Top Execs at R.I.’s Beacon Mutual Axed; Governor Removes 2 Directors

April 20, 2006

Making good on his warning, Rhode Island Governor Donald L. Carcieri officially acted to remove two directors from the board of directors of the Beacon Mutual Insurance Company after the steps taken by management fell short of what he demanded.

The move by Carcieri came after board of directors of Beacon Mutual, the state’s dominant workers compensation carrier, suspended and then fired its chief executive officer, Joseph Solomon, and its vice president of underwriting, David Clark.

The Beacon board opted not to respond to Carcieri’s action, leaving it up to the individual directors top decide what to do, according to a Beacon spokesman.

The multiple terminations are in response to a report issued by a panel headed by former Gov. Lincoln Almond that found that Beacon management participated in a scheme of favoritism in pricing for certain agents and accounts, some of them with ties to directors and management.

In letters to directors George Nee and Henry Boeniger, Carcieri said that his decision was based on the findings of the Almond committee.

Both Nee and Boeniger have been directors on the board of the Warwick-based insurer since the company’s formation in 1994. The board consists of four members appointed by the governor, three representing policyholders, the director of the Department of Labor and Training, and the company’s chief executive officer. Nee, Boeniger, and Holmes were appointed by previous governors. The only appointment made directly by Carcieri is Brendan Doherty, whom he appointed in February 2006.

“I regret that I was forced today to remove both George Nee and Henry Boeniger from the Beacon Mutual Board of Directors,” Carcieri said in a statement. “I had hoped that they would have acceded to my earlier requests by supporting a management change at Beacon and by voluntarily resigning from the board of directors. Unfortunately, it is my understanding that they did neither.”

Earlier in the day, the insurer fired Solomon and Clark, its two top two executives, having suspended them with pay last Friday.

Clifford Parent, the vice president of claims, was named interim president. A replacement head of underwriting has not yet been named.

Another board member, Edward Braks, resigned last Friday. Braks is chief financial officer for Paul Arpin Van Lines, which the Almond report maintains received large credits and benefited from incorrect workers compensation classification despite an overall high loss ratio.

The former chairman of the board, Sheldon Sollosy, left the company late last year when an anonymous tipster raised questions about his company’s workers compensation account. The report says Sollosy refused to permit access to the payroll records of his company, Manpower Temporary Services, for a workers compensation audit and that senior management took no action to have the company cooperate.

Carcieri is also asking a third board member, John Holmes, to meet to discuss his involvement in Beacon’s management problems.

The Almond report recommended that Beacon hire an independent insurance expert and an ethics officer to devise a code of conduct and a conflicts-of-interest policy. Beacon board members have agreed “in principle” to implement all the recommendations in the report, according to spokesman Bill Fishcher said.

Carcieri applauded the firing of Solomon and Clark but said those action stopped short of what is needed.

“There is no doubt that Beacon’s decision to terminate the CEO and the vice president of underwriting for cause is the right thing to do, and is a good first step towards reforming Beacon Mutual,” Carcieri continued. “But it is just the beginning. For the good of the company, the policyholders and the people of Rhode Island, Beacon board members who refused to support this change must go.”

Beacon Mutual’s bylaws provide the governor with the power to remove “for cause” any members of the board for whom the governor is the appointing authority, according to the governor’s staff.

Carcieri maintained he has “both the authority and the responsibility to impose changes on the board of directors when their oversight of the company is found wanting,” adding that he believes these board members “were either complicit in the company’s mismanagement or they were incompetent. In either case, they violated their fiduciary duty and cannot be allowed to preside over Beacon Mutual’s future.”

Carcieri has also contacted Holmes, who has been on the board since 2002, to request a meeting to discuss his role in the findings contained in the Almond report. Holmes was not on the board while much of the mismanagement had occurred.

Carcieri reiterated his call for Beacon Mutual to cooperate with the forensic audit being conducted by the Rhode Island Department of Business Regulation.

“I have spent the last year warning anyone who would listen that there are major management problems at Beacon Mutual,” Carcieri said. “Just as in the cases of Blue Cross/Blue Shield and Roger Williams Hospital, my only purpose is to preserve Beacon Mutual as an asset for its policyholders and for the people of Rhode Island. Beacon is a strong company with a bright future. I intend to keep it that way.”

Beacon Mutual is a nonprofit independent corporation created by the state in 1991 to provide workers’ compensation insurance to employers. It controls more than 90 percent of the state’s worker’s compensation insurance market.

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