Insurance investigation nears conclusion

StoryImage( ‘/Images/Story//img-fi8xEF8X0Y.jpg’, ”, ‘Paul Logli’);

Similar cases in Rosemont, Orland Hills and Williamson County suggest the county may sue former insurance broker

Winnebago County Deputy State’s Attorney Chuck Prorok said he will issue a report within 30 days about his investigation of alleged undisclosed fees paid to the county’s former insurance broker, Bruce Hagshenas, president of Benefit Planning Services, Inc. Benefit Planning’s services were terminated by the county board March 11.

Prorok appears to have a precedent to follow in making his decision because of a similar case that occurred recently in the Chicago suburb of Rosemont. Prorok also has two other Illinois lawsuits that he may refer to in deciding his own opinion.

According to the Chicago Tribune, Rosemont sued its former insurance broker for overcharging the village nearly $1 million in hidden fees related to insurance the village purchased from American Business Insurance Agency of Illinois, Inc., which became Acordia of Illinois, Inc., in 1995. The suit said Rosemont was bilked out of the money from 1991 to 1996.

Rosemont settled the case for $1.3 million last November.

Prorok has been criticized by county board members for heading Winnebago County’s investigation because Prorok received a $1,000 campaign contribution from Hagshenas in 2000. Prorok accepted the contribution during his failed bid for judge in the 17th Judicial Circuit.

Hagshenas’ services were terminated by the Winnebago County Board after the county’s Executive Committee asked Winnebago County State’s Attorney Paul Logli to examine the contract they had with Benefit Planning. Logli is Prorok’s supervisor.

Logli said in April he does not view Hagshenas’ contribution and Prorok’s investigation as a conflict of interest, which is why he assigned Prorok to the investigation in February.

However, Winnebago County Board members Polly Berg (D-7) and Randy Olson (R-1) said Prorok should have stepped down from the investigation to avoid even an appearance of a conflict of interest.

During an interview April 6, Hagshenas alleged he was terminated as a result of county politics and Winnebago County Board member Patti Thayer’s (R-9) affiliation with Rockford Consulting and Brokerage, Inc.—the county’s new insurance broker.

Thayer said the reason she pushed for a new insurance broker was that she was concerned about rising health care costs, and was repeatedly informed there were no commissions associated with Benefit Planning’s services.

Hagshenas is currently involved in a defamation lawsuit against Thayer for alleged comments she made at a county board Executive Committee meeting last October about the county’s insurance.

Before Prorok began his investigation in early February, Prorok cleared Hagshenas of wrongdoing in a Jan. 26 letter by stating the undisclosed commissions “did not breach the terms” of the contract Benefit Planning had with the county (see April 7 article).

Olson estimated Hagshenas was paid more than $100,000 last year in commissions from Winnebago County by insurance companies from which the county purchased about $9 million worth of insurance products.

Hagshenas said the commissions were legal, and were closer to $70,000 for 2003.

National Public Radio reported June 14 that the J. P. Morgan company conducted an insurance industry analysis earlier this year. The analysis found that broker commissions may be as high as 5 percent of the cost of the purchased policies. If the 5 percent commission standard were applied, Benefit Planning would have received $450,000 in commissions.

Prorok said the commission costs may have then been passed on to the county in the form of higher insurance premiums.

Thayer and Hagshenas said they supported efforts to bring an independent investigator from the Illinois Attorney General’s office to examine the process that eliminated Hagshenas’ company as the county’s insurance broker, the search for a new broker, and Benefit Planning’s former contract with the county.

Former Winnebago County Board Chairman Kris Cohn defended Hagshenas and Benefit Planning in April. Cohn said Benefit Planning provided “the most complete health care at the lowest cost” for the county.

Logli said he wanted Prorok to complete his investigation, but left the door open for the possibility of an investigation by an outside agency.

Department of Justice

In Rosemont’s case, an outside agency did investigate. The U.S. Department of Justice convicted three individuals this year on federal charges of money laundering and fraud that bilked Rosemont of $288,670 in insurance premiums. The case concerned undisclosed insurance fees that were paid by Rosemont from 1990 to 2000.

One of those convicted was Nick S. Boscarino, 52, of South Barrington. Boscarino was convicted in February of money laundering and insurance fraud. The scheme laundered funds through various banks and brokerage accounts controlled by Boscarino and Ralph E. Aulenta, 63, of Inverness. Aulenta operated the insurance brokerage, and pleaded guilty to the charges in January before the trial began, in hopes of a lighter sentence.

Irving B. Mangurten, 53, a certified public accountant, and co-conspirator in the scheme, pleaded guilty to perjury in March for his testimony during the trial earlier this year.

Boscarino’s sentencing date is June 30, Aulenta’s July 7, and Mangurten’s July 14.

Investigations and lawsuits

Prorok is not alone in his investigation into insurance and brokers.

According to an April 24 New York Times article, California’s insurance Commissioner John Garamendi and Eliot Spitzer, New York attorney general, are also investigating similar circumstances.

Spitzer issued subpoenas to three of the country’s largest insurance brokers: Marsh, Inc.; Willis Group Holdings; and Aon Corp.—all have businesses registered in Illinois. The focus of Spitzer’s investigation is an effort to examine “incentives and other fees paid by insurance companies to commercial insurance brokers. …

“At issue in the investigations are payments made by insurance companies to brokers for exceeding targets on the sale of policies and for providing consulting services. Although the payments have been a routine practice for many years in the industry, it is not clear whether the payments are in fact legal. Regulators and industry analysts say the costs of the bonuses are passed on to customers; there is concern, too, that customers may be getting inappropriate insurance.

“Some experts say the payments are only illegal when they are not disclosed to customers, but the Washington Legal Foundation, a nonprofit research organization that brought the situation to the attention of investigators, says that, in any case, they raise questions about whether a broker’s recommendations are honest and unbiased,” the article reads.

The Wall Street Journal reported May 17 that two other Illinois entities have sued insurance brokers for undisclosed insurance commissions.

The Williamson County Agricultural Association, located in the southern part of the state, sued Aon in the late 1990s alleging the hidden commissions are really “undisclosed kickbacks,” according to court documents.

Orland Hills, another Chicago suburb, sued the Arthur J. Gallagher company for similar reasons and also described the payments as “kickbacks.” Both lawsuits are working their way through the courts.

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