Driscoll, who was about to become Vice President of North American Operations for Royal Global. On January 29,1993, upon receipt of the report, Brown wrote to Driscoll of his disappointment and concern with the findings of the market conduct examination. He believed that there had not been strict adherence to statutory requirements and ordered Driscoll to bring the files into compliance:
I have to view these findings as a serious failure on the part of Management. It typifies the hands off style which I abhor. I need to know the following by urgent return fax:
Are there grounds for immediate termination for the responsible Underwriters and Underwriting Management? If not, why not?
I presume that compliance is a feature of job descriptions and authority levels. If not, why not?
I want your immediate concentrated efforts applied to rectifying all non compliance issues. I do not care if you work nights and weekends, but I want your assurances that these will be rectified immediately, and I want a guaranteed deadline by which you will meet compliance totally.
R.26 at 361-62. Once Driscoll received this letter, he issued a memorandum to Royal Global’s Underwriting and Rating staff to review all their new and existing policy files to ensure that the files were in compliance. He also arranged for a mandatory seminar on compliance issues for all underwriters. In early 1994, Royal Global conducted internal audits of its offices in New York, Chicago and Los Angeles.
The audit of the Chicago office, conducted between January 31 and February 4, 1994, reviewed property and casualty account files and examined both compliance and underwriting issues. The audit team included Driscoll; Ballantine, Regulatory Compliance Division Manager; and John Dugan, Underwriting Account Executive in Royal Global’s New York office. Ballantine reviewed the accounts for compliance with state law, and Driscoll and Dugan reviewed them from an underwriting standpoint. The Chicago office had prior notice of the audit and the auditors prepared written work sheets documenting their findings for each account file they reviewed. Mr. Bahl criticized the audit procedure, however. He claimed that there was no notice of the audit format, no work sheets provided, no list of the accounts to be reviewed and no checklist of the elements the auditors were checking.
The auditors were quite critical of Mr. Bahl’s files. Ballantine noted, on his work sheets and in the summary of his findings, that most of the property files he reviewed did not contain the necessary rates documentation and that the lack of documentation was a serious violation. Ballantine’s section of the summary, entitled “Compliance,” stated:
Property — it appears that most files did not have the necessary documentation from a regulatory perspective. No full process for rate development was in the file as required. The majority of the files reviewed were eligible for various rating plans[;] however, no documentation was present identifying the rating plan used in the rate calculation. This is a serious violation.
Property underwriters in Chicago were brought into New York for a special session conducted by the market conduct people of Royal USA. There should be no reason for a misunderstanding on the part of the underwriters as to what is required in the area of compliance.
R.26 at 401-02. Driscoll and Dugan concurred in that assessment of Mr. Bahl’s property files. Dugan’s report, after evaluating eleven files, also pointed out the lack of underwriting documentation and assessment. Dugan rated the files as poor or barely adequate in many categories. Driscoll’s own observations were based on a review of only two property files; nevertheless, his summary of the audit was equally critical of Mr. Bahl’s files and his procedures in underwriting and compliance.
After the audit was completed and the work sheets were compiled, Driscoll filed a written report. He pointed out many deficiencies in the property files. He observed that the documentation was so poor that a reviewer of that file would not be able to determine what had been done. He also