Monday, Apr. 04, 1988

Business Notes INSURANCE

Throughout the U.S., playgrounds, skating rinks and swimming pools closed, small businesses wobbled precariously and public schools risked major lawsuits whenever they opened their doors. Such were the problems that rocked states, municipalities and businesses beginning in 1984, when companies providing liability insurance sharply raised rates or simply canceled policies. Last week attorneys general from nine states charged in a series of federal lawsuits that the crisis was manufactured by major insurers through what Massachusetts Attorney General James Shannon called "back-room deals, secret communications and thinly veiled threats."

The state officials charge that executives at Allstate and Hartford Fire acted in collusion in 1984 to offer policies with less coverage for more money. Then the two firms allegedly persuaded some 30 other insurers and reinsurers, including Aetna, Cigna and Lloyd's of London, to go along with the plan. The suits ask that the insurers pay civil penalties and resume discontinued coverage. The insurance companies deny any conspiracy. Officials of the Insurance Services Office, a trade group representing 1,400 companies that write 95% of U.S. casualty insurance, say that as insurers' investment incomes fell below losses from claims in 1984, the firms had to cut back selectively on their customers' coverage.