The Beacon Mutual Indictment: If Practicing Favoritism is a Bad Thing, Why Did the Legislature Want to Make it Easier To Do?

In today’s Projo, Lynn Arditi and Mike Stanton report on the indictment of David R. Clark on charges of conspiracy and insurance fraud in connection to his role at Beacon Mutual, Rhode Island’s state-established workers’ compensation insurer…

A Rhode Island grand jury yesterday indicted a former top executive of Beacon Mutual Insurance Co. on charges of conspiracy and insurance fraud….Revelations earlier this year about unfair pricing practices and preferential treatment of some of the state’s big businesses tainted Beacon, which recently has been trying to regain the confidence of state political leaders and the business community.
The word that keeps recurring in the description of the crime that Mr. Clark is charged with is “favoritism”…
The Beacon executives referred to in the indictment are “paid enormous sums of money to protect the public’s interest,” [Attorney General Patrick Lynch] said. “This is a betrayal of trust [involving] favoritism that has caused injury directly to small businesses across Rhode Island”….
The Giuliani report, released in April, found evidence that Beacon gave breaks to some large companies with policies of more than $10,000….The Giuliani report also found that Beacon executives maintained a VIP list of about a dozen companies, some of which received favorable treatment that resulted in lower workers’ compensation rates….
The two counts of insurance fraud, which Lynch said involved “favoritism” of certain policyholders, include one count of insurance fraud and another count of conspiracy to commit insurance fraud….
But if there is agreement that favoritism in the insurance business is a bad thing (whch I think there is), then why in the past year was the legislature trying to rewrite the law in a way that would have made Beacon Mutual’s ability to practice favoritism substantially easier — perhaps even making favoritism legal?
The excerpts that follow are from Senate Bill 2009, sponsored by Senators Roger Badeau (D-Woonsocket/Cumberland), Dominick Ruggerio (D-Providence), Frank Ciccone (D-Providence), David Bates (R-Barrington/Bristol), and John Revens (D-Warwick), which would have established Beacon Mutual as an independent non-profit corporation. The bill was passed by the full Senate last year, but failed to pass the House. In these excerpts, the “corporation” and the “fund” both refer to Beacon Mutual.
1. Maybe I’m reading too much into this first point; however, the current law governing Beacon Mutual requires them to have a “protocol” for imposing higher rates on individual companies deemed to be risky…
(3) Notwithstanding any law to the contrary, the fund may establish and apply a premium surcharge protocol. The protocol shall provide for higher premium and surcharge payments by insured who present higher than normal risks within a class, including the ability of the fund to assess from time to time a premium surcharge of up to three (3) times its applicable premium rate, as it deems appropriate to further the public purposes set forth in this act…
The legislature wanted to remove from the law the language requiring a formal and consistent protocol for setting surcharges…
(4) Notwithstanding any law to the contrary, the corporation may establish and apply a premium surcharge of up to three (3) times its applicable premium rate for policyholders who present higher than normal risks within a class.
With the protocol requirement removed, wouldn’t the rule be the rule that anything goes, so long as it could be slipped past the Director of Business Administration?
2. The old law made no mention of being able to offer discounted workers compensation policies. The new law, however, would have allowed Beacon Mutual to grant discounts, again without legally mandating a consistent process…
The corporation may also establish and apply discounts to the policyholders who present lower than normal risks within a class.
If this new version was in effect, wouldn’t Mr. Clark be able to offer a defense based on the fact that the law expressly gives Beacon the discretion to offer lower rates to preferred customers?
3. Beacon wasn’t going to be required to use the same “uniform classification system” for setting rates that other workers’ compensation insurers operating in Rhode Island would be required to…
The corporation shall not be required to adhere to the uniform classification system or uniform experience rating plan required under section 27-7.1-9.1 in effect from time to time after the approval by the director of the department of business regulation of the corporation’s own classification plan, experience rating plan, manuals, schedules and rules…
Section 27-7.1-9.1 of Rhode Island law sets up the uniform classification system that all workers compensation insurers in Rhode Island (at the moment) have to use…
Sec. 27-7.1-9.1 (c) Every workers’ compensation insurer shall adhere to the uniform classification system and uniform experience rating plan as submitted to the director and which is presently in effect. The experience rating plan shall be the exclusive means of providing prospective premium adjustments based upon measurement of the loss-producing characteristics of an individual insured.
What was the intended purpose of establishing two sets of rules, one for Beacon, and one for everyone else? Wouldn’t this allow for the possibility of Beacon hardwiring favors for their friends into a specialized classification system?
The questions are 1) Would the “favoritism” that David Clark is accused of practicing still be illegal if the legislature had gotten its way on Beacon Mutual in this past session and 2) Is there be some valid public policy purpose for the apparent loosening of Beacon Mutual’s rate setting procedure, or this case of the legislature looking to give an advantage to their friends?

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Tim
Tim
15 years ago

Look at the Board of Directors to see where the tentacles of this company reached into the legislature. In many ways the Beacon story is classic Rhode Island corruption. Tell you something else. David Clark will sing like a bird.

brassband
brassband
15 years ago

When will Chafee pick up on the fact that SHELDON CREATED BEACON.
Remember how in his past campaigns Sheldon used to make the claim that he had “solved Rhode Island’s Workers’ Compensation Crisis”?
His solution was the creation of Beacon back in the early 1990s. Then, as Director of DBR and later AG, what did he do to prevent Beacon from becoming the mess that it turned into? NOTHING.
Oh, by the way, take a look at Sheldon’s donor list . . . see any former Beacon board members on it?

John
John
15 years ago

I have a totally different take on the Sheldon/Beacon connection. I very strongly believe Sheldon is a very smart, honest, and ethical man. Objectively, the creation of Beacon Mutual was a very creative solution to the disastrous workers comp problems facing RI when Sheldon was Sundlun’s policy director.
But Sheldon had no control over the way Beacon was hijacked by Rhode Island’s “culture of corruption” in the years after it was created. Instead of trying to pin the Beacon problems on Sheldon, we’d all be better advised to look at the nexus there (and at Blue Cross) that defines the seeming (or, perhaps actual, only time will tell) conspiracy that includes not only the usual suspects (Democratic party operatives and union leaders), but also not a few prominent RI Republicans and business leaders as well. I’m sure that U.S. Attorney Corrente’s superiors at the DOJ must sometimes think that they’re dealing with a real life version of “The Firm” here in RI. In point of fact, this state’s political and business culture long ago slipped its moorings and drifted deeply into the gray area of right and wrong, and acceptable business and political conduct. One hopes that the long overdue housecleaning, via a large number of indictments and convictions, will soon arive. Because few other interventions have the potential from deflecting this state’s course towards disaster.

brassband
brassband
15 years ago

“Sheldon had no control . . .”???
He was Director of DBR during Beacon’s formative years, with full regulatory authority.
He was Attorney General for four years, with a fully staffed and highly experienced Insurance Advocacy Unit at his disposal.
He took contributions from the insiders on the Beacon board!!

johnpaycheck
johnpaycheck
15 years ago

sheldon protected all his friends that were set up at beacon.. beacon was a mess 10 years ago.all the employees say it is so great..of course, they have no competition

johnpaycheck
johnpaycheck
15 years ago

if david clark sings, then this is only the beginning.. the peopel who will fall will be huge.
dufault, sollossy, all of the board memebrs who had family memebrs working for beacon, directors getting breaks on insurance
BUT lets not forget, lynch is prosecuting and not corrente so who knows what will get buried

SusanD
SusanD
15 years ago

“BUT lets not forget, lynch is prosecuting and not corrente so who knows what will get buried”
Yes, this is little Lynch’s well timed token blow at corruption in Rhode Island. This may be one of the few cases in which the bird will be strongly encouraged not to sing.

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