Warren Buffett Watch: Lawyer says Berkshire insurers prompt to pay

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Posted: Sunday, October 20, 2013 12:00 am

Steven Schockett of Baltimore doesn't agree with asbestos-damage lawyers who say Berkshire Hathaway Inc.'s insurance companies delay payments so Warren Buffett can make more money.

And he's a plaintiff's lawyer, besides being a Berkshire stockholder.

“The first thing any plaintiff's lawyer hollers is that the insurance company's sitting on the money. We all do it,” Schockett said.

He contacted The World-Herald after some lawyers said in a recent Scripps News story that Berkshire insurers such as Omaha-based National Indemnity Co. purposely delay payments so that Buffett, chairman and CEO, can invest the money, known as float, in the meantime.

Berkshire insurance chief Ajit Jain defended the company's record in the Scripps story.

Schockett's clients include people whose abilities were impaired by lead-based paint. Berkshire inherited “a ton” of those claims in 2000 when it acquired General Reinsurance, he said, which carries liability risks for landlords he represents.

The claims can take years to surface because impairment can come to light slowly, and people can sue more than 20 years after they are affected as children. Sometimes lawyers file broad lawsuits, such as several residences on the same block, to act within statutes of limitations.

Schockett said his experience with National Indemnity and other Berkshire insurers is that they treat claimants fairly and pay what is owed promptly and even, occasionally, with surprising generosity.

“If their lawyer says to them, 'This case is worthy,' when there's a hundred grand or more of insurance, they pay the hundred grand,” he said. “They don't play around, don't try to drag it out.”

He said he doesn't think Jain would have a policy of delaying payments. “He's not giving money away. But he's not relying on smoke and mirrors to get out of something that he's contractually liable to do. They have a way of doing business, and it comes from the top down.”

Insurance companies including Berkshire certainly make money from their float, Schockett said. “That's the way it works.”

Berkshire's BNSF Railway opened a new Logistics Park in Edgerton, Kan., near Kansas City, a 1,550-acre distribution and warehouse development that is the company's third such facility.

BNSF said the park will double its capacity to move truck containers and trailers.

Railroad Chairman and CEO Matthew Rose said the $250million center is one of the most efficient in the country and will enhance Kansas City's role in the nation's supply chain.

Buffett's appearance at Fortune magazine's Powerful Women conference last week included a duet with actress Glenn Close.

Buffett played the ukulele and sang into a microphone on a stand while Close moved around the stage with a hand-held microphone as the two sang “The Glory of Love” and “It's Only a Paper Moon.”

The second tune was familiar to Buffett partly because he sang a modified version during the 2012 Omaha Press Club Show, only with different lyrics.

“I'm only a paper boy,” he sang during that performance, wearing an old-time newsboy outfit and tossing folded newspapers into the crowd at the Mid-America Center in Council Bluffs. He was celebrating his purchase of The World-Herald.

Both performances received standing ovations.

Benjamin Moore's flood-damaged paint plant in Newark, N.J., has recovered from Hurricane Sandy, the Star-Ledger of Newark reported, and a celebration featured company Chairwoman Tracy Britt Cool and new CEO Michael Searles.

Reporter Alexi Friedman wrote:

“How's Warren doing?” someone shouted lightheartedly from the assembled crowd of workers at the Benjamin Moore paint plant in Newark.

“Warren's doing great!” Tracy Britt Cool, the company chairwoman, answered cheerfully from the podium.

She said she was eager to show Buffett photos of the reclaimed plant, where 6 feet of water from the nearby Passaic River damaged or destroyed millions of dollars worth of equipment and upended 10 storage tanks that held 6,000 gallons of paint each.

Benjamin Moore, a 130-year-old brand, has a market share of less than 10 percent and has cut its workforce by 15 percent in recent years. Searles is its third CEO in two years.

The plant's paint-filling lines recently returned to service, along with its 55 employees. The company has 700 of its 2,200 workers in New Jersey.

Allister Heath of the London news outlet City A.M.s remembers a mock test question something like this during a financial economics course at the London School of Economics in the 1990s:

“If financial markets are efficient, how come Warren Buffett exists?”

The question relates to three economists recently awarded the Novel Prize in economics, Eugene Fama, Robert Shiller and Lars Peter Hansen.

Fama's “efficient marker” hypothesis, in various forms, indicates that if the value of companies traded on markets reflects all available information, then it would be impossible to beat the market — and few people would know Buffett's name.

“As far as I can tell, he never 'explained' the existence of the tiny number of market-beating geniuses such as Warren Buffett or Anthony Bolton,” Heath wrote.

Yet for many ordinary investors, as Fama hypothesized, the efficiency of the market “holds in practice, which is why so many people now invest in (index) tracker funds and exchange traded funds.”

Even Buffett recommends investing in mutual funds that track the general stock market for people who lack the interest, temperament or ability to invest in individual stocks.

Looking for a Christmas gift for that 8-year-old entrepreneur?

“The Secret Millionaires Club” is offering Business in a Box at Toys R Us to teach fundamental financial literacy through play.

“The Secret Millionaires Club” is a TV and online series by A Squared Entertainment with a Buffett cartoon character explaining the principles of business.

The $19.95 Business in a Box contains toys, activities and DVDs and can be pre-ordered online or bought in stores later this month.

The kit, developed by toy company TCG of Toronto, has materials for setting up a lemonade stand or a carwash and includes a booklet of business tips from Buffett.

Buffett predicted that someone would get in trouble for suspicious trading just before the March purchase of H.J. Heinz Co. by Berkshire and Brazilian investment group 3G Capital for $23.2 billion.

“I mean, they're going to nail that guy, and they should,” he said on CNBC's “Squawk Box” program. “That options trading clearly reflected somebody that knew something, and it will be very interesting to see who it is.”

As the website GuruFocus.com recently noted, the suspect is Rodrigo Terpins, who was at Walt Disney World in Orlando, Fla., when he allegedly traded through a Swiss bank account on nonpublic information from his brother, Michael Terpins.

Their family controls the Marisa Lojas chain of department stores in Brazil. Their mother, Denise Goldfarb Terpins, has a net worth of $500million.

The Securities and Exchange Commission ordered them to repay their $1.8 million profit and $3 million in penalties, subject to court approval.

Which raises a question: If someone makes a $1.8 million profit from illegal activity, why don't they go to jail?

Howard G. Buffett, Warren's son, who wrote a new book called “Forty Changes: Finding Hope in a Hungry World,” posted an “influencer” essay on LinkedIn, the business-oriented social medium.

With $3 billion from his father and mother in his foundation, Buffett said he has learned from risk takers that tackling significant problems means occasional failure.

He mentioned his work with agricultural economist Ed Price of Texas A&M University; Joe Whinney, CEO of Theo Chocolate of Seattle; actress and philanthropist Eva Longoria; and former British Prime Minister Tony Blair.

He suggests considering these questions to maximize your “40 chances” of doing something significant in life:

What are the risks worth taking to achieve something truly important?

What is my unique advantage and how can I best leverage it? (In my case, the freedom of running a private foundation.)

How will I embrace and learn from failure?

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

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