October 10 - 17, 1 9 9 6
[Bill Weld]

Under pressure

In the wake of the Phoenix's investigation, Weld's Division of Insurance faces scrutiny from the AG and the legislature

by Tim Sandler

The State Senate's insurance committee will conduct a series of public hearings later this month to investigate allegations that Governor Weld's Division of Insurance flouted state laws and disregarded its mandate to safeguard insurance policyholders.

In the meantime, sources say, the state Attorney General's office is reviewing the circumstances behind the Division of Insurance's withholding of public records during a controversial $1.2 billion deal it approved last year. The deal involved State Mutual Life Assurance Company, now known as Allmerica Financial Life Insurance Corporation, a $16 billion Worcester-based company.

Both probes follow a Phoenix investigation into State Mutual's conversion from a policyholder-owned mutual company to a stockholder-owned public company ("Weld's Insurance Scam," News, September 20). The investigation uncovered a pattern of collusion between the Weld Administration and State Mutual executives -- who together developed, behind closed doors, a plan that ultimately enriched them both, while shortchanging policyholders (particularly individuals with life-insurance policies) out of some $105 million in company assets.

Documents obtained by the Phoenix show that, before the deal was approved, the governor and top officials at the Division of Insurance were warned that policyholders were not getting their fair share, but that they took no action. Legislators calling for the hearing assert that the Weld Administration's handling of the State Mutual deal continued a history of deference to the politically powerful insurance industry.

Responding to word that a legislative hearing has been scheduled, Kim Hinden, spokesperson for the Office of Consumer Affairs, which oversees the Division of Insurance, commented, "The legislature makes the laws, and it's within their discretion to investigate and judge how the law is being enforced."

Consumer advocates and the Secretary of State's Public Records Division say that, throughout the State Mutual conversion, the Division of Insurance illegally withheld some 200,000 pages of public records -- some of which cast serious doubt on the propriety of the deal. Attorney General Scott Harshbarger's office served as legal counsel to the Division of Insurance in the battle with the Cambridge-based Center for Insurance Research over the public records. But now Harshbarger's office is reportedly re-examining the division's legal rationale for withholding the documents.

Weld maintains that he was only peripherally involved in the State Mutual deal. And, to date, the governor's only public response to the story came when he told a Phoenix reporter, "I really haven't seen it. . . . [I]t's an awfully long story, and I haven't had a chance to read it yet."

Last week, Weld spokesman Robert Bliss added, "I think it's fair to say that not everybody looks at the same set of facts and comes up with the same view." Any missteps by the administration, he noted, could be attributed to the complicated, unprecedented nature of State Mutual's conversion.

But State Senator Dianne Wilkerson (D-Boston), chair of the Senate insurance committee, believes the State Mutual deal represents more than innocent mistakes by the Weld Administration.

"There seems to be an ever-growing pattern emerging of questionable activities and decision-making on the part of the division and the commissioner [Linda Ruthardt] herself," says Wilkerson, who has scheduled the hearings for October 28, 29, and 30. That begs the question about who is really minding the store here."

And, referring to the tens of thousands of dollars in campaign contributions that the insurance industry has given to and raised for Weld, Wilkerson adds, "I can't imagine an area of state government where the suggestion of the buying and selling of favors is more apparent."

That's not to say that the state legislature hasn't had its share of insurance-related indiscretions. Just last week, former House insurance committee chairman Frank Woodward, a Democrat, was convicted in US District Court of accepting more than $9000 in gratuities from insurance-industry lobbyists in exchange for legislative favors. He awaits sentencing.

The Weld Administration's allegiance to the insurance industry has also been demonstrable over the years -- even before the State Mutual deal. Last year, for example, Weld's former insurance commissioner, Kay Doughty, was slapped with a $2000 fine by the state Ethics Commission for illegally accepting gifts from insurance lobbyists and executives.

Wilkerson says the Division of Insurance still hasn't learned its lesson and continues to do the bidding of the insurance industry. Along with the State Mutual deal, Wilkerson and other legislators point to the division's rapid-fire approval of Electric Mutual Liability Insurance Company's move last year from Massachusetts to Bermuda as further evidence of the insurance industry's stranglehold on the division.

Shortly after the move, the company -- known as Emlico -- declared itself insolvent, claiming its reserves were short some $500 million. That leaves Emlico's reinsurers, five of which are based in Massachusetts, to pay hundreds of millions of dollars in claims.

The US Attorney's office in Boston is reportedly reviewing the state's role in approving the Emlico move, which critics claim the Division of Insurance ratified without adequate scrutiny. Federal investigators are also investigating whether the company filed false information with the state.

Both the State Mutual and the Emlico deals have prompted a chorus of criticism from the legislature.

Representative Paul Kujawski (D-Webster), a member of the House insurance committee, believes it may be time for the legislature to review the statutes governing the Division of Insurance -- an agency whose commissioner, unlike those in most other states, is appointed by the governor without legislative approval. (Kujawski and other members of the House insurance committee have expressed interest in participating in hearings about the insurance division, but so far the House insurance chair, Byron Rushing, has yet to commit to a formal joint inquiry.)

Representative James Marzilli, an Arlington Democrat who has been an outspoken critic of the Weld Administration's handling of the State Mutual deal, says that along with a legislative review, criminal prosecution should be considered.

"It is unconscionable that a state agency would so repeatedly break public-records laws to protect a billion-dollar deal from public scrutiny," he charges. "It's clear that the Weld Administration is not willing or able to separate its own political self-interest from the public interest. Ultimately, the responsibility for this lies with the governor, who appointed these people. And when he professes not to know what's going on in his own administration, we have to question his own competence and honesty."

Tim Sandler can be reached at tsandler[a]phx.com.

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