Insurance Companies
and Insurance Law

Beverly Kanawi v. Bechtel

Page 5
...the court’s reasoning in
Kanawi v. Bechtel is fairly
typical. In Bechtel, a case
taking place in the Northern
District of California in the
Ninth Circuit, the company
sponsored two §401(k)
plans, the combined assets
of which were held in a
master trust with State
Street Bank (not named as
a defendant).

The plaintiffs alleged that
fiduciaries breached their
ERISA duties by
‘‘disguising the fees
actually incurred by plan
participants by causing
such fees to be paid by
the master trust, rather
than the plan itself,’
’ by
failing to disclose the
details of revenue sharing
arrangements, and by
charging inappropriate fees
to the trust, in this case,
‘‘settlor’’ fees (fees related
to actions affecting a plan’s
design, rather than its
administration). The
defendants moved to
dismiss, arguing ... that
Bechtel itself was not a
fiduciary... Bechtel argued
that the complaint failed to
allege a violation of specific
ERISA or regulatory
sections regarding
disclosure of fees and
expenses and that this
failure was fatal to the

North County Times
Beverly Kanawi has a suit in
the Northern District Court.
Remember her last
employment was GPA
instead of suing GPA she is
suing a third party for a
401K problem.

The attorneys for the
defendants are:

Beverly Kanawi’s lawsuit

Claims related to 401K suit
Declaration of Patricia Quan

Court Order for Kanawi
The court refused to
dismiss her case
The Court is unable to
conclude, however, that
Plaintiffs could not prove
any set of facts
demonstrating that Bechtel
enjoys some sort of
discretionary authority or
control over the
administration or
management of the Plan.
Indeed, the allegations set
forth in the complaint give
rise to at least a
reasonable inference that
Bechtel did indeed act as a
fiduciary by exercising its
discretion in choosing how
the Plan should be
administered. See, e.g., id.
¶¶ 75-77 (alleging that
“Bechtel or the Committee”
made certain statements to
plan participants about the
nature of certain fees and
expenses, that “Bechtel
and the Committee” had
changed the way such fees
and expenses were
incurred, and that a
Bechtel employee misled
plan participants into
believing that there had
been reductions in fees
and expenses).

The facts of Bechtel’s
actual relationship to the
Plan have not yet been
developed in this case, and
Court is therefore
unable to conclude that
Plaintiffs would be
unable to prove any set
of facts establishing a
fiduciary duty on the
part of Bechtel. For this
reason, dismissal of
Bechtel is unwarranted,
at least at this stage of
the proceedings.
Leslie Devaney
Senior Trial Counsel 1992-1996
AIG (American International Group)
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Garamendi sees
insurance moves as
Associated Press
January 19, 2009

SACRAMENTO — For the second time
in two months, Insurance
Commissioner Steve Poizner is being
accused by his predecessor, Lt. Gov.
John Garamendi, of proposing
regulation changes that will weaken
consumer protections.

The latest dispute involves Poizner's
proposal to roll back regulations that
prohibit insurers from reducing group
disability insurance benefits to account
for pensions, workers' compensation
payments or wages that the
policyholder might receive.

Poizner, a Republican who succeeded
Garamendi as California's chief
insurance regulator in January 2007,
said the regulations are unnecessary.
He maintains the insurance
commissioner already has the
authority under state and federal law
to ban insurers from including so-
called offset clauses that reduce
benefits in disability policies.

"Given that it's already illegal, it strikes
me that we should be striving to
simplify the government code and not
layer additional regulations to make
something even more illegal," said
Darrel Ng, a Poizner spokesman. "This
is the essence of cutting red tape."

But Garamendi and some attorneys
who deal with disability insurance
issues say the state would be treading
on shaky legal ground if it attempted to
control the offsets without the

"If the regulations go away, insurance
companies will go back to doing what
they've been doing for the last 30
years," said Glenn Kantor, a
Northridge attorney who deals with
disability issues. "They'll do what they

Garamendi, a Democrat, said
removing the regulations would be a
"disaster for policyholders."

"No way will he be able to protect them
without those regulations in place,"
said Garamendi, who, like Poizner, is
considering a run for governor next
year. "There is no basis, no foundation
for protection."

Disability insurance pays benefits
when the policyholder is unable to
work because of an illness or injury.
Policies can provide benefits if a
disability prevents someone from
performing a particular job or working
in a certain profession, or from doing a
range of jobs for which the
policyholder is suited by education or

The coverage is offered as a benefit
by many employers and typically
replaces half or more of a worker's

More than 4.5 million Californians have
disability insurance, either through
group policies or individually
purchased coverage.

Garamendi said he proposed the
regulations because of "some very
severe problems" with group disability
insurance policies.

"Some of the biggest scandals in the
last decade took place in the disability
sector: denial of claims, denial of
coverage and using offsets...," he said.
"All sorts of things were going on to
deny benefits to policyholders, so I
wrote regulations to deal with that.

"Poizner is, apparently at the behest of
the insurance industry, going to
remove those insurance protections."

Garamendi said he tried to clamp
down on offset clauses during his
second term as commissioner
without regulations but was sued
by insurers. They argued he did
not have the authority to act
without rules spelling out what
was banned.

"Now Poizner is going back to
where we started, which was ad
hoc enforcement of existing
laws...," Garamendi said. "He's
positioning the department to be
unable to enforce the existing
laws because there are no

The regulations, drafted by Garamendi
and implemented after he left the
commissioner's office, cover group
disability policies and prohibit insurers
from cutting benefits to account for the
following factors:

– The estimated amount of pension
payments the policyholder would
receive if he or she retired.

– Temporary disability benefits that the
policyholder could receive from the
worker's compensation system but that
had not been awarded.

– Permanent disability benefits from
the worker's compensation system,
which are supposed to help make up
for lost earning potential created by
job-related illnesses or injuries.

– Estimated earnings received by a
policyholder while disabled unless
there was a "good faith reasonable
basis" for the calculation.

Jim Keenley, an Oakland attorney, said
eliminating the regulations could put
additional burdens on retirement
systems by encouraging disabled
workers to tap pension benefits earlier
than they normally would to make up
for disability insurance reductions.

Scrapping the regulations also could
lead to the "gaming" of the worker's
compensation system to try disguise
those disability benefits, he added.

"The more insurers are allowed to
offset disability benefits by various
things, the more illusionary
disability insurance is,"
he said...

The Association of California Life and
Health Insurance Companies and the
American Council of Life Insurers,
whose members write the majority of
disability insurance policies in
California and the United States,
support scrapping the regulations...
AIG spent US$440,000 on spa,
resort after bailout, lawmakers say

Financial Post
Lorraine Woellert and Erik Holm, Bloomberg   
October 07, 2008

American International Group Inc. spent US$440,000
on a conference at a California resort less than a week
after an US$85-billion government takeover,
lawmakers said.

The bill from the St. Regis resort in Monarch Beach
included US$23,380 for spa services, according to
Representative Henry Waxman, chairman of the House
Committee on Oversight and Government Reform. Mr.
Waxman led questioning Tuesday of former AIG chief
executives Martin Sullivan and Robert Willumstad as
Congress probes events that led to federal

"Average Americans are suffering economically," Mr.
Waxman, a California Democrat, said in his opening
statement. "Yet less than one week after the taxpayers
rescued AIG, company executives could be found
wining and dining at one of the most exclusive resorts
in the nation."

The St. Regis, located on a bluff overlooking the
Pacific Ocean midway between Los Angeles and San
Diego, is "devoted to the pursuit of service and
elegance," according to its Web site...

Invoices obtained by Mr. Waxman's committee showed
that AIG spent
$139,375.30 on rooms, $147,301.71
for "banquets," and $1,488 at the resort's Vogue
Salon, which offers manicures, pedicures and
hairstyling. The group spent  $6,939.09 on golf,
$2,949 for gratuities, $5,016.32 at the StoneHill
Tavern and $3,064.71 for in-room dining and the
lobby lounge.

The group booked the resort's 3,100-square-foot
Presidential Suite for US$1,600 a night for five nights...

"Have you heard of anything more outrageous?" said
Representative Elijah Cummings, a Maryland
Democrat, who plans to seek an investigation of the
spending. "They were getting their manicures, their
facials, pedicures, massages while the American
people were footing the bill."

The group occupied more than 60 rooms.
provided by Mr. Waxman were dated Sept. 22
through Sept. 30. AIG was bailed out on Sept. 16.
In the end, the court ruled
against Beverly Kanawi:

Prudent Procedures
Saves 401(k) Plan
Fiduciaries From

Recently, the United
States District Court for
the Northern District of
California held that the
fiduciaries were
not liable for excessive
401(k) plan fees
because they had
documented prudent
procedures for their

Beverly Kanawi v. Bechtel
Corp, (No. C06-05566
CRB, 10/10/2008).
Bechtel Corp. maintained
a 401(k) plan which
delegated authority for
administration to a
committee. For over a ten
year period, the Company
paid the plan’s investment
advisor fees. For the
period, November 2003 –
February 2004, the fees
were paid from plan
assets. In September
2006, the plan
participants brought a suit
under ERISA alleging that
the Company, the plan
committee, and the
investment advisor
breached their fiduciary
duties by causing the plan
participants to incur
unnecessary and
excessive fees.
In reviewing the
unnecessary and
excessive fee issue, the
Court found that the
process used by the
fiduciaries in reaching
their decisions was

The Court concluded that
the plan participants had
not shown that the fees
were imprudent or
unreasonable. More
importantly, in finding that
the fiduciaries were not
liable, the Court stressed
that the plan committee
met regularly to discuss
the plan’s options and
also relied on the advice
of outside investment
professionals. By seeking
outside help and meeting
regularly, the plan
fiduciaries were found to
have acted prudently.

...Here again, a court
found that regular
meetings, seeking
outside assistance, and
documenting actions
can protect a plan
fiduciary from fiduciary
liability under ERISA.
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