding $100 million in punitive damages.
Joseph N. Tate, president of Bayly, Martin & Fay, said the company is investigating the matter and has no proof that the policy was phony. However, he said, the BMF executive vice president who handled the transaction, William A. Baxter, was fired last Thursday.
“In the placement of this insurance, it appears that contrary to company standards an employee may have relied upon representations made by a London broker instead of obtaining verifications required by Bayly, Martin & Fay,” Tate said, reading from a prepared statement. “We are confident this is an isolated incident and that our normal procedures otherwise are being followed.”
Hired Accounting Firm
Tate added that BMF has retained the accounting firm of Peat, Marwick, Mitchell to help find out what happened and who was responsible.
Bayly, Martin & Fay recently moved its corporate headquarters from Newport Beach to Fort Worth after the brokerage was acquired by the Bass family, wealthy and reclusive Texans with interests in oil, real estate, entertainment and dozens of other fields.
Baxter remained in Newport Beach as head of the firm’s Southern California operations. He could not be reached for comment.
Before working for BMF, Baxter was a senior official at the Westchester County, N.Y., insurance brokerage of Frank B. Hall & Co. He left in 1977 after an investigation by the audit committee of the firm’s board of directors. Hall said at the time that the committee discovered about $400,000 in personal and other expenses, including more than $86,000 incurred or authorized by Baxter, that didn’t satisfy company standards for payment or employee reimbursement.
The company said it recovered the full sum from Baxter. Baxter had been head of the Los Angeles office and a member of the firm’s board of directors.
The Occidental complaint claims that the oil company retained Bayly, Martin & Fay late in 1984 to find reinsurance for Occidental property around the world. Reinsurance is used to allow primary insurers to spread a large risk among several companies who underwrite a portion of the policy in exchange for a share of premium income.
Found Underwriter
BMF told Occidental in December that it had found an underwriter who would provide reinsurance against losses for a three-year period for a total premium of $22.5 million. In February, Occidental paid the sum, plus the $1.125-million commission, to BMF’s Newport Beach office.
Occidental’s suit claims that it subsequently learned that the insurance never existed and that the firm writing the policy either did not exist or was not qualified to write insurance.
An insurance industry source suggested that Occidental should have been suspicious that the premium was unrealistically low in light of Occidental property losses, which run more than $20 million a year. The source also said a number of other BMF employees were fired with Baxter.
An Occidental spokesman said the company would not comment beyond the charges contained in its lawsuit.
