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Insiders Accused Of Diverting|$25 Million From Workers’ Comp

LOS ANGELES (CN) - The State Compensation Insurance Fund and its directors diverted more than $25 million of workers' comp payments to SCIF insiders and former board members "for services which had little or no value to the insurer or its policyholders," says aclass-action filed byCalifornia businesses.

On behalf of all California employers insured by SCIF in the past four years, lead plaintiff Notis Enterprises claims the defendants "benefited through self-dealing," did not negotiate in good faith or at arms length, "and the amounts paid to these insiders greatly exceeded the reasonable value of services rendered."

Defendants include Collecto Inc., dba Collection Company of America; SCIF's former President James C. Tudor; its former Vice President Renee Koren; its General Counsel Charles Savage; former board members and Safety Group Administrators Frank Del Re and Kent Dagg; Del Re's company, Western Insurance Administrators; Dagg's companies Shasta Builder's Exchange and Shasta Builder's Exchange Community Fund; and John Dunlop, who administered a Safety Group for the California Restaurant Association.

The complaint alleges "that on or about March 30, 2007, State Compensation Insurance Commissioner Steve Polzner reported that SCIF executives mislabeled costs related to administrative fees to groups run by former Board Members on financial reports submitted to the Board of Directors. According to Commissioner Polzner, 'it seems to be true that some of the senior manager were not accurate and honest about reporting how SCIF money was spent.' It was reported that these events resulted in the termination of SCIF President Tudor and Vice President Koren on March 20, 2007."

This complaint continues: "Plaintiff alleges that on April 11, 2007, the California Department of Insurance dispatched criminal investigators to SCIF headquarters to determine whether any laws were broken in the payment of fees to organizations that administered employer groups. Official announcements were made indicating that criminal activity was suspected at SCIF.

"According to (state) Senator Dean Flores, SCIF 'may have paid as much as $25 million in administrative fees to organizations controlled by two former Board Members, Del Re and Dagg, who resigned from the Board last year after officials with Governor Arnold Schwarzenegger's administration raised questions about potential conflicts of interest.'

"Plaintiff is informed and believes and thereon alleges that SCIF cooperated with, organized, induced, granted or ignored payments to Safety Group administrators that had no relationship to the benefit gained by or potential benefit to SCIF from the efforts of the administrators and did so with the knowledge that the funds were intended for the personal aggrandizement of the administrators without benefit to SCIF.

"Plaintiff is informed and believes and thereon alleges that SCIF disbursed funds to the administrators under a variety of names, such as fees, discounts, and bonuses, which funds were known o should have been known by SCIF to be applied to the personal benefit of the administrators of their owners. Thus, SCIF discounts of up to 6% to administrators of Safety Groups comprised of more than 200 employers, paid fees of up to 3% of the gross group premium, and disbursed bonus dividends to the Safety Group administrators. ...

"Plaintiff is informed and believes and thereon alleged that the administrators (Dagg, Shasta Builder's Exchange, Del Re, Western Insurance Administrators Inc. and Does 1 through 150) did not perform any substantial services on SCIF's behalf to earn their fees. Even many of the workplace safety pamphlets which they gave their members are produced by SCIF. Policies in the respective groups are written directly through SCIF underwriting operations, known internally at SCIF as LAG, BAG and SAG, acronyms for the Los Angeles groups, Bay Area groups, and Sacramento area groups.

"Plaintiff is informed and believes and thereon alleges that Defendants SCIF, Tudor, Koren, Savage and other executive insiders at SCIF negligently and/or intentionally authorized improper disbursements to the administrators for services which had little or no value. Although Defendants, and each of them, knew that the administrative services had little or no value, payments were made to Del Re, Dagg, Dunlop and their affiliated entities in a sum not less than $25 million during the four years preceding the filing of this complaint."

Plaintiffs are represented by Y. Gina Lisitsa and Payman Taheri with Lisitsa Law Corporation.

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