R.I.’s Beacon Mutual Vows Cooperation With Subpoena, State Auditors

April 23, 2006

Employees and management at Beacon Mutual Insurance Co. in Warwick, R.I. are attempting to maintain “business-as-usual” for policyholders and agents even as they cope with demands from auditors, political leaders, news reporters, and, now, a grand jury subpoena.

An interim chief executive officer is in place, along with a new chairman of the board. Two members of the board of directors have left and two more may be soon out the door.

But day-to-day business continues.

“Work is going on as usual and all 250 employees have been kept up-to-date,” Bill Fischer, a spokesman for Beacon Mutual, told Insurance Journal.

The company is promising to make good on ethics reforms and fully cooperate with investigators from both the state’s business regulation department and the attorney general’s office.

On April 19, the Rhode Island State Police delivered a grand jury subpoena to the company on behalf of the state’s attorney general, requesting all same files that were accessed by auditors working for former Gov. Lincoln Almond whose committee uncovered questionable pricing and apparent ethical lapses at the company.

“The Beacon board, employees and management want to cooperate fully and the door is wide open,” said Fischer, whose firm, Vision Strategies, was hired to help with communications during the crisis.

At the same time Beacon is responding to the subpoena, he said company management is “reaching out” to officials at the state regulator’s office who were blocked by former executives from obtaining some records they deemed necessary for a forensic audit of the firm.

Fischer said Beacon’s new management is now willing to cooperate with the Department of Business Regulation and is preparing to waive the client-attorney privilege used by previous management in denying DBR access to some data.

“There are still some practical concerns,” Fischer said. “We don’t want to violate federal laws on disclosing employees’ medical records but once that practical discussion occurs we can go forward from there.”

The workers compensation carrier, which the Almond Review Committee report said engaged in unfair business practices that favored some clients and agents over others, is operating under partial new management. Beacon’s board of directors fired CEO Joseph Solomon and its underwriting vice president, David Clark.

Solomon and Clark were terminated with cause, without any severance. They have reportedly hired legal counsel.

Clifford Parent, formerly claims vice president, has been named interim chief executive officer.

Two board members have resigned and, if Governor Donald Carcieri has his way, at least two more will be gone by the next meeting, scheduled for Wednesday, April 26.

Last week, Carcieri sent termination letters to two directors, George Nee and Henry Boeniger. Carcieri maintains 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.”

The Beacon board has opted not to respond to the governor’s action, leaving it up to the individual directors to decide what to do, according to Fischer.

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.

Both Nee and Boeniger have been directors on the board of the Warwick-based insurer since the company’s formation in 1994. Boeniger, a former Democratic state representative from Westerly, is a lobbyist for the National Education Association, a teachers’ union. Nee represents labor as secretary of the Rhode Island AFL-CIO.

Another board member, Edward Braks, resigned the day the Almond report was released. 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. He did not participate in the board meetings following release of the Almond report.

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.

Carl I. Hayes, president of a Cranston furnace manufacturing company, took over as chairman after Sollosy’s resignation.

Carcieri is also asking a third board member, John Holmes, to meet to discuss his involvement in Beacon’s management problems. Holmes runs a government relations firm and is a past chairman of the state Republican Party. He was not a member of the board during most of the period in question.

In February, Carcieri named Brendan P. Doherty, a retired state police major, to the board.

Current law permits the governor to make new board appointments in November.

The executive and director 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.

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 Fischer, who noted that “some will take awhile.” He said the firm would conduct a nationwide search for an ethics officer.

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 workers’ compensation insurance market.

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