Berkshire Hathaway 2006 Annual Report Download - page 52

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(21) Contingencies and Commitments (Continued)
In April 2005, the Australian Prudential Regulation Authority (“APRA”) announced an investigation involving financial or
finite reinsurance transactions by General Reinsurance Australia Limited (“GRA”), a subsidiary of General Reinsurance. An
inspector was appointed by APRA under section 52 of the Insurance Act 1973 to conduct an investigation of GRA’ s financial or
finite reinsurance business. GRA and General Reinsurance have cooperated fully with this investigation. The inspector has
submitted its final investigative report to APRA.
CRD is also providing information to and cooperating fully with the Irish Financial Services Regulatory Authority in its
inquiries regarding the activities of CRD. The Office of the Director of Corporate Enforcement in Ireland is conducting a preliminary
evaluation in relation to CRD concerning, in particular, transactions between CRD and AIG. CRD is cooperating fully with this
preliminary evaluation.
General Reinsurance is also providing information to and cooperating fully with the Office of the Superintendent of Financial
Institutions Canada in its inquiries regarding the activities of General Re and its affiliates relating to “finite reinsurance.”
Berkshire cannot at this time predict the outcome of these matters and is unable to estimate a range of possible loss and cannot
predict whether or not the outcomes will have a material adverse effect on Berkshire’ s business or results of operations for at least the
quarterly period when these matters are completed or otherwise resolved.
b) Civil Litigation
Litigation Related to ROA
General Reinsurance and several current and former employees, along with numerous other defendants, have been sued in
thirteen federal lawsuits involving Reciprocal of America (“ROA”) and related entities. Nine are putative class actions initiated by
doctors, hospitals and lawyers that purchased insurance through ROA or certain of its Tennessee-based risk retention groups. ROA
was a Virginia-based reciprocal insurer and reinsurer of physician, hospital and lawyer professional liability risks. These complaints
seek compensatory, treble, and punitive damages in an amount plaintiffs contend is just and reasonable. General Reinsurance is also
subject to actions brought by the Virginia Commissioner of Insurance, as Deputy Receiver of ROA, the Tennessee Commissioner of
Insurance, as Receiver for purposes of liquidating three Tennessee risk retention groups, a state lawsuit filed by a Missouri-based
hospital group that was removed to federal court and another state lawsuit filed by an Alabama doctor that was also removed to
federal court. The first of these actions was filed in March 2003 and additional actions were filed in April 2003 through June 2006.
In the action filed by the Virginia Commissioner of Insurance, the Commissioner asserts in several of its claims that the alleged
damages are believed to exceed $200 million in the aggregate as against all defendants. All of these cases are collectively assigned to
the U.S. District Court for the Western District of Tennessee for pretrial proceedings. General Reinsurance filed motions to dismiss
all of the claims against it in these cases and, in June 2006, the court granted General Reinsurance’ s motion to dismiss the complaints
of the Virginia and Tennessee receivers. The court granted the Tennessee receiver leave to amend her complaint, and the Tennessee
receiver filed her amended complaint on August 7, 2006. General Reinsurance has filed a motion to dismiss the amended complaint
in its entirety and awaits a ruling by the court. The Virginia receiver has moved for reconsideration of the dismissal and for leave to
amend his complaint. General Reinsurance has filed its opposition to that motion and awaits a ruling by the court. In September
2006, the court also dismissed the complaint filed by the Missouri-based hospital group. The Missouri-based hospital group has filed
a motion for reconsideration of the dismissal and for leave to file an amended complaint. General Reinsurance has filed its
opposition to that motion and awaits a ruling by the court. The court has also not yet ruled on General Reinsurance’ s motions to
dismiss the complaints of the other plaintiffs. The parties have commenced discovery.
In December 2006, General Reinsurance entered into settlement agreements with respect to two lawsuits filed in Alabama state
courts that related to ROA and related entities, and these lawsuits have been dismissed.
Actions related to AIG
General Reinsurance is a defendant in In re American International Group Securities Litigation, Case No. 04-CV-8141-(LTS),
United States District Court, Southern District of New York, a putative class action asserted on behalf of investors who purchased
publicly-traded securities of AIG between October 1999 and March 2005. The complaint, originally filed in April 2005, asserts
various claims against AIG and certain of its officers, directors, investment banks and other parties, including Messrs. Ferguson,
Napier and Houldsworth (whom the Complaint defines, together with General Reinsurance, as the “General Re Defendants”). The
Complaint alleges that the General Re Defendants violated Section 10(b) of the Securities Exchange Act and Rule 10b-5 in
connection with the AIG Transaction. The Complaint seeks damages and other relief in unspecified amounts. General Reinsurance
has answered the Complaint, denying liability and asserting various affirmative defenses. Document production has begun, but no
other discovery has taken place. No trial date has been scheduled.
A member of the putative class in the litigation described in the preceding paragraph has asserted similar claims against
General Re and Mr. Ferguson in a separate complaint, Florida State Board of Administration v. General Re Corporation, et al., Case
No. 06-CV-3967, United States District Court, Southern District of New York. The claims against General Re and Mr. Ferguson
closely resemble those asserted in the class action. The complaint does not specify the amount of damages sought. General Re has
answered the Complaint, denying liability and asserting various affirmative defenses. No trial date has been established. The parties
are coordinating discovery and other proceedings among this action, a similar action filed by the same plaintiff against AIG and
others, the class action described in the preceding paragraph, and the shareholder derivative actions described in the next paragraph.