NEW YORK - Testimony in the first week of Harris Trust & Savings Bank vs. John Hancock Mutual Life Insurance Co. was uneventful, with the plaintiff's first witness, an actuary, explaining the structure, uses and evolution of the insurance contracts that are at the heart of the case.
After 15 years of fits and starts, the trial got under way July 22 in U.S. District Court in the Southern District of New York. The non-jury trial is being heard by Judge Denny Chin.
The trial reconvenes for the first four days of the week of Aug. 18 and is expected to conclude at the end of the week of Aug. 25.
Harris Bank & Trust, a trustee for the Unisys Corp. pension fund, is trying to recover more than $50 million on behalf of the pension plan. The plaintiffs allege a Hancock insurance contract that generated money in excess of the amount needed to cover benefits was mismanaged by Hancock.
The money, the plaintiffs allege, belongs to the pension plan.
Hancock has argued it is not a fiduciary regarding the excess assets. The U.S. Supreme Court in 1993 ruled that certain excess assets from insurance contracts are subject to the Employee Retirement Income Security Act.
Lawrence Kill, lawyer for the plaintiff, in his opening argument said the plan was damaged and ERISA was breached when Hancock invested the excess money in Hancock's corporate headquarters in Boston and other "loser investments."
Howard Kristol, lawyer for the defense, sought to blunt the contention that the insurance contract was subject to ERISA. The contract in question, a group annuity contract, is a participating contract, and as such, the owner is an equity holder in the insurer, Mr. Kristol said in his opening statement.
"If a shareholder of General Motors were to say to General Motors' board, 'don't use my assets for that investment because I don't like it,' and they were to do that with the benefit of 20/20 hindsight, I think your honor would pay very short shrift to that kind of claim, and yet that is the claim that is being made in this case by them," said Mr. Kristol.
"They (Unisys) have a participating contract, and they are an equity holder in this company," said Mr. Kristol. "So any item of expense, if it is too small, they are the beneficiary of that.
"If it's too large, they suffer a detriment like all other participating contract holders suffer a detriment," said Mr. Kristol.
"And that is essentially what is wrong with that part of Mr. Kill's case," said Mr. Kristol. "What he has done is taken allocations that are companywide and he's tried to individualize them.
"And he said, 'well, that really wasn't good for GAC 50 - the specific contract - and Hancock is a fiduciary to me, so everything should have been individualized to me'."
Mr. Kristol also said no retirees have lost benefits because of Unisys' investments in GAC 50.
"If the plaintiffs obtain a recovery in this case, are they going to find that their benefits are going to be expanded?" said Mr. Kristol. "Not at all, your honor."
Witnesses who are expected to testify at the trial for the plaintiffs are:
Daniel J. McCarthy, chairman of Milliman & Robertson, an insurance consulting firm; Robert Moreen, an actuary with William Mercer Inc.; and Roger Ibbotson, founder of the consulting firm Ibbotson Associates Inc.
Testifying for the defense will be David Babbel of The Wharton School at The University of Pennsylvania.
Mr. McCarthy was the first witness called by the plaintiffs, and testified almost 21/2 days before cross-examination began.
The defense is expected to resume its questioning of Mr. McCarthy Aug. 20.