Report finds problems at Beacon Mutual Insurance Company

Providence Journal staff writers
April 12, 2006

An independent committee led by former Gov. Lincoln C. Almond has found evidence of abuse, mismanagement, and preferential pricing practices at the state's largest worker's compensation insurer.

The Almond committee, which oversaw a two-month review of the Beacon Mutual Insurance Co. by Giuliani Security Services, a firm headed by former New York City Mayor Rudolph Giuliani, released its findings this afternoon. The investigation - prompted by a whistleblower's complaints last year - found that Beacon gave breaks to certain companies and had "inappropriate relationships'' with some insurance agents.

"Our review substantiates most of the allegations," Almond said at today's press conference. "Beacon was left open to abuses and abuses did occur."

The result was "preferential treatment to the possible detriment of other policyholders and agents,'' according to the 116-page report. "We find that the actions of a number of the members of the Board of Directors and the actions of the CEO and the Vice President for Underwriting were, on occasion, contrary to the fiduciary responsibility to the policyholders."

Gov. Carcieri blasted Beacon's team after being briefed by Almond's team earlier today.

"This is a scathing indictment as far as I'm concerned. It's sort of confirming my worst fears," Carcieri said in an afternoon interview. "It looks like a board out of control, it looks like a senior management out of control."

The report says that Beacon kept a ''VIP'' list of companies, and that Joseph Solomon, Beacon's president and chief executive officer, denied the list's existence to Giuliani's investigators while telling another Beacon executive to delete the VIP list from his computer.

Beacon also refused to provide Giuliani's team access to Solomon's computer and other computers as well, according to the report.

The report also says that Beacon's longtime former chairman, Sheldon Sollosy, misused his position by refusing to provide payroll data for a company that he owned, Temporary Manpower Services, contrary to company rules. That prevented Beacon auditors from determining whether the worker's comp rates that Sollosy's company paid were fair. Sollosy resigned in February.

The report also describes golf trips to Scotland and North Carolina by Solomon and insurance agents doing business with Beacon. And it says that Solomon had granite countertops installed in the kitchen of his home by a company that received breaks on its workers' comp insurance. An executive from the company told Giuliani's investigators that Solomon did not pay full value for the kitchen work. The Giuliani investigators said they had not found evidence of a "quid pro quo" arrangement between the company and Solomon.

The report also explores the tangled financial relationships between Beacon and political operative Guy Dufault. Investigators found insufficient documentation for $90,000 in "special project'' charges by Dufault for public relations and marketing services, and criticized Solomon's approval of a $34,000 payment to Dufault's Cornerstone Communications last year for services stated on the invoice that were not performed.

Investigators also said that Dufault did not pay rent on his office in Beacon's Warwick headquarters, even though Beacon booked rental income. Dufault also accompanied Solomon and insurance agents on a golf trip to Pinehurst, N.C., last year.

The report also says Beacon helped pay for Solomon and three insurance agents to travel to Scotland three years ago to the exclusive Carnegie Club at Skibo Castle.

Almond's committee met with Beacon's board this morning to present its findings and recommendations for reform to make the insurer fairer and more "transparent.''

"We made it as clear as we could that the board has the responsibility to read the report and act on the recommendations," said a member of Almond's team, Edward M. Mazze, dean of the College of Business Administration at the University of Rhode Island. "The board has to start acting like a board."

The recommendations include having Beacon hire a chief financial officer, whose first priority would be hiring a "director of internal audit" and an internal audit group to systematically and continuously review all Beacon operations and financial controls.

The report also suggests a more comprehensive study of policyholders to determine the scope of preferential pricing practices. Giuliani's report focused on just five clients.

Earlier today, Almond's group presented its report to the Gov. Carcieri, Attorney General Patrick Lynch, state Senate representatives and the state Department of Business Regulation. In an interview this afternoon, Carcieri said he wants to meet tomorrow with the Beacon board.

Almond would not speculate on whether criminal charges or any staffing changes would follow.

But Carcieri called for a major shakeup at Beacon.

He said Beacon "needs a complete change," and, when asked if this included personnel, he replied, "Everything."

Asked if he thought Solomon should resign, Carcieri said he would discuss it with the board. "It looks to me like we've got a chief executive there out of control.''

Beacon spokesman William Fischer said that Beacon was committed to moving "in a proactive fashion" in regards to the report's recommendations.

"They asked for a candid assessment and they got a candid assessment," Fischer said of the board outside the press conference. "But the report took eight weeks. The board is asking for more than eight hours to digest this."

-- With reports from Journal political columnist M. Charles Bakst

Copyright © 2006 The Providence Journal Co.

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