Three related class actions have been filed against the General Reinsurance Corporation, Reciprocal of America, accounting firms PricewaterhouseCoopers and Milliman U.S.A., and numerous malpractice insurance providers on behalf of attorneys, doctors and hospitals who bought malpractice insurance from the insurers. The actions allege that the malpractice insurers conspired with their reinsurer Reciprocal of America, which in turn conspired with General Reinsurance, to misrepresent the financial health of Reciprocal of America, in violation of the federal Racketeer Influenced and Corrupt Organizations Act. The actions seek unspecified compensatory and triple punitive damages.

The action against American National Lawyers Insurance Reciprocal (ANLIR) and General is typical of the others. When ANLIR began business as a malpractice group in 1991, it entered into agreements with Reciprocal of America under which Reciprocal provided surplus support in exchange for ANLIR's ceding risk to Reciprocal as its reinsurer. This arrangement allowed ANLIR to carry Reciprocal's A.M. Best rating.

Also in 1991, Reciprocal entered into a reinsurance treaty with General Reinsurance, which took on some of Reciprocal's legal malpractice risks. This strategic alliance was highly touted by ANLIR and Reciprocal as making them more financially solvent and providing a certain level of reinsurance support. However, Reciprocal and General Reinsurance allegedly entered into "secret side agreements" that were not disclosed to insurance regulators, insurance rating services and policyholders. Allegedly, the secret agreements greatly reduced the risks actually assumed by General Reinsurance. This was allegedly done in exchange for large illegal and fraudulent payoffs to General Reinsurance and its executives in the form of "reinsurance commissions."

The secret agreements allegedly left the malpractice insurers and Reciprocal in significant financial trouble and liable for claims well in excess of what was being represented to state insurance departments and rating services. To auditors and regulators, however, the company appeared solvent because of General Reinsurance's allegedly bogus treaties. Annual audits by Pricewaterhouse and Milliman, U.S.A. failed to report on the alleged secret agreements. The action alleges that the auditors should have detected them, so that their failure to do so contributed to the misrepresentation.

When the 2001 downturn in the stock market took a toll on Reciprocal's finances, General Reinsurance calculated it would be left with more exposure than it would tolerate. General Reinsurance allegedly renegotiated the reinsurance treaties effective January 1, 2002, to minimize its exposure. Reciprocal allegedly turned to First Virginia Reinsurance to make up the difference. The insurers allegedly failed to disclose the incestuous relationship of the companies to state insurance departments--First Virginia was managed by the same persons on Reciprocal and the malpractice insurers, including named defendants John W. Crews, Ken Patterson, and Judith A. Kelley.

Because First Virginia is not domiciled in the United States, Reciprocal was forced by regulators to deposit into trust 102% of its reserve's expected loss. Reciprocal and First Virginia allegedly conspired to defraud and mislead the public, including the class members, by falsely reporting that sufficient amounts of money were being deposited into Reciprocal's trust account to cover its excess losses.

When First Virginia became Reciprocal's primary reinsurer, it was allegedly already out of money. Reciprocal, using the doctors', lawyers', and hospitals' premium dollars, provided a significant amount of financial support to First Virginia in order to give it the appearance of solvency. The company's executives allegedly failed to ever fund the trust account at 102% of the reserve amounts, even though this was represented to auditors as having been done. Pricewaterhouse and Milliman allegedly turned a blind eye to this illegal conduct and certified statements indicating a proper reinsurance arrangement was in place. Reciprocal, Kelley, Crews, Patterson and others allegedly misappropriated the funds in this offshore trust account for their own benefit and use.

Kelley, Crews and Patterson were allegedly intimately involved with each of the insurance treaties, agreements and other arrangements between Reciprocal, ANLIR, General Reinsurance and First Virginia. As a result of the schemes, malpractice policyholders allegedly lost coverage and their insurance premiums and found themselves part of a tainted book of business that makes it more difficult for them to find replacement insurance.

Reciprocal was put into receivership in Virginia on January 29, 2003, after state regulators determined it was in hazardous financial condition. Tennessee-based ANLIR, Doctors Insurance Reciprocal and The Reciprocal Alliance followed two days later. Policyholders were left with no insurance, and the receivers of the Tennessee companies ordered a stay on defending and settling claims, leaving cases in limbo.

The action filed on behalf of attorneys is Fullen v. General Reinsurance Corporation. Herrick v. General Reinsurance Corporation was filed on behalf of physicians, and Crenshaw Community Hospital v. General Reinsurance Corporation was filed on behalf of hospitals. In total, more than 25,000 persons and businesses are thought to have been affected.

The defendants common to all three suits are:

--General Reinsurance and its owners, Berkshire Hathaway and GeneralCologne Reinsurance

--PricewaterhouseCoopers

--Milliman USA

--Reciprocal of America

--First Virginia Reinsurance (a Bermuda-based company that shares officers with ROA and the Tennessee companies)

--John W. Crews, who--according to quarterly financial statements filed September 30, 2002, with the Virginia Bureau of Insurance--served as general counsel and executive vice president of the attorneys-in-fact for ANLIR, Doctors Insurance Reciprocal and Reciprocal of America. According to a 1997 executive summary of the Reciprocal companies--prepared by Crews' then-firm, Crews & Hancock--Crews also served as executive vice president, general counsel and executive secretary of First Virginia Reinsurance

--Ken Patterson, who as of September 2003 served as senior executive vice president of ANLIR and Doctors Insurance Reciprocal and president and chief executive officer of Reciprocal of America. The 1997 record listed him as executive vice president, chief financial officer and treasurer of First Virginia Reinsurance

The three actions have been transferred to the federal court for the western district of Tennessee and consolidated under multidistrict litigation docket MDL-1551.