The calls came during the day in November when Herschell Dunham was at his job as an examiner for the Oregon Insurance Department and Marsha was alone in their Salem house.
The first time, the unidentified male caller warned Marsha that if she wanted her husband to remain alive she had better persuade him not to accept a job offer back in Louisiana.
The next time, the voice told her that if she wanted to see her grandchild ever ride her bicycle again, Herschell had better stay in Oregon. The caller, to Marsha's consternation, knew the child's Baton Rouge address.
In the final call, Marsha was warned that if her husband decided to return to the Louisiana Insurance Department, which he had left for the better-paying job in Oregon, he would be blown up in his car.
Nobody knows who made the call or why, but the threats worked. The Dunhams did not return to Baton Rouge.
Dunham's former boss, Louisiana chief examiner Sidney O. Robertson, had wanted Dunham back and had a specific initial assignment in mind.
A Boton Rouge insurance firm, National American Life Insurance Co. (Nalico) had just been sold to a Southern California man named Joseph Hauser. Hauser Faces criminal charges of bribery in Los Angeles. The previous owners of Nalico, two brothers, Roger and Jules LeBlanc of Baton Rouge, were indicted Jan. 14 for alleged misapproporiation of about $3 million in bank funds.
The questions on this transaction could have kept Dunham busy for some time.
The Nalico case is a classic example of how easy it is to gain control of an insurance company. It also shows how these companies can be used for purposes that have nothing at all to do with the traditional insurance function of protecting policyholders from extreme risks.
Insurance companies have large reserves which are supposed to be set aside to pay off policyholder claims. The size of these reserves is dictated by state law, and the maintenance of adequate reserves is supposed to be policed by state insurance departments.
Nalico, having headquarters in Baton Rouge, comes under the benign supervision of Louisiana Insurance Commissioner Sherman A. Bernard. For reasons of his own, Bernard has done his best to prevent his chief examiner from probing Nalico and associated enterprises, according to members of his staff.
The key figures in the tangled affair are Roger LeBlanc, 29, and his brother Jules III, 31, who got a $30 million loan from Chase Manhattan Mortgage and Realty Trust in 1972-1973 and have been financing it from banks and insurance companies ever since.
Then there is Hauser, a promoter who used several million dollars he allegedly diverted from Teamsters health an welfare fund insurance premiums to buy Nalico from the LeBlanc interests.
Hauser is on trial in Los Angeles on criminal charges that he gave bribes to union leaders who placed their membership's health insurance with a Hauser-controlled company.
The LeBlancs controlled at least five Louisiana banks, which they used to finance their real estate dealings. Roger LeBlanc got into the insurance business about the time the FBI began probing the banking operations which led to the brothers' indictment. He first acquired a Texas insurance holding company, then picked up Nalico in 1975.
LeBlanc held Nalico for less than a year, selling it to Hauser last June. The terms of the sale are significant, for each side in the deal got exactly what it needed and the policyholders, it turned out, were the only losers.
The sales terms called for Nalico's $100 million insurance in force to be transferred to a new company formed by Roger, called First Republic Life Insurance Co. These policies gave LeBlanc collateral for continued borrowing and premium income.
For his part, Hauser wanted - and got - the Nalico corporate shell. This was valuable to him because Nalico is licensed to do business around the country. By having a company already licensed, he did not have to go before insurance departments, which might ask embarrassing questions about some of his past dealings in California.
According to a number of insurance departments in the 26 states where Nalico (or First Republic) has about $100 million of insurance in force, claims are not being paid. On Baton Rouge source says there are $500,000 in unmailed claim payments at First Republic headquarters in Baton Rouge.
And even as claims go unpaid, policyholders have been hit for a 300 per cent increase in premiums. What is more, Nalico policyholders have not yet been informed that they now are with a new company, First Republic. All their correspondence from First Republic - including the whopping 300 per cent increase - has come on Nalico stationary.
According to Gloria Jimenez, acting deputy commissioner of insurance in North Carolina, some of the policy-holders have no choice but to pay the 300 per cent boost. "These are the poor slobs who are so unhealthy that they can't go elsewhere," she say.
To a number of federal and state observers of the LeBlanc-Hauser dealings, they are glaring examples of the weaknesses in the present system of state insurance regulation. Since 1945, when Congress passed the McCarran-Ferguson Act, policing of insurance companies has been strictly a state function.
But the effectiveness of the various state regulatory commissions is as uneven as state boundary lines. And even some of the powerful insurance companies, which pushed hard three decades ago for state regulation, are having second thoughts.
Insurance companies, like banks, have a cash flow that a shrewd financier can divert to pet projects. Unlike banks, there is no federal oversight of the vast holdings of insurance companies, who hundreds of billions of dollars in assets make the industry the richest in the nation.
On Capitol Hill, there are some legislative aides with spotty knowledge of certain areas of the insurance industry, such as no-fault auto insurance or product liability insurance. These areas have voter appeal. But virtually no one monitors the effectiveness of the state regulators and what their actions mean to the policyholders.
The New York State Insurance Department is universally pointed up as the leading regulatory body. It has a relatively large staff, but it also has a staggering number of big insurance companies to regulate.
California is generally said to be No. 2 among the state regulators. But it was in Los Angeles in 1973 that the now delunct Equity Funding Corp. of America was revealed as the biggest insurance fraud of all time. To the chagrin of the state insurance department, Equaity Funding turned out to be a paper empire with phony policyholders actually created by the company.
After the collapse of Equity Funding, the National Association of Insurance Commissioners, which is the umbrella orgainzation for the state commissions, adopted "early-warning systems" to detect troubled property, life and health liability companies.
But as one regulator notes, "Examiners from state commissions can only review the books that the companies give them to review."
McKinsey & Company, Inc., the management consultants, did a study of the state insurance commissions in 1974. One of its conclusions was that the commissions spent most of their energies examining the big, powerful companies. However, the swindles that often lead companies to collapse are not normally found at large companies such as prudential, John Hancock and Travelers.
Moreover, most of the problem companies are located in states with weak regulatory records. A failure in a weak state can have a ripple effect. One reason is that many companies are licensed to write insurance policies in various states. And companies reinsure - share the underwriting risks (and premiums) - with other companies in various parts of the country.
The LeBlanc and Hauser groups have concentrated their dealings in states with reputations for weak insurance supervision - Arizona, Texas, Oklahoma, Mississippi, Florida and Louisiana.
"It's all very scary," says one attorney familiar with the insurance business. " . . . the way the insurance industry functions when one company goes down . . . affects many because of reinsurance treaties between companies."
What is more, many states have passed laws that force healthy companies to pick up claims payments when a fellow company fails. Naturally, these costs to the healthy companies are passed along to their policyholders in the form of increased premiums.
The McKinsey & co. report noted that during the past decade, 77 per cent of the life insurance companies that became insolvent got that way because of "dishonesty" by management.
This could be construed as meaning that policyholders of strong companies must pay for the inability - or incompetence - of state regulators to uncover fraud. On the other hand, knowledgeable observers of state regulation, including some state commissioners, agree that regulators often will o to extreme limits to save a company - even one rife with fraud - from going under.
In Louisiana, the insurance department staff has alleged privately that the LeBlancs used company assets and leverage to finance real estate, and has questioned whether the LeBlanc interests have depleted capital reserves. One known loan from Nalico was $800,000 to LeBlanc interests, which was due for repayment last August. The loan now is held by Roger's new company, First Republic, and so far only $25,000 in interest has been paid, insurance department sources say.
The Louisiana Insurance Department staff has brought these facts before Commissioner Bernard repeatedly. But he has refused to allow an audit of LeBlanc's Louisiana insurance operation.
A number of members of his staff who have pressed him to call an investigation have gotten threatening telephone calls of unknown origin similar to those received by Marsha Dunham in Oregon. And there have been two unexplained break-ins at the Nalico offices in Baton Rouge.
In December, the Securities and Exchange Commission sued Hauser for "looting" Nalico after taking it over from LeBlance. As a measure of the SEC's opinion of Bernard, it petitioned the court for its own co-receiver on Nalico to share responsibility with Bernard. The request was granted.
Meanwhile, Roger LeBlanc continues to build on his insurance holdings, even as the SEC probes in his past insurance dealings and federal prosecutors prepare the criminal case against him and his brother for the check-kiting indictment.
Through First Republic, LeBlanc has obtained effective control of a Jackson, Miss, mortgage and loan company called Fidelity Mortgage Co. A knowledgeable source in Louisiana says that all of Fidelity's stock has been pledged for a $1.8 million loan, and all of First Republic's stock has been pledged for a $2.4 million loan.
First Republic and Fidelity, in turn, have bought 31 per cent of a Mississippi insurance company, American Public Life Insurance Co. of Jackson. In 1976, American Public had some $140.05 million of insurance in force.
Last year, before the LeBlanc interests got into American Public, the Mississippi Insurance Department found that the company's capital and surplus met state requirements, according to Deputy Commissioner Wooley D. Box. And while the LeBlanc group has made every necessary filing with the department since arriving on the scene, Box does allow that "the company is in great flux."
In January, Roger LeBlanc started yet another company, this one called American Public Life Insurance Co. of Oklahoma, Inc.
Although it has virtually the same name, Box says it has nothing to do with the Mississippi version. "I have no information on that at all," he told a reporter last week. "In fact, I didn't even know of its existence until you mentioned it to me."
In Oklahoma, as well as a number of other states, it is easy enough to open up a company and sell insurance policies. All it takes is capital - $500,000 in Oklahoma. "The fact you don't know anything about insurance doesn't make any difference," according to Mark Hain, who is general counsel of the Oklahoma Insurance Department.
What is more, Hain says that LeBlanc was not required to reveal to the department anything about this criminal and civil legal problems. "There is nothing about "integrity" in the application form," says Hain, who clearly is troubled by the LeBlanc presence in his department's jurisdiction.
More recently, LeBlanc, through Fidelity Mortgage Co. in Mississippi, bought control of another Oklahoma insurer, United Founders Life Insurance Co. in Oklahoma City. According to the Oklahoma department, United Founders has about $50 million in assets, most of it real estate. Because United Founders is an existing company, the department is pressing Roger LeBlanc for a detailed accounting of his affairs, which he is resisting through his local attorney.
In Oklahoma, as most everywhere else, the LeBlanc interets have sought assistance from politically connected individuals. To deal with the state insurance department, they hired Gene C. Howard, a Tulsa attorney who is also president pro tempore of the Oklahoma state senate.
Lawrence O'Brien, the former Democratic party national chairman, is listed as an investor in a LeBlanc-built hotel in Baton Rouge. When Roger went after his first insurance company, which was located in Texas, the insurance commission there got letters of recommendation for Louisiana Sens. Russell Long and J. Bennett Johnston, and from Louisiana Gov. Edwind Edwards.
The LeBanc lend a helping hand to politicians, too. They are large contributors to political campaigns. Gov. Edwards, who enjoys use of Jules LeBlanc's posh "camp" on the Gulf at Pass Christian, Miss, and two aides made $25,000 each in a LeBlanc real estate venture, though none of them put up any money.
Louisiana Insurance Commissioner Bernard's nephew is on the LeBlanc payroll. So was the former insurance commissioner of Texas, who became president of a Texas insurance company just after he passed on Roger's application to take over the company.
Bernard, who has steadfastly resisted staff attempts to move against First Republic, finally agreed 10 days ago to allow a suit to be filed to force disclosure. But just as an insurance department attorney was filing the suit, Bernard suddenly changed his mind, reportedly after receiving phone calls from Gov. Edwards and from the head of Louisiana's AFL-CIO, who got a large loan from a LeBlanc company.
But Bernard was too late, and a judge who read the suit decided immediately to put LeBlanc's First Republic into conservation to be run by the department.
Meanwhile, Bernard has found time to form his own corporation called Consumers Educational Fund, Inc., and is selling tickets to insurance executives for a $125-a-plate dinner to finance the effort.
According to sources in Baton Rouge, the money is to be used by Bernard for a series of television programs to promote legislation aimed at lowering insurance rates.