ALBANY, N.Y. (CN) - The agency that oversees workers' compensation in New York accused the former trustee of an insolvent insurance trust with self-dealing and wants to recover from him the nearly $12 million deficit it now is on the hook for.
The New York State Workers' Compensation Board contends Philip LaRocque failed in his duties as a trustee of The Builders' Self-Insurance Trust because he worked at the same time as executive vice president of a statewide trade group for the construction industry, the New York State Builders Association.
"Trustee LaRocque fraudulently represented to Builders [Trust] that he was a trustee working in their best interest, when in reality he was intentionally benefitting NYSBA, a separate entity of which he was an officer," the Workers' Compensation Board's director of litigation Michael Papa claims in Albany County Supreme Court.
Being a "member in good standing of an authorized chapter" of NYSBA was needed to be considered for trust membership, the board says, and LaRocque arranged it so the trade group received referral commissions from the trust "for every association member who joined the trust."
"Defendant LaRocque obtained benefits from, and protected the interests of, NYSBA instead of administering his duties as Builders' trustee in a non-biased manner," according to the complaint.
The trust was organized in 1998, as group self-insurance trusts were gaining in popularity. They formed when employers in similar businesses banded together to secure the workers' compensation insurance they all needed to provide by law.
At the time, workers' compensation premiums were rising. But by joining forces with similar businesses, supermarkets, for instance - or manufacturers, truckers or home health-care providers - could monitor each other's safety practices to reduce injuries and compensation claims and keep insurance rates low.
A report prepared by a state task force in 2010 found the trusts reached a peak in 2005 with 65 active groups and some 17,000 employers. But the numbers started to slip after that, and New York began to see a rise in underfunded trusts.
The Workers' Compensation Board, to which the trusts applied for authorization to operate and to which they reported their finances annually, became concerned about some groups' funding levels. Insolvencies began in 2006, according to the report, after attempts at remediation by the board failed.
The Builders' Self-Insurance Trust began to show signs of stress in 2001, when the board calculated a regulatory deficit of just over $1 million, according to Papa's complaint. By 2004, the trust was deemed "significantly underfunded," and the board asked that no new members be added. It also wanted a remediation plan prepared.
The complaint details similar notices sent in late 2004 and early 2005. In July 2006, Papa says, the board warned "that failure to take efforts to ensure the long-term viability of the group trust and to limit the group members' exposure to long-term and unexpected financial liability would result in the termination of Builders [Trust] as a self-insurer."
That October, a consent agreement was signed that allowed the trust to reopen for new members on the condition that it operate "at breakeven or better" by 2007.
When that failed to occur - the regulatory deficit subsequently was pegged at $5.9 million, according to the complaint - a decision was made to wind down operations and as of October 2007, the trust no longer offered workers' compensation insurance to its members.
The trustees and a trust administrator continued to manage the trust after that, but in February 2009, with "less than 12 months' cash available to pay claims and expenses," the board decided to step in, Papa says. It took over administration of the trust and final distribution of assets and liabilities in May 2009.
An outside firm brought in to conduct a forensic analysis of the trust initially put the gross deficit at $20.38 million, according to the complaint, but reduced that to $11.98 million as of September 2012.
The complaint says the board has entered into settlement agreements with many of the trust's former members - last August, it sued more than 200 of them in Albany County for their share of the deficit, court documents show.
"However, these settlement agreement monies are still not enough to meet all of the obligations of the trust," Papa says, including remaining open claims and expenses.
The complaint accuses LaRocque of breach of contract for failing in his duties as a trustee, "including but not limited to failing to provide for the proper capitalization of Builders [Trust], setting improper contribution rates, and failing to comply with Builders' membership requirements in relation to the admission and removal of members, and failure to prevent inherent conflicts of interest."
It accuses him of fraud for "material misrepresentation of fact, with the intent to deceive the trust and Builders' members and to induce the trust and its members to act on these misrepresentations."
As a result, Papa says, the trust was damaged, as was the Workers' Compensation Board, as successor in interest to the trust.
The complaint seeks $11.98 million in damages from LaRocque, and punitive damages.
LaRocque, who no longer is listed as executive vice president on the NYSBA website, could not be reached for comment.
He now is principal of LaRocque Business Management Services in the Albany suburb of Guilderland, offering building- and labor-consulting services.
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