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Another Untrustworthy Trustee

WCB Sues Self-Insurance Trust Trustee for $12M:

 

The New York state Workers’ Compensation Board has sued a former trustee of an insolvent group self-insurance trust to recover nearly $12 million, charging that he fraudulently induced construction companies to pay premiums to the trust.

 

The complaint filed Jan 13 in the Supreme Court in Albany names Philip LaRocque as the sole defendant and argues that he should repay the Builders’ Self-Insurance Trust’s entire deficit.

 

The WCB is currently responsible for covering that red ink, which forensic accountants once pegged at more than $20 million but later reduced to $11.98 million.

 

The complaint alleges that LaRocque’s duties as trustee of the Builders’ Trust were in conflict with his simultaneous role as executive vice president of the New York State Builders Association, a construction trade group.

 

According to the board, the trade group received referral commissions from the trust for each employer who joined and paid workers’ compensation premiums.

 

"LaRocque obtained benefits from and protected the interests of (the trade association) instead of administering his duties as trustee to the builders’ self-insurance trust," the complaint charged. The board said he failed to set proper capital levels for the trust, failed to collect adequate premiums and failed to avoid "inherent conflicts of interest."

 

Reached by phone Wednesday, LaRocque said he had not been served with the complaint and had no knowledge it had been filed.

 

"I’ve done nothing wrong," he said. "I will defend myself if necessary. They are chasing after money I don’t have."

 

Rachel McEneny, a spokeswoman for the board, declined to comment.

 

The board’s action against LaRocque follows other aggressive steps it has taken in recent months to deal with nearly $800 million in combined deficits for more than 20 group trusts that fell into insolvency in the past decade.

 

The board, which has inherited those obligations, has negotiated agreements with hundreds of employers who are former members of failed trusts and bear responsibility − under joint and several liability − for their claims and obligations. It has also sued employers who declined to negotiate settlements.

 

Meanwhile, in order to assure that money is available to pay claims from workers once covered by the failed trusts, the Legislature authorized the sale of up to $900 million in bonds to finance the transfer of obligations to pay claims to new insurers.

 

Bonds issued last month will cover nearly $300 million in liabilities from two of the biggest group trust insolvencies − Healthcare Industry Trust of New York and Healthcare Providers Self-Insurance Trust.

 

Other large failures, including Elite Contractors of New York, with $68 million in liabilities, are due to receive similar treatment following future bond issues.

 

Group trusts began springing up in New York in the late 1970s after Gov. George Pataki encouraged legislation to help employers who were complaining about high workers’ compensation premiums in the private market.

 

By 2005, 65 group trusts were covering 17,000 employers. But many were not collecting sufficient premiums from their members to maintain safe levels of capital. Most of them have since been shut down, and 23 fell into insolvency. Only three are active today.

 

The Builders’ Self-Insurance Trust was organized in 1998. According to the board’s complaint, the trust had developed a regulatory deficit of $1.083 million by September 2001.

 

The following year, the trust expanded its number of trustees to five, and LaRocque signed amendments to the trust agreement to add two new trustees.

 

The trust’s condition continued to deteriorate, and in February 2004, the board prohibited it from accepting new members.

 

But in 2006, the board reversed course and entered into a consent agreement with the trust that allowed it to open up to new members again on the condition that it operate at break-even or better.

 

By May 2007, the trust’s deficit had swollen to $5.9 million. Within months, the board and the trust agreed that it would stop writing new coverage again, and by May 2009, the board stepped in to assume the administration of its assets and liabilities.

 

In July 2010, the accounting firm of Bollam, Sheedy, Torani & Co. concluded that the trust had a gross deficit of more than $20.38 million. An updated audit as of September 2012, which relied on newer claims information, reduced the estimated deficit to $11.98 million.

 

That’s the number the board seeks to recover from LaRocque personally, according to the complaint filed by the board’s director of litigation, Michael Papa.

 

"Defendant LaRocque intentionally used his knowledge as a trustee and his dual position with (the trade association) and Builders Trust to benefit (the trade association) to the detriment of Builders," Papa alleged.

 

Frederick Buse, managing director of the Schwartz Heslin Group, an Albany actuarial firm, said he hadn’t heard about the complaint.

 

"So the Workers’ Comp Board has finally decided to knock heads with self-insurance − years late," Buse said. "Phil undoubtedly helped create that trust," he added. "But what standards were used to make Phil be sued?

 

"I’m concerned it could have a chilling effect on other trusts − give them concern that they might be sued (individually) by the board."

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