In 2002 and 2003, a troubled auto-insurance company based in Dallas wrote checks worth more than a quarter of a million dollars to a powerful Republican lobbyist with close ties to Gov. Rick Perry. On the surface, that might not sound especially newsworthy given the incestuous nature of lobbying in Texas. But the company in question, Universal Insurance Exchange LLC, was under state supervision at the time. That meant the $255,000 in checks it wrote to Perry’s pal, former Republican state Sen. David Sibley, were co-signed by the Texas Department of Insurance. The insurance lobbyist’s paychecks were signed by the regulators they were being paid to influence. Now that’s clout.
Universal Insurance Exchange and its management arm, Universal Paratransit, had been on the department’s trouble list for years before it came under state supervision. Declaring the insurers’ finances to be potentially “hazardous” in early 2002, then-Insurance Commissioner Jose Montemayor beefed up regulatory controls over the company. Two months later, with state regulators camped out in its headquarters, Universal wrote its first known check to Sibley.
Some of the checks to Sibley specify that they were for “consulting fees.” Others do not record what Sibley was being paid for. yet it was the Insurance Department’s job to find out where the money was going. Asked why regulators would sign such checks, Danny Saenz, the department’s senior associate commissioner, told the Observer that Universal represented Sibley to be a consultant or an attorney. “We try not to step in too aggressively to monitor lawyers,” he said.
Saenz said the Sibley payments might not have attracted too much scrutiny because they were “not a huge amount.” Universal spent 8 percent of its reported net worth on Sibley. When the former legislator registered as a Universal lobbyist in 2003, he reported that the small company was paying him up to $200,000 that year, making it Sibley’s No. 1 client.
Attorney Glenn Tucker, who long served as Universal’s outside counsel, is now battling the Insurance Department in court for the right to buy the company’s remains. Tucker says he knew that Sibley lobbied for the company, but was surprised to learn about the size of his fees. “It was a small company,” he says. “It was thinly capitalized.” Beryl Goldman, who runs a company that provides data-processing services to Universal and other insurance companies, says that when he saw copies of the Sibley checks, he wondered “how a company writing $3 million to $4 million in business can afford to write such big checks for political support.”
Slbley expressed surprise when asked how the little insurer managed to pay him $255,000. “Wow,” he told the Observer. “I didn’t know I was that successful.”
After reviewing copies of the checks, Sibley confirmed that he received the money, using part of it to pay ex-state Rep. Stan Schlueter as a lobby subcontractor. Sibley says he represented Universal owner Kourosh Hemyari at the Insurance Department in 2002. He did not register as the company’s lobbyist that year, he says, because, “We considered that to be legal work.”
In 2003, as a registered Universal lobbyist, the former senator helped push a bill in the Legislature that would have pre-empted a Dallas ordinance that banned one of Universal’s specialties: short-term insurance policies for taxicabs. The measure failed.
Sibley says that, as far as he knows, state insurance regulators never questioned his Universal checks.
The department confirms that two of its field regulators, who have since retired, signed the Sibley checks.
Agency officials say they have not uncovered any other documents related to the payments, such as the logs of billable hours that typically accompany legal bills.
Hemyari, the Universal owner, declined to discuss Sibley’s services, citing ongoing litigation with the Insurance Department.
Robert Hunter, an insurance commissioner under Gov. Ann Richards, finds it “troubling” that the department would sign its own lobbyists’ checks.
“you don’t hire someone to lobby yourself,” he says. Hunter is hardly naive. When he was commissioner, he says that even sitting Texas legislators would lobby him on behalf of insurers. “I’m just surprised that TDI would sign the checks for it,” he says.
With Texans paying some of the highest premiums in the nation, insurance is a politically touchy issue for Gov. Perry. Democratic lawmakers who talked about insurance rates with the governor in 2008 told reporters the governor said he was tired of being viewed as the industry’s “whore-boy.” A Perry spokesman confirmed to the San Antonio Express-News that the governor had bluntly expressed frustration with a lack of insurance reform in Texas.
Perry’s image problem has been complicated by the migration of his political allies into the insurance industry. Sibley is just one case in point. When Perry was lieutenant governor in 1999, he put Sibley in charge of two powerful Senate committees, including one that helped deregulate Texas’ electric industry. When Perry inherited the governor’s office from Presidentelect George W. Bush the following year, he urged the Senate—unsuccessfully—to elect Sibley as its presiding officer. The men were close enough for Perry to endorse Sibley for one of Texas’ most powerful offices.
In 2005, Insurance Commissioner Jose Montemayor, a Bush appointee who’d served four years at Perry’s pleasure, resigned to become an insurance lobbyist himself. (Montemayor, who ordered Universal into state supervision in 2002, did not return calls seeking comment). Perry picked one of his own former policy aides, Mike Geeslin, to run the Insurance Department.
While Sibley’s Universal Insurance gig was the single most lucrative contact with a department-supervised insurer, other Perry allies were not far behind. After serving as Perry’s general counsel, Bill Jones scored three lucrative contracts with Austin-based Amil International Insurance Co., also under state supervision. Jim Arnold, who managed Perry’s lieutenant governor campaign in 1998, got big contracts with TDI-supervised Central United Life Insurance Co. of Houston. Assisting Arnold on that contract was Hans Klinger, who resigned last year as executive director of the Republican Party of Texas to become the campaign spokesperson for Sen. Kay Bailey Hutchison, Perry’s chief rival in his current re-election bid.
Neither Klinger nor the governor’s office returned calls for comment about the state-supervised insurance lobby. Arnold and Jones told the Observer that regulators did not co-sign checks they received from regulated insurers. Asked for records of regulators approving or denying payments to the lobbyists who reported the biggest contracts with state-supervised insurers, the Insurance Department said it had records related only to Universal’s payments to Sibley.
The agency deemed those records “confidential.”
While the practice of the department’s co-signing lobbyist checks might be unusual, it’s been common for Texas insurers to pay lobbyists while under supervision by state regulators. The Observer’s review of 72 companies placed under state supervision since 1997 revealed that 18 of them paid 46 state lobbyists up to $4 million.
Commissioner Geeslin recently convened a meeting with four of his aides to field Observer inquiries about the co-signed checks to Sibley. A key question before the regulators was whether financially fragile insurers should be allowed to pay consultants to lobby the Legislature. Shouldn’t they insist on more prudent uses of troubled insurers’ money?
Saenz, the senior associate commissioner, says the agency tightened controls in 2006 and 2007, and now prevents its field staff from “acting in a vacuum.” Those reforms, he suggests, would prevent the department from approving checks such as those to Sibley. At the same time, the state regulators stop short of criticizing the Insurance Department for signing over $255,000 to the Universal lobbyist. They struggle to say where they would draw the line, saying that regulators rely heavily on what company managers tell them an expenditure is for. “We wouldn’t approve a lobby payment to kill a bill” before the Legislature, Geeslin says, but he notes that plenty of lawyer-lobbyists represent insurers before the department. “It’s all how they represent it,” he says.
When Sibley began representing Universal Insurance Exchange, he took on a client that exemplified many of the flaws in the way Texas regulates its insurers.
Universal sells auto insurance to cab companies and to some of the Metroplex’s poorest motorists. The company had been on the department’s watch list even before Kourosh Hemyari acquired it in 1995. The company had run amok for years before the Insurance Department put it under supervision in 2002, the same year the company hired Sibley.
After regulators came to Universal—and while the governor’s ally was being paid so handsomely— the problems continued. An Insurance Department analysis of auto-insurer complaints in 2004 found that Universal had a complaint index that was 31 times higher than the industry norm. A department examiner reported in 2005 that Universal improperly denied insurance claims and gouged customers with unauthorized premiums and fees.
At new Commissioner Geeslin’s request in 2006, a state judge put Universal into receivership. Geeslin hired private contractor Harold Koehler as the “special deputy receiver,” whose job was to shore up Universal’s business and either return it to its old owners, sell it to new owners or shut it down with a minimal impact on policyholders and creditors. A veteran of the federal Resolution Trust Corp.’s cleanup of the 1980s savings-and-loan debacle, Koehler says he uncovered evidence that Universal had taken $3 million in allegedly improper fees from its customers. Koehler says he settled millions of dollars’ worth of lawsuits against Universal and put the company on a firm financial footing. Then, in late 2007, Geeslin fired Koehler “without cause.”
Beryl Goldman, the computer consultant who still works for Universal, says that over the years he developed a low opinion of the ethics of Universal’s management—and of the industriousness and intelligence of Insurance Department regulators. Goldman says he helped Koehler uncover Universal’s allegedly improper fees when he saw that he was “a bright light” who “really tried to straighten out the company,” even though Koehler had cut Goldman’s pay.
“A property casualty company license is a license to print money,” Goldman says. “Those guys [at Universal] give you the [policy] paper, but when you have a claim, they string you on for months. There are tens of thousands of insureds who get cheated.”
That did not change, he says, on the Insurance Department’s watch.
One of Koehler’s chief criticisms of the department is that it failed to pursue evidence that Universal took millions of dollars in improper policyholder fees.
Department attorney Rachel Giani says she can’t say whether the agency referred evidence of possible criminal activity at Universal to prosecutors. The Travis County district attorney’s office says it received an anonymous, unsubstantiated tip about alleged misappropriations at Universal several years ago and passed it on to the Insurance Department. When prosecutor Susan Oswalt followed up in July 2008, she says that the outside counsel the department assigned to Universal, Brian Riewe, told her the company was in receivership and there was nothing more for prosecutors to do.
If the department didn’t move on criminal complaints, the agency did eventually take civil action. On the last day of 2009, the deputy receiver whom Geeslin hired to replace Koehler filed a lawsuit in state court. It alleges that Hemyari and several of his Universal associates stole $4.8 million in improper fees from policyholders and failed to report this income to regulators.
So why was Koehler fired? The insurance department said in regulatory court filings in 2008 that Koehler served at the pleasure of the commissioner. But agency officials say that Koehler is the only deputy receiver that Commissioner Geeslin has axed, and that Koehler never committed any egregious blunders. They say it was decided that a new deputy receiver could do a better job completing Universal’s marathon mop-up.
Koehler believes his firing was another example of the shady way that insurance regulation works in Texas. He was fired, he says, because he pressed Geeslin to investigate Universal’s hefty payments to a lobbyist with close ties to the governor. “I had been doing this type of work for 15 years, and I never saw a company under TDI supervision and control make payments to a lobbyist,” Koehler says. “It was policyholders’ money.”
Andrew Wheat, an Observer contributing writer, is research director at Texans for Public Justice, a nonpartisan watchdog group.