Nov. 10, 2004,
National insurance scandal bolsters attorney's claims
By L.M. SIXEL
Years ago, workers' compensation costs were skyrocketing, and the blame was flying.
Employers faulted the big jury verdicts. Insurers blamed excessive medical procedures. And everyone blamed the plaintiffs lawyers.
But Scott Clearman may have stumbled upon the reason workers' compensation insurance rates in Texas were going up and remain some of the nation's most expensive: collusion by insurance companies to artificially inflate the price.
Clearman, an insurance lawyer with McClanahan & Clearman in Houston, sued 152 insurance companies under the Racketeer Influenced and Corrupt Organizations Act, or RICO, on behalf of the Wall Street Deli in 1998, believing the shop was paying more than it should have, based on the standard insurance rates for workers' comp.
Clearman remembers the raised eyebrows he got: "Oh, come on there — a conspiracy between insurance companies and insurance brokers?"
That was a hard sell in 1998, he recalls.
But the political climate suddenly changed last month when New York Attorney General Eliot Spitzer sued Marsh & McLennan for taking payoffs from insurance companies to fix bids rather than negotiate the best price. The lawsuit accused the insurers of bid rigging and fraudulently steering contracts to win business, which inflated the price of insurance.
Clearman's allegations of collusion have taken on more cachet at a time when a half-dozen committees have been meeting throughout the year to fix the system when the Legislature convenes in January.
Rick Levy, legal director of the Texas AFL-CIO in Austin, asks how it can be that since 2000, the number of claims in Texas has dropped by 23 percent, the loss ratio has fallen by 47 percent, yet premiums have risen 45 percent?
Clearman is best known for representing the families of people who worked for companies that improperly purchased secret "dead peasant" life insurance policies. When the employees died, their employers received the face value of the insurance policies.
Clearman said he became suspicious in the early 1990s when he noticed insurers weren't going after everything they could in disputes with their customers who might have been delinquent in paying their premiums.
"I couldn't figure it out," Clearman recalled. That is, until he realized insurance firms didn't want those who bought their policies to know they paid too much.
Clearman sent letters to general counsels in the state, asking if he could examine their insurance policies. Most didn't believe they were being overcharged or didn't want anyone to know they might have been.
In 1991, Clearman sued on behalf of 32 companies in Texas including La Madeleine, Academy Corp. and Imperial Holly Corp., alleging they were victims of an antitrust conspiracy by 237 insurance companies, two brokers and one insurance trade group. About half the insurers ended up paying $208 million to about 5,000 Texas businesses that had been overcharged for workers' comp.
He suspected the insurance collusion was bigger than Texas and filed a nationwide conspiracy case on behalf of Wall Street Deli.
The deli, which is now in bankruptcy, had used Marsh as its broker and had purchased the coverage from Reliance Insurance, which is now in receivership.
Clearman calculated that Wall Street Deli paid $155,000 more than it should have for workers' comp insurance between 1988 and 1992.
"We were pretty surprised that could happen," said Tom Sandeman, former chief financial officer for the Wall Street Deli.
The Texas Department of Insurance regulated the rates and checked each filing to make sure companies were properly charged. But many insurers required their client companies to sign a secret "side agreement."
Those side agreements, which insurers were using to cover their portion of the expected losses of the high-risk insurance pool, weren't permitted by insurance regulators, Clearman said. The regulated rates already included a provision to cover those losses.
Jerry Johns, president of the Southwestern Insurance Information Service in Austin, wouldn't comment on litigation.
But he said that mainstream workers' comp insurers charge a rate sufficient to cover losses. They have had nothing to do with the kind of allegations been made recently, such as the payment of contingency fees.
U.S. District Judge David Hittner initially certified the Wall Street Deli RICO case as a class action, but that was reversed by the 5th U.S. Circuit Court of Appeals in 2003 because of the possibility the insurance policies were individually negotiated.
Last year, Clearman appealed to the U.S. Supreme Court, which declined to hear the case.
As the Wall Street Deli case continues in Hittner's court, Clearman said he's been contacted by companies worried they've been cheated, too.
"Before Spitzer's case, we were just out here singing in the wind," he said.
Copyright 2004 Houston Chronicle
Nov. 17, 2004, 8:26PM
Companies whooping it up in more style these holidays
By L.M. SIXEL
Last year, Tony Pannagl served beer and wine at his annual holiday party. This year, hard liquor will be poured at the open bar.
"Last year, I spent money I didn't have," said Pannagl, managing partner of IS&T, a Houston computer technology consulting firm. And he limited the party to a small number of employees and clients.
Pannagl is in a celebratory mood this year because revenue is setting records and was able to send invitations to all his clients and 65 employees.
Companies may be eliminating jobs and reducing employee health insurance, but they're ready to party.
Seventy-five percent of companies are hosting a holiday party for employees, compared to 68 percent last year, according to a Hewitt Associates national survey of 271 companies.
And they're spending a lot more. This year companies are shelling out a median $20,000, compared to $11,050 last year.
Companies want to say "Thank you" to their employees for a good year, said Ken Abosch, business leader for Hewitt's talent consulting practice.
Abosch suspects companies are also spending more on parties because many have done away with year-end holiday gifts such as hams, cheese trays or gift certificates.
Companies believe they get more good will and morale out of a festive party than handing out frozen turkeys, he said.
Rhonda Marlin, director of human resources for the intellectual property law firm of Moser, Patterson & Sheridan in Houston, said employees stop her all year long and mention how much they enjoyed last year's party.
This year has been especially good for the growing law firm, which does patent applications, said Marlin, and the firm wanted to reward that effort.
So Marlin is putting on a fancier soiree for employees and their spouses. She booked the tea room at the Junior League, hired a band and will be serving a sit-down dinner next month. Marlin estimates she'll spend 20 percent more than she spent last year entertaining about 90.
To extend the season, one of the partners will host a two-night open house at his home for all employees.
The firm will also host a "white elephant" party and potluck luncheon at the office and, for the first time, it hired a baker to come in one afternoon and show the children of its employees how to make a gingerbread house.
"We're a very hard-working firm," she said. "It really gives you a chance to know other families better."
Activities are popular
Abosch said he's noticed more companies are planning their parties around activities this year. For some reason, billiard parlors are popular. Bowling is too.
But that doesn't mean fancy events are out of style. All the party rooms for every Friday and Saturday night during December were reserved months ago at the Hotel Derek.
It's never been this busy, said sales and marketing director Tracy Fitz, especially from petrochemical companies, law firms and medical companies.
They're spending a lot more money on hors d'oeuvres and cocktails to elaborate themed events, said Fitz.
One company will entertain its employees with a casino while another is putting on its own Oscars show complete with celebrity look-alikes, paparazzi and a red carpet.
"They're not batting an eye on spending," he said, estimating that companies are spending about 25 percent more this year on extra courses such as sorbet, custom touches such as martini bars and better food.
"Beef is back," asserts Fitz.
Michael Cordua, owner and chef of Churrascos, Amazon Grill, Artista and Americas, is taking advantage of the demand for private party space by renovating the former Tortuga restaurant on Kirby.
It will open Dec. 1, and it's already booked for every Wednesday, Thursday, Friday and Saturday in December, he said. Demand is especially strong for private parties since the 9/11 terrorist attacks, he said. Travel fell off and the restaurant industry has done a good job encouraging companies to entertain close to home.
Good days back for some
High oil prices might not have created many new jobs but it sure makes the parties better.
"I think we're back on the good days," said Cedric Guerin, executive chef of La Tour d'Argent, which re-opened this week after being closed for two years.
Energy companies have opened their wallets this year and they're asking for big ticket items such as Dover sole and name-brand wine, said Guerin. When oil prices were low, Guerin heard more requests for salmon and house wine.
Energy companies are spending $70 to $80 an employee instead of the $35 to $50 a person tab he saw last year when he was running another restaurant.
But not everyone is getting a chance to celebrate those high energy prices.
Jim Lefton, international representative for
the Paper, Allied-Industrial, Chemical and Energy Workers International Union in
Houston, said he hasn't heard of any energy company holiday parties,
"Matter of fact," said Lefton, "we'll be lucky if we get a turkey leg."
Copyright 2004 Houston Chronicle
Nov. 19, 2004,
El Paso auditor wins approval
Shareholders also support option expensing
By TOM FOWLER
Thursday's El Paso Corp. shareholders meeting was short on surprises, but not without tension.
Shareholders approved the re-election of the company's board of directors and retained accounting firm PricewaterhouseCoopers, despite vocal opposition from a small group of investors and the backing of two key advisory firms.
A plan to expense stock options was also approved by shareholders, despite management's opposition, while a plan to limit executive pay and have it tied to clearly identified goals failed.
A representative of union group AFL-CIO and a former internal auditor spoke out against Pricewaterhouse during the meeting, saying the firm failed shareholders by not catching problems that led to massive overstatements of the company's oil and gas reserves.
But Chairman Ronald Kuehn defended the firm and the process used by the board's audit committee to determine that continuing to work with Pricewaterhouse was the best option at this time.
He noted that Pricewaterhouse is doing an extraordinary amount of work for El Paso, helping the company comply with the Sarbanes-Oxley Act and handle the accounting restatements.
"We're disappointed with their response," said Michael Garland, corporate transactions coordinator in the AFL-CIO's Office of Investment. "They had an opportunity to put this all behind them."
Bruce Connery, vice president of investor relations, said it was heartening to see 89 percent of voting shareholders approve of Pricewaterhouse's ongoing work. Typically at least 25 percent of shareholders automatically vote their shares based on the recommendations of investor advisory firms like Institutional Shareholder Services and Glass Lewis & Co., which urged a vote against the accounting firm and members of the audit committee.
There was tension outside the meeting, as well, as representatives from four pipeline workers unions protested what they said were dangerous and unfair practices of Sunland Construction, a company that builds and maintains natural gas pipelines for El Paso.
El Paso officials dismissed the group, noting that Sunland is one of the few nonunion pipeline firms in the country.
El Paso CEO Doug Foshee spoke about the progress the company has made over the past 15 months since he took the top spot. The company has cut costs significantly, reducing the number of officers by 40 percent, directors and managers by 20 percent and other employees by 9 percent.
The company has either closed on or announced $3.5 billion in asset sales and will likely cut debt to under $17 billion by the end of the year, putting it ahead of its goals.
"This is in effect a new company with a new purpose and new values," he said.
The stock option expensing proposal garnered 70.2 percent of the votes, but the company is not required to comply with the results. The proposal would have the company report stock options, a right given to employees to buy a share at a future date at a given price, as an expense on its income statement.
The Securities Exchange Commission is expected to make companies with fiscal years that end Dec. 31 begin expensing options by 2006.
Copyright 2004 Houston Chronicle