Records confirm insurer's problems

Florida Today
 

BY PAIGE ST. JOHN
Contact St. John at (850) 222-8384 or pstjohn@nettally.com

11/14/2005

Reviews of audits, invoices, time sheets and personnel files by FLORIDA TODAY's state Capitol bureau detail the internal disaster.

It found resolution of more than 120,034 claims fell to hundreds of freelance adjusters under contractors who answered only to other contractors. Outside companies without contracts paid themselves, hired family members and billed Citizens for pay never passed to their adjusters.

Established fee schedules were thrown out the window, and lucrative rates set during the storm became a costly drain on a company incurring a $516 million deficit.

Controlling the $127 million operation: a consultant.

Paul Hulsebusch ran the catastrophe response for Florida's second-largest insurer, awarding millions of dollars of work without contracts or oversight and little scrutiny of his personal and financial ties with those he brought on board.

A year later, promoted to chief operating officer, he abruptly resigned after the revelation of bribery allegations in a civil suit.

Lori and Randall Rudd, a rural Escambia County couple, were among thousands of residents reliant on the operation Hulsebusch created. They also are among the 9,744 policy-holders who filed hurricane-related complaints against the state insurer last year.

For five months, the Rudds battled Citizens' adjusters in an experience repeated around the state.

"It was a total nightmare," Lori Rudd said.

The Rudds begged state consumer advocates for relief -- living expenses to buy winter clothing for the children.

Citizens responded that an "adjusting firm was reviewing" the claim.

"Our problem started because Citizens hired AllCat (one of Citizens' adjusting firms) to do the adjusting," Lori Rudd said.

"AllCat in turn farmed out our job to Evans Adjusting out of Texas who in turn hired some yokel who didn't know his head from a hole in the ground," she said.

"By the time he sent his findings to his Evans supervisor and the Evans supervisor sent it to his AllCat supervisor and the AllCat supervisor sent it to his Citizens' supervisor, no one had any idea of what they were doing."

Lori Rudd was pregnant with her sixth child when the ordeal started, and it wasn't until January -- when the child was stillborn -- that she feels she got the insurer's attention, a new adjuster and, 30 days later, a settlement check. She believes her plight made her an attractive plaintiff, sympathetic to jurors and thereby dangerous to Citizens.

Starting from two

When the 2004 hurricane season started, Florida's second-largest property insurer had a catastrophe staff of two.

Citizens Property Insurance intended to send any hurricane claims to outside adjusters at six firms. But by the third hurricane, Ivan, the state-run insurer realized those adjusters weren't available. They were working for companies that paid more.

Citizens needed its own army. The company banked on Hulsebusch, a 38-year-old underwriting consultant from Pennsylvania.

Personnel files and state records show he had 12 years of field experience working with the same kind of contract-adjusting firms he would tap to rescue Citizens, and he used those contacts to create Citizens' first in-house catastrophe center.

He recruited dozens of outside companies to hire hundreds of independent adjusters. Most came aboard without contracts.

"We built this thing on the fly. Those people did a hell of a job," said Bill O'Neil, who at the time was chairman of Citizens' Board of Governors.

The manpower, along with a new claims tracking system, made a difference, and the company began to gain ground.

Florida insurers as a whole reported 70 percent of claims closed by early December.

Citizens, which had been way behind the rest of the industry, rose to 58 percent by December. Two months later, Hulsebusch was rewarded. He became Citizens' chief operating officer.

But some of the seeds for Hulsebusch's later downfall already had been sown.

A conflict of interest

Internal records at Citizens show that within weeks of being retained to help Citizens, Hulsebusch put the husband-and-wife owners of a small Texas claims firm into key managerial positions, while agreeing to pay its adjusters above-market rates.

Weekly time sheets show Quantum Claim Services' Rod Harrell in charge of independent adjusters and Sonya Harrell in charge of customer complaints. Both listed Hulsebusch as their supervisor.

In a matter of days, Quantum Claim Services relieved Hulsebusch of a headache: his conflict as owner of Saucon Valley, a consulting venture Hulsebusch ran from his Pennsylvania home.

Saucon Valley held Citizens contract work, from adjusting claims to a $126,000 contract reviewing Hurricane Charley damage on Captiva Island. As catastrophe operations manager, Hulsebusch approved payment by signing off on invoices that paid adjusters working for his own company.

Citizens executives said they asked him to shed the conflict.

Without missing a day's pay, Saucon Valley's adjusters moved to Quantum's payroll. They included David Wodjlyak, Hulsebusch's father-in-law.

$6 million in business

In December, under pressure to answer more than 4,000 consumer complaints, Hulsebusch used his authority to pull work away from some companies for what he called "concern over quality" and "phantom adjusters."

He pointed the finger in particular at one Texas firm given 1,600 Hurricane Ivan claims, Universal Risk.

According to Universal Risk president Joe LeBrun, the problems were with Citizens, where he said finished files piled up without action.

An audit Hulsebusch commissioned later in January concluded Universal Risk had the highest settlement and property inspection scores of all 31 of Citizens' primary subcontractors.

Universal Risk in April filed a $4.6 million breach of contract suit against Citizens and Hulsebusch. It claimed Hulsebusch was diverting its assigned claims to a Texas competitor -- Quantum.

By June, Quantum was one of Citizens' biggest vendors, with $6 million in adjusting work.

All the while, adjusters who worked for Quantum said Citizens turned a blind eye while the Texas firm took off the top a majority of the fee it billed Citizens for adjuster work. Those contract adjusters say it's industry standard for companies to pay out less than they bill, but not at the levels seen with Citizens.

Pay stubs and invoices document that Quantum billed Citizens as much as $950 a day for adjusters who in turn received as little as $238 a day. In addition, Quantum billed Citizens for seven days a week of expenses but paid those adjusters only for five or six days.

"Citizens was aware, and they did nothing about it," said Roosevelt Johnson, who was among the veteran adjusters surprised to learn Quantum billed Citizens about three times what he was paid for his work.

He said he received only $322 a day and Citizens was billed $950.

"I was told they were billing $400 a day for me." he said.

It's not Citizens' problem, said Bruce Douglas, current chairman of Citizens' Board of Governors.

"That's an adjuster-vendor deal," he said. "We agreed to rates up front" with the outside companies.

Restrictions lifted

The Board of Governors gave Citizens' staff "broad discretionary authority" to take any action necessary to cope with the hurricanes.

Among the restrictions lifted: Citizens' $58-an-hour pay schedule.

"Adhering to those fees would make it impossible for us to attract the critical adjusting resources we needed," Citizens general counsel Susanne Murphy said.

Invoice files show Hulsebusch agreed to pay $1,000 a day each to Rod and Sonya Harrell and Quantum billed Citizens for three dozen adjusters at $650 to $950 a day. Everybody doing adjusting work was entitled to $112 a day in expenses.

"I think Paul's marching instructions were, 'Do what you need to do.' He was told, 'Pay what you have to pay,' " said O'Neil, the former chairman of Citizens' board.

Hulsebusch resigns

Citizens executives say they didn't realize anything was amiss until September, when Universal Risk added to its lawsuit to allege Hulsebusch was taking "a series of bribes," namely a $28,000 gift CFO Tom Gallagher later identified as a Big Dog motorcycle. Florida vehicle registration records show the flashy performance bike in Hulsebusch's name.

The suit claimed Quantum gave it to him.

Two days later, Citizens' files show, Hulsebusch resigned.

A former Citizens' board member, Ed London, said he was told the motorcycle was actually partial payment from Quantum to Hulsebusch for Saucon Valley.

The allegations prompted outside audits commissioned by Citizens and state and federal criminal investigations -- all coordinated by the insurance fraud division of the Department of Financial Services under Gallagher.

'Different operation'

Hulsebusch reported directly to Citizens Executive Director Bob Ricker, who says he was unaware of many of the personal and financial conflicts his hire carried aboard.

Neither Hulsebusch nor Harrell has responded to the merits of Universal Risk's lawsuit or to the investigations. They also did not return repeated calls for comment for this article.

Citizens executives say the company is back on course.

About 1,000 independent adjusters hired to close Hurricane Wilma claims still answer to outside vendors, but they, in turn, are now controlled by a central office with 13 Citizens employees.

New conflict-of-interest policies are in place, and Citizens' board is considering adding restrictions on contracts.

"We're light years from where we were," assured Douglas, the current board chairman. "It's just a totally different operation."