Insurance Transparency Project

I-Pals,

The last Insurance Notes! ™ dealt with a report by Louisiana Legislative Auditor Steve Theriot who probed the loose operations of Louisiana Citizen’s Property Corp. and found policyholder premiums spent on quail hunts, LSU games, family members’ cheerleader fund-raising drives and unauthorized events whose stated purpose included “bonding.”

Citizens, the state-owned insurer was run under a contract by a third party administrator, the Property Insurance Association of Louisiana, created in 1888 and reorganized in 1960 to set fire insurance rates. All insurers in Louisiana are required to join PIAL, which also administers Louisiana Auto Insurance Co., the auto-insurer of last resort for Louisiana drunks and others.
PIAL hired Terry Lisotta to run both Citizens and LAIC and he comes under the brunt of the report’s criticism. Lisotta chose not to respond to the report.
The Theriot report and attachments make great reading and can be found on ITP’s key document page, first item under “Government Documents.” I recommend it highly. A highlight is a letter from Ernest L. O’Bannon, name partner at Bienvenue, Foster, Ryan & O’Bannon, of New Orleans, hired without a contract as PIAL’s general counsel. A participant in a PIAL-expensed golf tourney, he explains with a quiet dignity:

With respect to the charity golf outing, what I know of it is this. I was invited to play by Mr. Lisotta, I accepted, and I played.

Like the LAIC expense report that called $45,000 spent for “bonding, socializing and strategizing,” these words resonate up here at ITP HQ. When we are invited to something, we accept. And when we accept, we play. That’s just how we do business up here.

Levity aside, I went too far in calling “unconscionable” a decision by Audubon Insurance which was handling claims for Citizens, to pull out half its staff before Katrina hit, in anticipation of Audubon’s contract ending Sept. 15.

That decision was unwise, but not unconscionable, a word that should be reserved for tampering with and shredding engineering reports, firing engineering firms for stating the possibility that wind damaged houses and deciding beforehand to deny wind claims, as has been alleged of State Farm, Allstate and other major carriers, in the Shows complaint.

Worse, probably, was any unintended association of Audubon with corruption at Citizens. There is no evidence of that Audubon had anything to do with it. Indeed, the Theriot report doesn’t not mention Audubon.

So, apologies to American International Group Inc., Audubon’s parent. ITP hopes and expects, however, that its Citizens’ experience be evaluated for possible improvements to service during a natural disaster, which, by many first-hand accounts, was poor, even given the conditions and efforts to restore staffing to levels agreed to under the contract.

I-Fans,

A sad day in Louisiana, as Legislative Auditor Steve Theriot uncorks a stunner of a report on Louisiana Citizens Property Corp., the state-owned insurer of last resort that performed so dismally in the wake of Katrina.

Theriot finds Citizen’s head Terry Lisotta and the two Louisiana insurance-trade groups that operate the company to have run Citizens as some of sort of candy store with no cash register, a slush fund for the all-American pastimes that many of us enjoy but can’t afford.

The report is posted on ITP’s key documents page.

The report details golf outings, fishing excursions, quail hunts, football tickets, gifts, airline tickets, hotel rooms and trips to Bermuda, New York and the beach in Alabama that were billed to the public through Citizens, the Property Insurance Association of Louisiana and Louisiana Automobile Insurance Plan.

Football tickets and quail hunts. Oy.

And don’t forget the relatives:

It also describes improper bonuses and severance packages, and hiring family members and lobbyists.

In all, Theriot (not pronounced “The Riot,” by the way) found Citizen’s spent more than a cool $1 million on expenses in two years, even though by law it’s not supposed to market, as Rebecca Mowbray points out in her excellent account in the Times-Picayune. About a fourth of that went to Lisotta, the lover of Bermuda, and check this out:

Theriot audited only 10 percent of that figure, or $25,702, and found that in each instance “Lisotta was reimbursed for expenses he did not incur, expenses that did not have a legitimate public purpose and expenses that were personal expenditures.”

Every nickel The Riot checked was improperly spent. Each instance. There was, inevitably, the LSU-Florida game:

In October 2004, Lisotta billed his employer $749 for a trip to Gainesville, Fla., to see a Louisiana State University football game with Insurance Department Chief of Staff Chad Brown, even though no business was conducted during the trip.

The golf tourney:

In September 2004, LAIP paid $600 for Lisotta to enter the Wally Pontiff Jr. Foundation Golf Classic. Lisotta was reimbursed $660 and then $720 for participating in the tournament. Even the original entry fee doesn’t count as a “legitimate public purpose,” according to Theriot.

The Mardi Gras party, but at least he took his daughters:

During the 2005 Mardi Gras, Lisotta billed LAIP for two hotel rooms at the Avenue Plaza Hotel in New Orleans for his daughters, and a room for himself at the Hotel InterContinental for a total of $3,227.56, and was reimbursed for $858.27 in expenses that he didn’t incur, according to the report.

A family man, Lisotta helped a daughter’s cheerleading squad:

Lisotta also helped his daughter Rachel in July 2004 meet her cheerleading squad fundraising goal of selling 200 Zephyrs baseball tickets by buying 100 of them for a “staff function.” The tickets then were distributed to PIAL employees.

To be fair, who wants to see minor league baseball? I don’t. You can’t give those tickets away. They should have sold chocolate bars or crates of oranges, like we used to do for the Evanston basketball team. And:

Lisotta used his PIAL credit card to pay for trips in May and July 2005 for his daughter Megan to go to New York, where she attended New York University.

What’s she supposed to do? Walk?

As Mowbray delicately puts it: “Problems existed elsewhere as well.” Read the whole piece. Every paragraph is outrageous, but this is my favorite.

In 2004 and 2005, LAIP spent $45,851 for annual meetings in Sandestin, Fla., that had been held since 1978 for “bonding, socializing and strategizing” purposes.

LAIP: Stop it! You are KILLING us up here at ITP HQ. ITP does that all the time, usually in the ITP sauna. War Eagle and Buck are doing that right now!
I-Fans, can we agree? Should not those three words be stenciled on the door at Citizen’s office in Baton Rouge and printed on the freakin’ stationary? What would we put on the logo? I say, two swizzle sticks crossed over a heart laid over a map of Louisiana, with a goddamn olive in there somewhere! I mean, what?

What kills me, of course, is that this is what Ed Liddy at Allstate spent every year on shoe shines and sushi. It’s also a shame that this behavior opens a government-owned entity to ridicule (and ITP is ever ready to rush through that particular door), discredits the government and takes heat off the private sector, where it belongs.

However, real questions have to be asked. The first one I have is: why is PIAL, a trade group and a former fire-rating agency, and LAIP, an auto insurer, operating this state owned company?

Until recently PIAL, a fire-rating agency, provided all the staff for Citizens and accounted for most of its expenditures; and LAIP, auto insurer of last resort, held Lisotta’s contract even though it accounted for only a tiny portion of his responsibilities. Citizens has not been able to balance its books since Hurricane Katrina because of a massive computer crash. An effort to reconstruct the records is supposed to be completed later this year.

Still unclear and seriously is the role of Audubon Insurance Co., the American International Group Inc. unit, that operated Louisiana Citizen’s until shortly after the hurricane and unconscionably pulled much of staff before the end of its contract, right in the middle of hurricane season.

But here’s what might be the most revealing fact of all:

In May, PIAL hired the law firm of Adams and Reese LLP as its lobbyist. Adams and Reese employs former Insurance Commissioner Robert Wooley, who had set up Louisiana Citizens.

And skipped through insurance’s regulator revolving door shortly after Katrina.
I-Fans: You want to think this is a Louisiana government corruption problem, one of many. That would be a mistake. This is an insurance industry corruption problem, a window onto an insular state-based insurance system utterly out of control.

Congrats to Theriot for another job well done.

And thanks again to Ida.

I-Fans,

ITP faithful will find the above headline familiar. The AP story in the Beaumont Enterprise dwells on a two-year statute of limitations for contract disputes in Texas. Should the clock start at the date of the storm or the date of insurance denial or none action? The answer is the latter. The first scenario gives insurers even more incentive to drag out the process as long as possible.

And even my insurer pals, I think, by this point will acknowledge, that this they will do.

But of course the larger point is that in two weeks 300 people who probably have never sued anyone in their lives are trooping into court to a small Texas hamlet to sue a giant corporation. Can 300 Texans be wrong? Sure. Are they?

War Eagle says: “I doubt it.”

They are probably as wrong as the Websters, who live in Bay St. Louis, Miss., two states away. Last week, a federal jury found that they were right in their lawsuit that alleged USAA wrongfully denied their $1.7 million claim. And that was just for structure. The next phase was to deal with contents.

At the conclusion of the trial, U.S. District Judge L.T. Senter Jr. will be responsible for calculating how much money USAA owes the Websters, based on the jury’s verdicts.

Later, the trial would move to the punitive phase to determine whether USAA acted in bad faith.

The Websters also are seeking unspecified punitive damages for the company’s alleged bad faith, plus attorney’s fees and expenses. But the request for punitive damages couldn’t be considered until later in the trial.

USAA settled before it got that far.

ITP asks: Is anyone on this list keeping score in Louisiana and Mississippi? If so, can you let me know how the cases that have gone to trial have resulted? Thanks!

And thanks to John.