By Justin Sayles and Marion Davis
The Beacon Mutual Insurance Co., already reeling from allegations of impropriety, under investigation by the state, and under attack in Gov. Donald L. Carcieri’s political ads, took another hit last week, with the indictment of a former executive on five felony counts.
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David R. Clark, who was fired in April from his post as the company’s vice president for loss prevention and underwriting, was indicted Wednesday by a state grand jury on charges of computer fraud; accessing a computer to alter, damage, or destroy data; insurance fraud; and conspiracy.
The indictment also refers to an unnamed and unindicted conspirator whom it says helped Clark, and Attorney General Patrick C. Lynch said his team’s investigation with the R.I. State Police “is far from over. … We will go where the facts lead us.”
Beacon has been under fire since last December, when a whistleblower at the company told an in-house tip line that a handful of policyholders – including then-Board Chairman Sheldon A. Sollosy’s former company, Manpower Temporary Services – were being unduly favored.
State Labor and Training Director Adelita Orefice, who sits on the Beacon board, told Carcieri about the allegations, expressing concern about how the matter was being handled. The company, which had been seeking greater independence from the state, soon was embroiled in scandal.
Beacon enlisted former Gov. Lincoln C. Almond, retired R.I. National Guard Lt. Gen. Reginald A. Centracchio and Edward M. Mazze, then dean of the University of Rhode Island’s business school, to oversee a review of the company, its practices and procedures.
The Almond group hired Giuliani Safety & Security, a consulting firm headed by former New York Mayor Rudolph Giuliani, to conduct an audit; and it provided full access to company records.
The firm came back with a damning report, citing multiple instances of conflicts of interest, preferential treatment given to some policyholders, generous perks for agents, and lavish spending by Beacon President Joseph A. Solomon, among other things.
Sollosy resigned. CEO Joseph A. Solomon and Clark were fired.
But the R.I. Department of Business Regulation, which had already been conducting a “market conduct” study of Beacon when it began looking into the alleged corruption, had said it had difficulty getting full access to the company’s records – especially, to computers and backup tapes.
Beacon spokesman Bill Fischer said last week that Beacon was concerned about policyholders’ privacy, so it sought guidance from Superior Court, Providence, before complying with the DBR. Other than that, Fischer said, Beacon has fully cooperated with regulators.
In April, Fischer said, the company received a subpoena from the State Police requesting “any and all documents that we had given to the Giuliani firm.”
Beacon complied “as quickly as we could,” Fischer said. “We handed over 46,000 pages of documentation.”
Carcieri, who has made his fight against corruption at Beacon a major part of his reelection campaign, issued a statement hailing Clark’s indictment and continuing to criticize Beacon.
“Even as the forensic audit conducted by the Department of Business Regulation and a Beacon-appointed review committee led by former Governor Lincoln Almond investigated these allegations, Beacon Mutual executives failed to cooperate, withholding critical documents and information,” Carcieri said. “It took a State Police investigation to uncover the evasions and dodges of Mr. Clark.”
In a separate news release, State Police Maj. Steven O’Donnell said Clark’s indictment “should serve as notice to those who violate the public trust that they will be pursued and prosecuted.”
Ironically, until last Wednesday, things had seemed to be looking up for Beacon.
After a long disagreement with the DBR over how it should set its rates, the company recently adopted a national group’s guidelines and cut its rates by an average of 16 percent, effective this month.
Last month, interim CEO Clifford L. Parent sent out a letter to policyholders outlining the steps the company has been taking to “provide greater transparency in our pricing and governance procedures.”
“There is no question that in the past, mistakes were made,” Parent wrote in his Sept. 12 letter. “Our efforts to date have been focused on making sure we identify each of these mistakes and take the necessary action to ensure these issues are addressed and corrected.”
Fischer said the company, which is searching for a new CEO, had issued the letter to keep policyholders abreast of the ongoing changes.
Beacon has worked with an industry practices consultant; has redesigned its pricing policies and practices, creating an eight-person review committee in the underwriting department for policies worth more than $50,000; reviewed internal audit and finance functions; and has worked to establish an internal ethics and compliance function at the company, Fischer said.
“The company has gone through a tremendous amount of scrutiny this past couple of months,” he said. “The way senior management and the board looks at [the reforms] is that they are only going to strengthen the company.”
In an interview that preceded Clark’s indictment, Carcieri said the heightened scrutiny has been good for Beacon’s 14,000 policyholders – 90 percent of Rhode Island employers.
Although the state awaits the results of the DBR’s probe, the governor said, the changes so far show “they’re progressing.”
Almond also said Beacon’s board had been “very receptive” to his committee’s recommendations, adding that “I think that some new blood over there will be good for the organization.”
A. Michael Marques, director of the DBR, said the agency’s “market conduct” examination of Beacon is still in draft form, with the department reviewing any potential statutory violations and what determining what action may be appropriate.
Once completed, that report must be sent to Beacon for its comments and signed by Marques, he said. Thirty days afterward, the report will become public.
Marques said he expects the report to be made public in 60 to 80 days.
Fischer noted that, despite the scrutiny Beacon has been under this year, business remains strong and the company’s retention rate is virtually unchanged from last year’s. Its retention of policies – 91.27 percent for 2005 – was 91.18 percent in the first nine months of 2006, he said.
