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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 00-cv-02098-REB-MJW KELLY FINCHER by her guardian, James Fincher, on behalf of herself and all other persons similarly situated. Plaintiff,
PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY, 8 Defendant. 9 _______________________________________________________________ 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 PROCEEDINGS RECORDED BY MECHANICAL STENOGRAPHY TRANSCRIPT PRODUCED BY COMPUTER Proceedings before the HONORABLE ROBERT E. BLACKBURN, Judge, United States District Court for the District of Colorado, commencing at 8:30 a.m., on the 5th day of April, 2005, in Courtroom A701, Alfred A. Arraj United States Courthouse, 901 19th Street, Denver, Colorado. APPEARANCES ROBERT CAREY, THE CAREY LAW FIRM, 2301 East Pikes Peak Avenue, Colorado Springs, Colorado 80909, and; Suzanne M. Claar, Official Reporter 901 19th Street Denver, Colorado 80294-3589 (303)825-8874 REPORTER'S TRANSCRIPT TRIAL TO THE COURT - VOLUME II _______________________________________________________________
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APPEARANCES (Continued) L. DANIEL RECTOR, FRANKLIN D. AZAR & ASSOCIATES, 5536 Library Lane, Colorado Springs, Colorado 80918, appearing for plaintiff. CLIFTON J. LATIOLAIS, JR., CAMPBELL, LATIOLAIS & RUEBEL, 825 Logan Street, Denver, Colorado, and; NATHAN L. GARROWAY, 211 North Broadway, #3600, St. Louis, Missouri 63102, appearing for Defendant.
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. RECTOR: Q seated.
P R O C E E D I N G S (Proceedings resumed at 8:30 a.m.) THE COURT: Good morning, and thank you. Please be
Indeed we are. Parties and representatives and counsel, good morning. Mr. Brown, if you would be so kind as to resume your
seat and position in the witness stand, and thank you. (Eugene Brown was recalled to the stand.) THE COURT: And, sir, importantly I remind and admonish
you that, of course, you continue to testify during this trial under oath. THE WITNESS: THE COURT: MR. RECTOR: THE COURT: Yes, sir. Mr. Rector.
Very well. Thank you.
You are welcome. DIRECT EXAMINATION
Mr. Brown, if you would get the large binder out in front of
you again, please, and if you would turn to tab 56, I will be referring to a number of those documents in order. Tab 56, incidentally, is one of our stipulated exhibits that was tendered by your counsel. It appears to be a number of
documents relating to the history of this project, some of which are duplicative of other documents in the packet, but let's begin with the very first one, and first of all, I will have to
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Eugene Brown - Direct refer to these by multiple numbers. We are in tab 56, and the first one is No. 1. I would like to resume some of our earlier discussion to get some context. This was the memo for the associate
general counsel that we have referred to yesterday; is that correct? A Q A Q Yes. And the date on that is July 28th of 1989? Yes. So that would seem to indicate that the company had some
cognizance of its need to modify its policies approximately, at least I would say, five months before the effective date of Senate Bill 128? A Q A Q Correct. I am sorry? Correct. Yes.
And this memo acknowledges the need for the aggregate cap of
200 on this first bullet point, doesn't it? A Q Yes. And it states that this was previously unlimited. Do you
know what the context of that is? A No. I think our form might have mentioned unlimited
medical, but I don't know, you know, what she is referencing. Q All right. Now, if you would then turn to the next page,
which has a designation 2 at the bottom, and it appears to be
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9/10. A Q
Eugene Brown - Direct There is a memo in November of '89.
Do you see that?
Yes. And at least at that point regarding Senate Bill 128, there
was the opinion expressed that, we don't foresee any problems with getting approval; is that correct? A Q Yes. Does that indicate, at least at that point in time, the
company felt it could meet that deadline? A Q I would say so, yes. All right. Thank you. And then if you would turn to the
next page, which -- I am sorry -- actually the next page with four, two pages on, with the note 4 at the bottom and Bates 902. This appears to be a memo from Nancy McCarthy Scott, whom I believe you identified yesterday as having been a project manager at that time; is that correct? A Q Yes. And at that time it appears that she's indicating in the
third paragraph that rate changes are being submitted to be timely with a new business January 5th, and renewal business on February 6th; is that correct? A Q Yes. So it would appear at that time she anticipated being able
to put rates in place coincident with the new forms; is that correct? A Yes.
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Q
Eugene Brown - Direct Oh, incidentally, if you would return to No. 2, that is two
pages prior to that briefly, as part of that memo there is a notation, please prepare a billing message to inform policyholders of these changes for renewals effective 2/8/90. Do you see that? A Q A Q Yes. Now that never happened, did it? I don't know if it did or not. The changes never went into effect, though, did they, at
least not at this time? A Q No. All right. Then if you would continue on then in that This appears to be a It seems to
grouping, page 5, Bates 901 at the bottom.
handwritten memo that I would ask you to interpret. have a date of what I assume is 12/6/89. A Q Yes.
Does that seem right?
And perhaps memorializing the phone conversation with
Mr. Jervis at DOI? A Q It appears so. And does that indicate that Mr. Jervis, as I think we have
seen other documents, express the opinion that the filings were disapproved at that time? A Q A Our filings? Yes. The form filings.
I would get the impression that not necessarily our filings,
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Eugene Brown - Direct but filings in general. Q A What do you mean, from someone other than Prudential? Yeah. He is saying filings backed up. Most disapproved.
So if I was interpreting this, I would interpret the note as someone calling up asking for the status of our particular filing, and I would get the impression that he didn't get to our particular filing yet, but he is saying to us, the filings in general are backed up and most are being disapproved. Q All right. Now, if you would look at the second paragraph,
the one with the circled No. 2, at least, would you interpret that as the indication from him that the extended PIP option should be offered as what we call depackaged or unbundled? A Q Yes. And at this point there is still a month left before the
effective date of the change in the statute; is that correct? A Q Yes. And in fact the change in the statute had two components, It had, first of all, the requirement that the
didn't it?
aggregate limit be raised to no less than 200,000; is that correct? A Q Correct. And it also added a third extended PIP component, a
disability payment beyond 52 weeks for wage loss; is that correct? A Yes.
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Q
Eugene Brown - Direct So there are two elements of compliance involved; isn't that
right? A Q Yes. So if you turn to page 7 of that document, then, Bates at This is also a document that was identified in a previous
899.
tab, and I think we described this as having been released December 19th with about three weeks before the intended effective date; is that correct? A Q Yes. And in the second paragraph, that second requirement of the
new statute has been identified in addition to the cap in the first paragraph; is that correct? A Q Correct. And company is cognizant that both of those are ones that
have to be included in a new policy provision; is that right? A Q Yes. Now, if you go to the second page of that document, which is
page 8, there is an opinion expressed that there will be a rate change, and I suspect that's a typo where it meant to say 1990 for both of those early dates; is that correct? A Q Yeah, I would agree with that. So at that time the company anticipated having the rate
change in place for the new and renewal business within a month or two; is that correct? A Yes.
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Q
All right.
Eugene Brown - Direct Now, if you would go on then to moving to the
next document, which is the P&C bulletin with the numerical line at the bottom, Bates 1413, and then if you go to the very next page, do you see at the bottom of that page where it references rate changes? A Q A Q You want me to go to Bates 1414, page 10? Correct. Yes. And do you see at the bottom that appears to be a corrected
version of what we read earlier regarding the rate changes; is that correct? A Q Yes. Now, when the claims area has been advised to make payments
based on the above changes, those claims would be only if someone had purchased extended PIP; is that correct? A Q That's correct. And those changes would include both the $200,000 limit and
the third APIP option; is that right? A Q That's what it would say. Now, if you would go then to the next page, which is 11,
Bates 884, now at this point, there was an indication that as of April of 1990, there was disapproval of a filing; is that correct? A Q Yes. Now, it's true, is it not, that the disapproval related --
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Eugene Brown - Direct did not relate whatsoever to the content of the APIP options. Is that accurate? A Q Yes. So the company could have made the change to, for example, a
$200,000 limit in its policies without any apparent disagreement with the DOI; isn't that true? A There was a prior letter from the DOI, which spelled out the
bundling -- unbundling or packaging problem. Q And do you understand the question that I am asking, that is
that the issue of an aggregate limit could have been addressed as an unbundled issue, couldn't it? A Q It could have been. And just once again the -- according to the text of this
letter, the disapproval didn't have anything to do with the manner in which the extended PIP was identified, except for the $10,000 increase in the death benefit; is that right? A Q That's right. Now, if you would look at the number with 14 at the bottom,
Bates 883, this is a letter from Mr. Jervis addressing the reasons for disapproval to Ms. Boyle, is that correct, in April of 1990? A Q Yes. And he states at that time, does he not, that he is
disapproving the submission for the same reason he disapproved it in November of 1989; is that correct?
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A Q
Eugene Brown - Direct That's correct. And the reasons he was disapproving it had to do essentially
with the debundling or the unbundling or the depackaging issue; is that correct? A Q That's what he mentions here, yes. And when we talk about the depackaging or unbundling, the
issue is simply, does the company have to offer those three options collectively or as separate options for the insured to pay; is that correct? A Q A Q Correct. So that is essentially the dispute here, isn't it? Um-hm, yes. And I think in the third paragraph he also indicates there
he feels that the company hasn't created the 85 percent wage loss option as part of the second APIP option. expressed? A Q He seems to feel that way, yes. He indicates, doesn't he, that you can call him by the Is that what he
telephone to talk about this if you need to discuss it directly? A Q A Q Yes. So he is making himself available to the company, isn't he? Yes. Now, if you would look, please, at the next page, that is a
memo that is dated May 11th of 1990; is that correct? A Yes.
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Q
Eugene Brown - Direct Now, in the first paragraph -- well, first of all, it's from
Ms. McCarthy who at that time was still the project manager; is that correct? A Q A Q It appears so, yes. And she is discussing the agents manual? Yes. Now, she states, does she not, that the agents manual has
not been updated regarding those recent changes; isn't that correct? A Q Yes. Now, if you look at the next page, 16, that's a document
that's already in another exhibit, but that's a memo that ostensibly went to the agents; is that correct? A Q Yes. But that memo is actually predates, despite its ordering in
this sequence, predates the memo Ms. McCarthy Scott's on the previous page; isn't that right? A Q Yes. Now, if we refer just briefly -- I hate to have you flipping
around -- but if we go back to the Exhibit 9 in the early portions of the book, and perhaps you want to hold the spot where you are at right there in the other book if you don't mind. That is the letter from Mr. Jervis that we have referred
to earlier, correct? A Yes.
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Q
Eugene Brown - Direct And so that's where he has expressed the opinion that there
should be an unbundling or depackaging, as it were, of the options; isn't that correct? A Yeah. He doesn't use the term, but he enumerates that there
are three options. Q A Q Three separate and discrete options? Yes. Three separate and distinct.
And then it's in his April letter that he refers back to
some of his earlier correspondence then, isn't it? A Q Yes. Now, if you would -- and I think yesterday we discussed the
fact that apparently, and I will ask you to comment on this, dating from roughly, as far as we can tell, Ms. McCarthy Scott's memo, which is under 56, page 15, the May 1990 memo to the ISO circular in January of 1991, which follows two pages later, there doesn't appear to have been any activity on the Colorado PIP project; is that correct? A of. Q Now, if you would look in the same sequencing at the bottom, None that seems to be memorialized in memos that I am aware
which is Bates 1072, this memo is dated April 1991; is that correct? A Q April, yes, um-hm. Now, Ms. Henry was the author of this memo it appears; is
that right?
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Eugene Brown - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A Q Yes. Does that suggest she is now the project manager on the
Colorado APIP? A Q I would think so, yes. And it indicates that she contacted Mr. Jervis to talk about
the PIP and the APIP; is that correct? A Q Yes. Now, he had previously stated he was available for contact
by phone in a letter roughly a year before this; is that right? A Q That's correct. Now, she outlines the components of both the PIP and the
APIP statute in her memo; isn't that correct? A Q Yes. And in fact this is an accurate recitation of those benefits
as far as you are aware, isn't it? A Q Yes. So at that point in time, would it appear that Prudential
was aware of those options which it was obligated to include in a new policy provision for extended PIP? A Q Yes. And I think on the next page, 21, if you turn that over, her
final comment is that she is going to start revising the forms, among other things; is that correct? A Q Yes. Now, if you would look then at the next page, please, 22,
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Eugene Brown - Direct Bates 1074 at the bottom, is it -- is Mr. Zucarro an attorney? A Q Yes. I am sorry. I didn't understand that previously. Is he one
of the staff counsel? A He is employed by -- was employed by Prudential Property
Casualty. Q A Q on? A Q Yes. Now, it appears that Ms. Henry is having a dialogue with I guess my better question, was he employed as an attorney? Yes, he was. So was he providing some legal input as this process went
Mr. Zucarro and she is trying to convince him that the state law does not require the unbundling of the APIP, and questions whether the company can just proceed as -- well, I guess I will ask your comment on that. It appears she is debating whether or not the company can proceed with a bundled option as opposed to unbundled option. A Is that a fair reading of that? She queries, yeah, makes that query whether we should
Yeah.
go with the bundling or unbundling. Q So the company, apparently, has knowledge based on a prior
memo as to what the law is, or the various provisions of the law is, and now the debate of whether it can be offered as a package or has to be offered as separate and distinct options; is that
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Eugene Brown - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 correct? A Yes. There is a debate about whether the law would require
bundling or unbundling, yes. Q Mr. Jervis discussed his opinion that the option should be
unbundled, correct? A Q A Q Yes. And he had done so a year or so prior to this? Correct. And Ms. Henry is questioning whether that need be done
regardless what Mr. Jervis's opinion is; is that correct? A Q Could you repeat that question? Yes. It appears that Ms. Henry still questions whether she
can create a policy provision that makes the APIP options one bundled option rather than three distinct options? A Q Yes. And if you would look at page 24, at the bottom, Bates 1070, Do you know who Sue Hogan is?
this is a memo from Sue Hogan. A Q No. I don't think I do.
The memo apparently references the ongoing Colorado PIP
project; is that right? A Q Yes. And on the third paragraph delineated then by the numbers 1
and 2, there is some mention of the ongoing issue whether or not the packaged or unpackaged options need to be offered; is that correct?
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A Q
Eugene Brown - Direct That's correct. And paragraph 2 says that, in any event, policy writing
changes will not be possible until September at the earliest; is that correct? A Q Yes. So does that indicate that at that point even then there is
an anticipated additional delay, at least until September of 1991? A Q Yes. Okay. Now, if you turn to page 26 in that sequence.
Ms. Henry apparently authors a memo, and this one is slightly out of chronological sequence, Ms. Henry authors a memo in April of 1991 as a project request form. A Q A Yes. Now, what is a project request form? Um, it would be a request to put this project in a Do you see that?
particular line of priority. Q A So that, what, the policies can actually be drafted? So that at the time with limited personnel, you would have
to prioritize, so this would be a request to prioritize it as a high-level requirement. Q And what would you expect the turnaround time to be for a
high-priority item? A It would depend on a number of variables which I, you know,
I would think the complexity of the matter at hand, the number
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Eugene Brown - Direct of variables involved in the putting it to fruition. In other words, if somebody wanted to change one word in a sentence, I would say that could be done very expeditiously. If somebody wanted to change 10,000 words in a
policy, that would probably take somewhat longer. Q But in any event, as a priority item it should be attended
to as quickly as anything; is that correct? A Q It should be prioritized, yes. And under her comments regarding cost benefit estimates she
states, this is a state mandate, if we do not comply we may face fines. Is that your understanding, that non-compliance would
subject your company to a fine? A Q Yes. Then it would appear in this, once again if you look at the
next page, 27, and this once again is somewhat out of chronological sequence in light of the May memo -- well, perhaps not. I am sorry. But in any event, this is a memo from you
numbered page 27, Bates 1134, correct? A Q Yes. And this is once again you gave the so-called okay at this
point to go ahead? A Q Yes. Now, were you anticipating that the project would be
proceeding at that point? A I don't know the frame of mind I was in at that time with
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Eugene Brown - Direct regard to the project proceeding or not proceeding. Q Now, if you would go to the next document, which is the
memorandum from Mr. Gibboney, and I think that was identified in an earlier tab too. I think you expressed the opinion yesterday
that it appears now Mr. Gibboney is taking this project over; is that right? A Q It appears so, yes. Now, May of 1991, if you look at the second page, which is
page 29 at the bottom, there is an acknowledgment at the top of the page there that filings are made in '89 and early '90 that were disapproved; is that correct? A Q Yes. Does that suggest then that no new filings were made between
the April 19th, '90, date and the date of this memo? A Q Yes. So it has been a year since the company has even refiled any
documents with DOI; is that correct? A Q Based on this memo, it would appear so. Now, on the next -- on the paragraph below the word
"action", there is some acknowledgment in two paragraphs that ISO is being -- or ISO-related documents are either being reviewed or you are aware of them; is that correct? A Q Is this on page 29? Yes. 29. Do you see a paragraph where it says "action"?
And I refer you specifically to the middle of the first
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Eugene Brown - Direct paragraph there, and it says, um, that the company disagrees with a proposal as provided by ISO. I am sorry, Mr. Brown. A Q Do you see that?
Am I misleading you somehow?
I am on page 29 and under "action" where it says Part 7. Yes. The third sentence there. Note also that we believe
it is unnecessary to cover the first 125 of lost wages at 100 percent as provided by ISO? A Q Yes, I am sorry. I missed it, yes.
And so it would appear that Prudential is receiving and
considering ISO's recommendations at that time; is that correct? A Q Yes. As we have discussed ISO's role in the past. And then on
the next paragraph there is a notation that, the APIP work loss caps follow ISO's program and are used for rating purposes. Does that suggest that ISO has somehow provided some rating guidelines regarding the new APIP options? A Q It seems to say so. Now, at the bottom Mr. Gibboney notes in the last paragraph,
our packaged APIP coverages are not in compliance with the statute; is that correct? A Q That's what it says, yes. And there is an expression then that a revised policy along
with an explanatory letter of instructions to contact the agent will be sent to the agent -- to the insureds; is that correct? A Yes.
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Q A Q
Eugene Brown - Direct Now, that did not happen, did it? I don't believe it did, but I don't know for sure. And then if you turn to the top of the next page, which is
30, Bates 673, there is a provision made for how to handle the rating of the APIP at that point; isn't that true? A Q Yes. Now, in fact if the company were going to change its
aggregate limits from 150,000 to 200,000, it could do so without necessarily having to seek rate approval; isn't that correct? A Now, I think the -- I would believe the process would
include rate, rule, and form approval. Q Well, the company can certainly offer more coverage
unilaterally, can't it? A Q Yes. And that is certainly a possible remedy, subject to any
concerns the company has about the need to charge more for the additional $50,000; is that correct? A Q I don't think I understand that. Well, in other words, the company could draft a policy that
included $200,000 in aggregate coverage, and it would simply be a matter of charging the same amount, at least for that period of time; isn't that right? the 150? A I believe it could, but it would still I believe have to Same amount as it was charging for
file with the state.
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Q A
Eugene Brown - Direct It would have to file the forms with the state, right? I would think it would still have to file the rules and
rates also. Q Now, if you would turn to -- going to go a little further up
in the sequence, still in tab 56, and the number at the bottom will be 58 with a Bates No. of 1208. This indicates, does it not, that the Division of Insurance has then rejected filings somewhere in the November/December of 2001 time frame; is that correct? A Q Yes. Now, the reasons given here for disapproval have nothing
whatsoever to do with the extended PIP options, do they? A Q No. And then if you would move two pages forward, please, with
60 at the bottom and Bates 1210, this is a memo from Mr. Gibboney whom I think we have indicated is now the project head; is that correct? A Q Yes. Will you note toward the bottom of that memo, which is dated Since the APIP
on January 7th of '92, he states as follows:
rule has been approved then the department's objections to the forms are not related to APIP can you take it from here. that how that reads? A Q Yes. Does that suggest to you, at least as it relates to both the Is
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Eugene Brown - Direct APIP rules and the APIP forms, that the company has been advised that there is no problem as far as DOI is concerned? A The objection didn't pertain to -- the continuing objection
by the DOI didn't relate to APIP. Q A Q I beg your pardon? Maybe you could rephrase your question. Yes. I am just asking, based on your reading, it would
appear that the APIP forms and the APIP rules are okayed by the Division of Insurance? A Q A Q The APIP portion of the policy seems to be okay, yes. And this is in January of 1992? Yes. And if you would look at the next page, which is 60, this is
a document that appears then to be -THE COURT: MR. RECTOR: BY MR. RECTOR: Q This is a document that has a Bates stamp of 5 -- what Are you sure it's 60, counsel? I am sorry. 61. Pardon me.
appears to be 556, and I can't be entirely sure of the sequencing of this except that this is the order in which your counsel has placed it. But if you please look at the bottom of
that page, it makes references to events that at least occurred around November of '91; is that correct? A Q Yes. And it states that a rule filing was made on 1/4/91 to
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Eugene Brown - Direct eliminate the APIP options and was approved, correct? A Q Yes. Now, if you would then return to the documents toward the
beginning of the book, and let's refer just briefly again to Exhibit 22, which was one we discussed I think previously. I think you have acknowledged that Ms. Henry's note suggests that, because of the passage of House Bill 1175, the project was, in so many words, started over. A Q Yes. The House Bill 1175 wasn't effective until I believe July 1 Is that accurate?
of 1992; is that correct? A Q Yes. So would you agree there had been a passage of time of
approximately another year since the -- well, I guess actually would have been a half a year since the previous memos, and then the passage of 1175. In other words, the company indicates -- I
should probably rephrase this. When we were talking about those exhibits which were No. 60 and 61 of Exhibit 56, the company apparently had gotten approval as of roughly January of 1992 for its APIP options and rate filings; is that correct? A Q Yes. But now implementation is deferred because of House Bill
1175; is that right? A Yes.
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Q
Eugene Brown - Direct Now, picking up then sequence with some of these exhibits.
Toward the front of the book, if you go to Exhibit 23, please. I think we may have referred to this earlier, but now in May of '92 the company is receiving information regarding House Bill 1175? A Q A Q I am sorry. You wanted me to reference what?
Exhibit 23, please. 23. And the company is now advised that there is a development
in House Bill 1175 that includes the obligation to offer income benefits unlimited in dollar or time amount; is that correct? A Q Yes. And Mr. Make, who is that? He is in product development; is
that right? A Q Yes. And I think we have referred to these previously, but if you
would start with memo or -- I am sorry -- Exhibit 24, since these are Prudential documents, it appears the company received the emergency rate of June 30th, 1992, from the Division of Insurance regarding the new certification process; is that correct? A Q Yes. And that outlines the 30-day certification -- 31-day
certification process? A Yes.
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Q
Eugene Brown - Direct And there was no doubt that that applied to private
passenger automobile policies; is that correct? A Q Yes. And then Exhibit 25 provides a copy of the form to be used
for certification; is that correct? A Q It enumerates the forms that should be used, yes. Exhibit 26 is the so-called question-and-answer bulletin or
advisement that the Division of Insurance sent to Prudential; is that correct? A Q Yes. And in reference to that, once again question 3 reiterates
the process of filing the listing of forms and a certificate of compliance; is that correct? A Q Yes. And question 4 indicates that the forms don't have to be --
should not be included as part of the filings; is that right? A Q Correct. And that any revisions under question 7 must be certified to
the company as being compliant? A Q Yes. And then on the next page that if there is failure to have
compliance -- determining compliance with the minimum standards is the obligation of each insurer; is that correct? A Q Yes. So the company is aware, according to this bulletin, that
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Eugene Brown - Direct it's obligated to research statutes, regulations, bulletins, and directives and ensure compliance; is that correct? A Q Yes. Now, if you would move on, then, to the next exhibit, which This is another internal memo in October of '92; is that
is 27.
correct? A Q A Q Yes. And does this indicate that the project is still ongoing? Yes. And Exhibit 28 is simply a reiteration that Prudential
apparently had been sending forms to DOI around November of 1992, and DOI advised that they should not send forms but refer back to the bulletins in July; is that correct? A Yes. THE COURT: 28? MR. RECTOR: THE COURT: BY MR. RECTOR: Q Now, let's go to Exhibit 30. And you see that's a memo I am sorry. Thank you. 28, yes, your Honor. And I am sorry, counsel, this is Exhibit
dated 11/3 of '92; is that correct? A Q Yes. And that's where Martha Vetterl is calling DOI regarding
information about the PIP requirements? A Yes.
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Q
Eugene Brown - Direct Isn't it true based on the memo we reviewed earlier in this
examination, that the company knew about the specifics of the Colorado basic PIP and PIP statute over a year prior to this? A Q Yes. Um, yes.
Do you have any idea why the company is calling up the
Division of Insurance now? A From the body of the note, I would suspect that it didn't
have anything to do with the understanding of the requirements of the law with regard to the coverages, but she seemed to have some questions concerning rating. So perhaps she was trying to
clear up some issues in her head with regard to the rating aspect. Q So now it's approximately three years after Senate Bill 128
was enacted; isn't that right? A Q Yes. Now, if you would go to the next page, which is Exhibit 31,
it appears the company was in possession of an ISO page from at least dated December of '92; is that correct? A Q Yes. And that recitation of extended PIP benefits is an accurate
expression of the requirements of Colorado law following House Bill 1175, isn't it? A Q Yes. And in fact, one of -- the option 2 has one provision for a
no-per-week limit of additional PIP wage loss; isn't that
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Eugene Brown - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 correct? A Q Correct. Now, it's true, isn't it, that when the company finally
enacted a -- or rather created a policy to replace the 1989 policy, there was no unlimited weekly wage loss benefit available for purchase; isn't that correct? A Q A Q That would be in the 1994 edition? Correct. I believe that would be correct. Now, on Exhibit 32, that's another memo involving or from
Ms. Henry, correct? A Q A Q Yes. Is she back on the project, or do you know? I don't know, but we can assume she may be. Now, according to the examination earlier, you believe this
exchange that continues on Exhibit 32, 33, and 34 has to do with the issue of dropping that third APIP option that existed in prior statute; is that correct? A Q Yes. But you are aware, at least from the sheet of the previous
document, which is the extended PIP options that -- or what the statute requires; is that correct? A Q Yes. So the only issue there is whether you want to offer yet
that additional choice as well?
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A Q A Q A
Eugene Brown - Direct The third choice? Yeah. The disability, the ongoing disability?
Whether we wanted to continue offering it? Correct. I don't -- I guess my understanding would be that we
didn't -- we wanted to comply with the law and not have it offered, so I don't think we were discussing whether we wanted to continue offering it or not. Q Well, you know whenever you received this ISO page, that is
Exhibit 31 -A Let me correct myself. We did have a discussion here about
the continuation of that particular option, so I apologize. Q A Q All right. But that's not required by the law?
That's correct. So that should not have inhibited your ability to comply
with what the law did require, should it? A Q No. Now, if you would look at Exhibit 35. This is the 593
edition that was finally drafted to replace the PAC 189 edition; isn't that correct? A Q Yes. And you would agree -- so but in fact this wasn't used until
mid-1994; isn't that correct? A Q Yes. And if you would turn to the next exhibit, please, which is
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Eugene Brown - Direct Exhibit 36, this is a selection form that was intended to accompany the previous document; isn't that correct? A Q Yes. And the individuals who were going to select, for example,
extended PIP benefits could only do so by selecting them on this form, which is Exhibit 36; is that right? A Q Yes. I think you previously acknowledged that this form doesn't
contain an unlimited wage loss option, does it? A Q No. And in fact, the company continued after that to work on
modifications of its policy relating to the issue of whether or not the company wanted to offer a combined medical limit of 200,000 with a work loss waiver; isn't that correct? A Q I am not familiar with that offhand. All right. Let me perhaps make that a little clearer. You
will note on Exhibit 36, if you turn to the second page of that, please, that there is a -- there is also this option 6; is that correct? A Q Yes. Now, option 6 has the option $200,000 in medical expenses;
is that correct? A Q Yes. But there is no work loss coverage whatsoever. Is that
accurate?
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A Q A
Eugene Brown - Direct Well, it does spell out in Section 1 under C, work loss. I beg your pardon? We are doing parts personal injury protection, and then it
has Section 1, the company will pay in accordance with the Colorado no fault. THE COURT: which page, please. Bates 439. MR. RECTOR: THE WITNESS: MR. RECTOR: referring to. THE WITNESS: Okay. BY MR. RECTOR: Q So, is it your position that the basic PIP coverage in part I thought we went back to Exhibit 35. And that's where I am. Oh, I thought we were back. So I am not sure what the witness is Counsel, you have lost me. Which exhibit,
I am on Exhibit 36, essentially page 2,
6 remains part of the policy regardless of the selections of the additional PIP coverages? A Q Yes. So the selection of form 3, 3821, which is Exhibit 36, was
not used until it was used in conjunction with the previous policy, which was in mid-1994; is that correct? A I believe so. THE COURT: Counsel, for the record the previous
reference to part 6 appears in Exhibit 35; is that correct?
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Eugene Brown - Direct MR. RECTOR: That is correct, your Honor. THE COURT: And part 6 entitled Personal Injury
Protection Coverage PAC 6 Co Ed 593? MR. RECTOR: THE COURT: BY MR. RECTOR: Q Now, if you look then at the next exhibit, which is Exhibit Yes. Yes, your Honor.
Thank you.
37, that's another memo from Mary Henry; is that correct? A Q Yes. And she states, does she not, in June of '93, we need to add What is she referring
a new PIP option for Colorado car and RV. to right there? A Q A We are at No. 37, is it? That's correct. Okay.
There is a part of the provision of 1175, as I
recall, allowed the insured to, if they didn't have a job or weren't interested in work loss benefits, they could reject same for themselves. Q So that would be an option.
So would that indicate, then, that regarding the options
contained in Exhibit 36, that there is no option rejecting work loss, or is that the one that appears at the top of page 2 of that exhibit, Bates 439. A Q Is that the --
That appears to be the work loss option or rejection option. All right. So it would appear that Ms. Henry is talking
about perfecting that option in a policy form and selection form
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Eugene Brown - Direct that is later than this edition date of 593 that you find in Exhibit 36; is that accurate? A Q Yes. Now, on Exhibit 38 there continues to be some issues
associated with gaining some approval from the Division of Insurance; is that correct? A Q Yes. And then if you look at the next exhibit, which is 39, there
is an attempt to put the new policy forms into use as of 11/93 and December of '93 for renewals; is that correct? A Q Yes. And it appears on paragraph 1B that this is where there is
some reference made to what's called the new APIP option medical expense option that excludes work loss coverage due to 1175. What was it about 1175 that caused that change? A Well, 1175 indicated that you could offer the unlimited
medical and unlimited medical with unlimited wage, so that would be one of the options spelled out in that bill. Q And is it your impression that the unlimited medical --
well, the APIP option 6 is just an unlimited medical option, isn't it? A Q Yes. Is it your impression that the first time that was obligated
to be offered was as a result of House Bill 1175? A As a -- they had the offer in the, as I recall, in House
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Eugene Brown - Direct Bill or the Senate Bill 28 on limited medical also. Q So in fact this characterization isn't accurate, that that's An unlimited medical option alone
required by House Bill 1175.
was an obligation for the company to offer before House Bill 1175; isn't that true? A Q I believe that's so. Paragraph 1C it says, the work loss shall be changed from
one-year limit to no-time limit; is that correct? A Q Yes. House Bill 1175 has been in effect since July of 1992; isn't
that correct? A Q Yes. And now changes are just being made to include that option
in the policy; is that correct? A Q It appears so. And then on Exhibit 40 it's May of 1994, that would indicate
that even as of this point in time the new forms have not been put into use; is that correct? A Q Yes. And in fact Ms. Henry asks at the bottom of the page, do you
know if this project regarding the Colorado APIP option 6 has been completed. She apparently doesn't know who is working on
it; is that correct? A Q Do you say she apparently doesn't know who is working on it? Yeah. She says, who is working on it?
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A
Eugene Brown - Direct Well, she is assuming that the party to whom she is
addressing the note is working on it, and if not, she is asking -Q So she is asking Mr. Brembos or perhaps Ms. Morizio if they
happen to be working on the Colorado PIP project? A Q Well, she cc's Sharon Morizio. Now, by coincidence, or otherwise, it appears that about the
time, the date of this memo, which is Exhibit 40, Ms. Fincher is submitting a PIP application for her daughter Kelly, which is Exhibit 41; is that correct? A Q A Q That's correct. And you were involved in claims at that time, weren't you? Yes. And did anyone at Prudential instruct its claims people at
that time to tell someone in Ms. Fincher's position that they in fact had extended PIP benefits available to them? A Q Not in Ms. Fincher's position, no. And do you recall whether Prudential had a letter that it
would send out in accordance with Colorado law outlining the benefits available to an insured under these circumstances? A I am not familiar if there was or wasn't a law requiring
such a letter. Q A Q You don't even know if there was such a law, correct? Correct. Now, on Exhibit 42, you apparently received a memo within --
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Eugene Brown - Direct it appears to be approximately two weeks of the Fincher accident; is that correct? A Q A Yes. Why would you be receiving a memo for Colorado loss? As I explained earlier, my position at the time I had And when the
certain field claims offices assigned to me.
office could not -- they were allowed to handle claims within certain authority level on their own, and beyond that they had to submit those claims to home office for guidance approval of settlement, things like that. Q You were made aware, apparently, at that time that Kelly,
according to the second page of that exhibit, had been comatose since the accident; is that correct? A Q Yes. And she suffered multiple trauma to her head and fractured
skull? A Q Yes. And as page 3 indicates, you were made aware that there is a
high probability that the policy limits would be exhausted; is that correct? A Q Yes. And I think, as Ms. Bradley says, I think the injuries speak
for themselves? A Q Yes. I have just a few more things to go over with you,
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Mr. Brown.
Eugene Brown - Direct It appears just very briefly here on Exhibit 43 that
Ms. Henry is now indicating that the policy that is to be used will be put into use on July -- in July of '94. business -- I am sorry. Or new
It appears August of '94 new business
and renewal, roughly speaking; is that correct? A Q Yes. And that turned out to be the policy essentially that we
were reviewing back at tab 35 and the selection form at 36? A Q Yes. And if you would look at tab -- under that same exhibit tab
43, if you would look at Bates 182, which is a couple of pages beyond there, if you see the date and time stamp of 5/26/94. you see that? A Q Yes. And the company acknowledges at that time that this new Do
policy is replacing the 1/89 edition of the PAC 190, which is the PIP policy, right? A Q Yes. So I think on the next exhibit Ms. Henry acknowledges the
dates when the new policy is going to be used; is that correct? A Q A Q Exhibit 44? I am sorry. Yes. So this would be more than four-and-a-half years after Exhibit 44, yes.
Senate Bill 128 was enacted and put into effect; is that
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Eugene Brown - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 correct? A Q Yes. And if you would turn to tab 48, please. This is an
important notice. right? A Q Yes.
And by that, that goes to the agents; is that
Now, at tab 50, just -- it appears that Ms. Bradley is the
adjustor on this -- PIP adjustor on this claim, correct? A Q Yes. And she advises the Finchers in July of '94 they have
exhausted their basic medical benefits; is that correct? A Inferentially. She doesn't specifically say it's exhausted,
but she indicates what is remaining. Q A Q By inference the 50,000 in meds are gone; is that right? Yes. And if there was extended PIP benefits on the medical, that
would not have been true, correct? A Q Correct. And then if you would look at -- incidentally, if you look
at 51, that's a PAC 3821 form, but it has an edition date of 8/94. Do you know why this one was created as contrasted to
what's behind 36, which is the year before? A Offhand, I could, you know, study the two, but offhand I
don't know the difference. Q All right. If you would look at tab 52, please. This is a
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Eugene Brown - Direct typical letter that is sent out by the company whenever benefits have been exhausted; is that correct? A Q Yes. And therefore the company would not pay any bills received
that exceeded that amount? A Q Correct. And then just briefly, tab 53 appears to be a PIP payment
record, a series of exhibits related to PIP, and I will ask you about the first one of the three. This appears to be a longhand Is
account of Ms. Fincher's medical expenses up to the $50,000. that right? A Q Yes. And then if you look at the page, the third page of that Or at least 39,000 at that point.
Is that correct?
grouping, this appears to be a printout of some sort that acknowledges the exhaustion of the benefits under the basic PIP coverage; is that correct? A Q Yes. And if you were to look at the next tab, please, 54, and
notice that account, it would appear that these limits were reached very shortly after the accident in May of 1994. you agree? A Yes. MR. RECTOR: THE COURT: MR. RECTOR: Could I have just a brief moment? You may, counsel. Thank you. Would
Mr. Brown, that concludes my direct
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examination.
Eugene Brown - Direct Thank you. Very well. Examination now, later, or
THE COURT:
both, for the defendant, Mr. Latiolais? MR. LATIOLAIS: Yes, your Honor. I am not sure if we I understand that he So if I may at
are going to do Mr. Brown all at one time.
will be the last witnesses for the plaintiff.
least proceed to respond to the direct examination, we can make that decision probably at the time that I have concluded. THE COURT: You may. Thank you.
MR. LATIOLAIS: THE COURT:
Thank you, your Honor. If you will gave me one
You are welcome.
moment, I am reorganizing the notebook so that the tabs correspond with the exhibits. MR. LATIOLAIS: Your Honor, while you are doing that,
may I place a demonstrative exhibit on the board for Mr. Brown? THE COURT: You may. Thank you.
MR. LATIOLAIS: THE COURT:
Thank you, your Honor.
I have completed my clerical business in my
usual and clumsy slow way. MR. LATIOLAIS: Thank you, your Honor. CROSS-EXAMINATION BY MR. LATIOLAIS: Q Mr. Brown, just to give you a brief roadmap of where I would
like to go, I would like to visit with you about some of the remaining documents we have not yet looked at and try to
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Eugene Brown - Cross complete the timeline of events that took place between late '89 and 1994. And I have placed before you on the board -- I realize counsel for the plaintiff that may be a little far away, but I have supplied a paper version. I don't know of any other way,
your Honor, to make that easily visible to everyone in the courtroom. THE COURT: Let me enhance the offer. Counsel, to the
extent that you find it necessary to move closer to this particular enlarged demonstrative exhibit, you certainly may do so. MR. RECTOR: We were provided with a copy, your Honor,
and I hope to find it shortly, in which case we will remain at counsel table. But we appreciate that we may be able to get up
and look at it if need be. THE WITNESS: THE COURT: May I ask a question?
Certainly. If you gave me copies, I wouldn't have to
THE WITNESS: spin around.
MR. LATIOLAIS:
I realize this is a little irregular.
Because of the size of the courtroom and the exhibit, I could actually distribute copies for everyone's ease of vision, if counsel doesn't mind. THE COURT: That would be fine. And you are certainly
welcome to display it on the ELMO system.
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Eugene Brown - Cross MR. LATIOLAIS: Your Honor, I am afraid I would not do a good job of that. THE COURT: BY MR. LATIOLAIS: Q Mr. Brown, I would call your attention to Exhibit 56, and Thank you.
absent otherwise referencing an exhibit, I will make note of the numbered pages in Exhibit 56. And before proceeding with the very first page number in that exhibit, Mr. Brown, prior to January 1st of 1999, had Prudential supplied forms to the Division of Insurance for approval and use? A Q Did you say prior to January 1st, 1999? That was a bad question. Let me start again, Mr. Brown.
Prior to the legislative changes that took place in 1990, I understand that Prudential had some forms in use, and we have looked at that during the course of this trial. A Q Yes. Had those forms, filings, and rates been approved by the
DOI? A Q Yes, they had. After receipt of the new legislation in 1989, and I am
referencing page 1, I understand from your earlier testimony that Prudential made some efforts to implement changes to the policy? A That is correct.
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Q
Eugene Brown - Cross And is the Exhibit 56, page 1, a reference to the
information for supply to Prudential with respect to that new legislation? A Q Yes. I turn your attention to page 2 of Exhibit 56, of course.
Now, does this give an indication of when Prudential filed that information, that is the new policy forms and so on with the Division of Insurance, after receipt of the late 1989 legislation? A That indicates as of the date of this memo that the files --
the filing had been made. Q A Q And the date of that memo was what? 11/13/89. Now, let me refer you briefly to the same exhibit, 56, but
page 61. A Q Six one. Six one, correct. And I call your attention to the lower
half of that page.
Does this provide kind of a good summary of
the filing dates of the different forms at that time? A Q Yes. Now, in the third-to-last paragraph it says, filings were Do you know
made with the Colorado DOI 11/13, 1/16 and 4/19. whether these filings included rates and rules? A Q I believe they did. Thank you.
I will turn now to the 1990 timeline, if you
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will follow me.
Eugene Brown - Cross And I will try to avoid reference to pages that
we have already discussed, Mr. Brown, so give me just a moment. Let me turn to page 4. Did the policy form that was
submitted to the Division of Insurance in November of 1989 contain a $200,000 aggregate limit? A Q Yes. In the third paragraph of page 4 of Exhibit 56, there is a
reference to coverage screens reflecting the new coverages by certain dates. What is that reference? In other words, what
are coverage screens? A Um, they could be a -- it could be a series of several types It could be the underwriting screens that would
of screens.
outline the coverages that would be available on the system. They could be the policy writing screens, another system that would outline the various coverages that a policy could incorporate. And it's possible that they could include the
claims systems screens which would have to enumerate or show the available coverages for claims purposes. Q The paragraph that immediately follows the phrase "coverage Describe
screens" begin with, please have the FCO, and so on. for the court what an FCO is. A That would be a field claim office.
That would be an office
that would be assigned the handling of claims within a state or a group of states. Q And what is Ms. McCarthy Scott's directive with respect to
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Eugene Brown - Cross 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the FCO? A That the they should be notified that the $200,000 limits
would be the applicable limits to use with an extended PIP claim. Q Now, let me understand that. Was it Prudential's directive
at that time that all claims would be treated on a $200,000 basis? A Q No. Just those claims that had extended PIP benefits.
Do you mean policies that had been issued that included
extended PIP benefits would be treated on a $200,000 basis? A Q A Q Yes. Policies that were issued -- yes, um-hm.
And that directive was on what date? 12/4/89. And that was prior to the effective date of the new
legislation? A Q A Q Right. Let me turn you now to page 5, please. I am sorry. I am sorry. Could you repeat that? Exhibit 56, page 5. And I believe you Still in Exhibit 56.
referenced earlier that this reflected a telephone conversation with someone at Prudential with Mr. Jervis on 12/6 of '89. You
had discussed previously that the filings were backed up and most had been disapproved? A Q Yes. Below that there are some references. Were these also
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Eugene Brown - Cross references to information received in that conversation with Mr. Jervis? A Q I would say so, yes. And what was the discussion reflected in paragraph 1,
numbered paragraph 1? A The work loss need only be at 85 percent, parenthesis, for
all, end of parenthesis, we don't need 100 percent of $125. Q Turn now to page 8 of Exhibit 56, last paragraph, beginning You mentioned a moment ago that the claims Referencing this
with rate changes.
screens were revised to reflect the 200,000.
paragraph now, what was claims advised to do with respect to claims arising under extended benefit policies at this time? A To make the aggregate -- 200,000 aggregate payable on claims
effective January 1st. Q A Q And is that policy again reflected on page 10 of Exhibit 56? Yes. Turning now to page 11, what does this document tell us
about any subsequent filings after November 13? A This tells us that this filing had been rejected by the
department, and that enumerates some of the changes that were rejected. Q The second-to-last paragraph indicates that the effective
date would be established on the department's approval? A Q Yes. Would you explain what that means?
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A
Eugene Brown - Cross Well, prior to putting into force the policy, we would have And then at that point we can
to wait for the approval.
consider what processes we would have to go through before we can have an effective date. Q Turn now to page 15, if you would. And for the record, this Does
is a 5/11/90 memo from Nancy McCarthy Scott to Mary Henry. this memo describe anything about Prudential's position vis-a-vis William Jervis's letter identifying the DOI's interpretation as requiring unbundled coverages? A Q Could you repeat that, please? That was a poor question.
What does this document tell us
about Prudential's response to the Division of Insurance request that companies unbundle or depackage the various options? A Q That we are kicking it around or discussing it. There was some testimony earlier about the Division of Does this memo
Insurance response to other companies' filings.
give any indication as to what Prudential was advised in that regard? A Yeah. There is an indication in the first three lines that
the insurance department said they were rejecting all of the company's filings. Q Now, I am not sure if you can tell from this memo, but you
recall a question earlier as to whether or not Prudential took advantage of Mr. Jervis's offer to speak by telephone. this memo give any indication of whether there was a Um, does
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Eugene Brown - Cross communication with the Division of Insurance at about this time? A That sentence I have read before. The insurance department
said they were rejecting all the company's filings, which would indicate a communication outside the letter from Mr. Jervis. Q Two more questions about this memo, Mr. Brown. Does this
memo give any indication of how Prudential was treating claims that were made under extended benefit policies? A Yes. It goes on to say that claims -- picking it out of
context -- claims settling based on the new law. Q A Q When you say settling, what do you mean by that? Settling, paying the claim based on the $200,000 aggregate. Can you tell from this memo Ms. Scott's position with regard
to whether the new statutory changes required the unbundling of coverages as suggested by Mr. Jervis? A Yeah. It appears that she has questions as to whether the
law really would require that to be the case. Q And what was being done in connection with that inquiry
or -A They were soliciting opinions based or from the law
department to get additional information. Q Let me call your attention briefly to page 17, and we have
discussed this document -- well, this document has been discussed. It's the January 23rd, 1991, circular from ISO.
And in the second paragraph, there is a statement, the Colorado Insurance Department recently requested the depackaging
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Eugene Brown - Cross of added PIP benefits. Do you know anything more about when ISO may have had communications with the Division of Insurance in that regard? A No. I think this is the first document that I am aware of
involving ISO. Q On page 18, there is an indication -- the first paragraph Again, page 18 of 56. ISO will
after numbered paragraph 3. file revisions. A No.
Do you know when those revisions were filed?
I think they were filed later in the -- not positive,
but I think they were filed later in the year. Q Let me turn your attention to page 20 of Exhibit 56. Down
at the very bottom of the page, the last full paragraph, here is how ISO is handling this. Does this document give us an idea
of -- as to when Prudential was made aware of the ISO filings with DOI were approved? A Q Looks like sometime between January and April of '91. Does this memo also evidence communications between
Prudential and the Division of Insurance on that issue? A Q Yes. Does it indicate the date that those communications took
place? A Um, no. I would think it would be contemporaneous with the
memo, sometime in April or perhaps late March. Q Page 22. I believe you just addressed this a moment ago Is this an indication of additional activities
with Mr. Rector.
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Eugene Brown - Cross that Prudential was undertaking at this time? A Yes. We are still considering the unbundling issue with our
legal department. Q Let me turn you now to page 24. In the very first paragraph
beginning March 19, 1991, there is a reference to ISS, and actually that the reference is to the preceding page, page 23, but feel free to look at that, if you need to. My question is, what is that organization or entity, ISS? A I am not positive, but I would say it's an organization
where we would obtain rating information, coding information, things of that sort. Q Why would Prudential be interested in receiving that
information? A My understanding would be that the rating and coding
information would be a -- the type of thing that insurance companies in general should have in common so that when reports and filings are made with the DOI, everyone is submitting the same type of information and the same type of computer coding. Q Is that type of computer coding necessary to implement the
new policy forms and rates? A Q Yes. Briefly in the paragraph towards the bottom which contains What was Prudential doing at that point
the No. 1 on the left.
with respect to the legal department and their analysis of the
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Eugene Brown - Cross statutory requirements? A Well, the paragraph reads that Mary Henry forwarded related Some
information to Lou Zucarro, the PruPac attorney.
uncertainty exists as to whether PruPac's packaged APIP options are in compliance with Colorado laws. Lou seemed to think that
the packaged APIP options are a valid representation of the law. In other words, he didn't feel they had to depackage, and he suggested that claims be contacted to further look into the matter. Q Now, are you aware of any other documents that might be
followups to the legal department's analysis or Product Development Department's analysis before the information contained on page 26? A No, I am not. THE COURT: Counsel, excuse my interruption, but
looking at the clock, a propitious time to declare and take our first formal recess of this morning, during which, Mr. Brown, again you may stand down, and accordingly, we are in recess for approximately ten minutes. (Recess at 10:00 a.m., until 10:20 a.m.) THE COURT: Thank you, and again please be seated.
Mr. Brown, if you would be so kind, and thank you. Ve