Oxy Offered $32 Million to Settle Insurance Suit

Occidental Petroleum Corp. has been offered $32 million to settle a lawsuit involving an allegedly bogus insurance policy that it purchased through the Newport Beach office of Bayly, Martin & Fay International, one of the nation’s largest insurance brokers.

Occidental attorney Hayward J. Kaiser said Monday that he expects that the oil company will accept the offer to settle its lawsuit against the insurance broker.

Los Angeles-based Occidental claimed in the suit, filed in Orange County Superior Court last year, that Bayly’s Newport Beach office had collected $22.5 million in premiums, plus a $1.125-million commission, for a non-existent policy.

Occidental, according to the suit, thought it had purchased a three-year property policy in 1984 from Phoenix Assurance Co., a London-based firm. But the policy actually was written by a firm called Phoenix Insurance Co.

“The existence of the Phoenix Insurance Co. has not been confirmed,” Occidental said in a sworn statement.

The settlement offer by Bayly, Martin--headquartered in Texas--stipulates that “no intentional wrongdoing on the part of BMF” had been found.

While acceptance of the $32-million settlement offer would remove Occidental from the case, the suit would remain active because Bayly, Martin & Fay in April filed a cross-complaint against five other insurance firms claiming that it had been “victimized by the fraudulent and criminal conduct of others.” The complaint named Phoenix Insurance, Bijou Insurance Services Ltd. of London, W. G. Hill & Son of London, Hill Leonard Marine Ltd. of Florida and Countach Intermediaries Ltd. of New York. Court records show no response from the five firms.

The largest chunk of Occidental’s payment, $18.1 million, allegedly went to Phoenix Insurance, according to documents that Bayly filed in court.

Occidental, which said it was unable to secure replacement coverage until Oct. 30, 1985, 10 months after the allegedly fraudulent policy supposedly went into effect, had claimed actual losses of more than $51 million, including the money paid for the allegedly bogus policy, the cost of the replacement policy and uninsured losses.

The oil firm also claimed that the replacement coverage was less extensive than the fraudulent original and that additional losses “might substantially exceed $50 million” by the end of 1987, when the allegedly bogus policy was due to expire.

When Occidental’s suit was filed last August, Bayly announced that it had fired the executive vice president, William A. Baxter, who had handled the transaction. Baxter was chief of Southern California operations for the firm.

Bayly had been retained by Occidental to reinsure Occidental properties. Reinsurance is used to allow primary insurers to spread a large risk among several companies, each of which underwrites a portion of the policy in exchange for a share of premium income.