Jun 03

City Files Lawsuit Against Former Insurance Broker

Posted on June 3, 2019 at 10:47 AM by Marc Garcia

The city has been diligently working on addressing the urgent need to change insurance carriers for its employees; as you know, several months ago we found out that our carrier could no longer meet their financial obligations, and we needed to make a unexpected change to our insurance coverage.  In the midst of that, early on, I committed to our employees that we would fight those who placed us in this terrible position, and today I am announcing a step toward that fight.

The city today filed a lawsuit against Peter C. Foy & Associates Insurance Services, Inc., alleging Foy, acting as insurance broker for the city, failed to meet its obligations as a broker and misled the city into purchasing an unauthorized, unlawful, and financially unsound health benefits plan for the city and its employees.  The health benefits plan was offered by Riverstone Capital LLC and NexGen Insurance Services Inc..  

The city’s action today follows investigations by the California Department of Insurance (“CDI”) and the U.S. Department of Labor (“DOL”) into the operation of Riverstone.  CDI and DOL determined that Riverstone was selling unauthorized and unlawful health benefits plans to more than 112 employers and their over 16,000 employees.

On February 1, 2019, the DOL filed a lawsuit against Riverstone and certain individuals who own and/or manage Riverstone, alleging failure to appoint a named trustee and keep plan assets in trust within the United States; failure to set adequate premium rates; failure to timely pay claims, inability to pay full amount of future claims, misrepresentation regarding funding; payment to themselves and others of unreasonable administrative fees and expenses from plan assets; and failure to comply with ERISA reporting requirements.  On February 1, 2019, the United States District Court for the Central District of California (“District Court”) entered a Temporary Restraining Order appointing an Independent Fiduciary to operate  Riverstone.  On February  7, 2019, the District Court, as a part of its Temporary Restraining Order under the provisions of the All Writs Act, 28 U.S.C. § 1651, enjoined and stayed all proceedings against participants, beneficiaries, the Riverstone Multiple Employer Welfare Arrangement (“MEWA”) Plan, employer plans participating in the Riverstone MEWA Plan, and plan assets.  The District Court’s Order stays all federal and state court proceedings, including collection actions, against participants and beneficiaries for unpaid medical claims.  The Independent Fiduciary will attempt to resolve outstanding claims to the extent feasible.

On February 14, 2019, the CDI issued a Cease and Desist Order effective immediately upon Riverstone and its owner/operators Travis O. Bugli, James C. Kelly and Robert M. Clarke.  The Cease and Desist Order alleges that Riverstone was marketing, soliciting, and selling purported “self-insured” health plan arrangements to employers instead of health insurance, in violation of California law.  Riverstone failed to pay medical provider claims totaling approximately $24 million dollars, exposing employers and their employees to risks and significant financial liabilities.  The investigation revealed Riverstone’s business practice of pooling and commingling contributions Riverstone received from its employer clientele into its own corporate accounts. “This company and its owners misrepresented their ability to pay medical claims, putting employers and their employees in immediate danger,” said Insurance Commissioner Ricardo Lara. “We took action to stop these illegal practices and ensure the safety of California workers and employers.”

The city’s complaint against Foy alleges "from October 2016 through February 2019, Foy acted as an insurance broker for the city.  As such, Foy owed the city those duties owed by an insurance broker under California law including, but not limited to, the duties to use reasonable care, diligence, and judgment in procuring insurance requested by the city and to avoid misrepresentations concerning coverage procured.  In addition, Foy held itself out to the city as having expertise in medical benefits insurance coverage, represented that it was familiar with the city’s insurance coverage needs, and represented that it was familiar with Riverstone and the Fortress/Riverstone Plan that Foy recommended to the city.  Based on those representations, the city relied on the recommendations of Foy and purchased the Fortress/Riverstone Plan for Plan Years 2017, 2018 and part of 2019.” 

“Foy failed to carry out its responsibilities and duties to the city to use reasonable care, diligence and judgment in procuring insurance requested by the city. . . At the time it recommended the Fortress/Riverstone Plan to the city, Foy knew, or in the exercise of due diligence should have known, that the Fortress/Riverstone Plan was an unauthorized, financially unsound MEWA, which should not under any circumstance have been recommended to the city, and that Riverstone was a sham company.” 

The city’s complaint further alleges that when the city started to receive complaints from its employees that their health care claims were not being paid, the city reported these issues to Foy.  Foy reassured the city that nothing was wrong with the Fortress/Riverstone Plan or Riverstone, that the Fortress/Riverstone Plan and Riverstone were financially sound and well managed, and that the issues arose from providers’ billing errors, employee misunderstandings of the health benefits offered, a change in a third party administrator, and other benign causes.

Foy systematically and continuously breached its duty of care to the city.

The city is seeking monetary recovery against Foy for all loss, costs and damages suffered, and indemnification for any future losses.  The city currently estimates there are $8.3 million in unpaid claims by city employees under the Fortress/Riverstone Plan.

A copy of the complaint can be found here. [View Documents]

I will share more as progress is made.
May 21

Modesto Takes Safety Seriously

Posted on May 21, 2019 at 3:01 PM by Trisa Parker

The accidental death of an employee in April 2018 should never have occurred, and although the city had a safety program prior to the accident, the city took the opportunity to thoroughly review whether or not the safety program should be strengthened.  In fact, the City took the initiative several years ago to commence a study to identify the gaps in its program, and substantially updated the Injury & Illness Prevention Program (IIPP) as a result.  The City has instituted many of the recommendations within this report.

Prior to the incident, the city had a good track record of employee accidents, and much of this can be attributed to the dedication to our safety program. 

We all bear some level of responsibility for safety and training, and following the safety assessment, I ordered a myriad of improvements to our safety program, including instituting an official citywide safety program, which the city did not have before.  In addition, the IIPP was updated, and monthly safety meetings began; each division had a safety liaison that had required attendance.  We hired a consultant to assist with the implementation of safety programs and trainings, and specifically focused on the required trainings that were missing.  

Several years ago, training was decentralized across city departments out of necessity due to lack of staffing.  A 2012 safety assessment was conducted to ensure we were providing necessary trainings, and ensuring compliance with the various programs.  We subsequently updated the IIPP and instituted the monthly safety meetings to ensure the safety of our employees.  In addition to the IIPP, we also created the Exposure Control Program, Electrical Safety Program, and a Respiratory Protection Program.  

Safety should be prioritized at the top of the organization, and it will be.  Based on the findings of the recent Serious Accident Review Team (SART) investigation, I’ve authorized an additional investigation in order to ensure we continue to address deficiencies and make appropriate corrective actions.  

We are continuously trying to improve all processes, protocols, and trainings.  The city has invested in and prioritized safety training, and I will continue to advocate and cultivate a culture of safety.  

Examples from Public Works, Utilities, and Parks.

There are departments, including Fire and Police, that invest heavily in training, personal protective gear, Standard Operating Procedures, and equipment.  There are complete teams of internal employees who participate in ensuring the safety of their coworkers.  

Total training hours for the fire department in the 2018 calendar year was 29,625 hours.  Each fire department employee is required to complete a minimum 20 hours of reportable training each month, a total of 240 hours per year.  

Total training hours for the police department in the 2018 calendar year was over 31,000.

Here is a look at funds the city spent with the contractor on previous safety program development and training:

 Year Amount
 2012   $4,999.00
 2013  $30,221.25
 2014  $17,032.72
 2015  $23,085.00
 2016  $53,192.50
 2017  $46,271.25
 2018  $60,078.75
 TOTAL  $234,880.47
 
In just the next two years, it is anticipated the city will spend more than $600,000 on the safety program.  

Again, one of the biggest lessons learned for our safety program is that it must be centralized.  That is to say, there needs to be independent oversight and not individual programs based on department objectives.   We need an individual who has the autonomy and authority to intervene when proper protocols and requirements are not being followed, and that is what we now have with the Safety Officer and additional contract assistance.

The death of an employee was a tragic and pivotal incident in the life of our city, and we responded quickly – and will continue to respond – in order to ensure a similar accident never occurs.   

Let me be clear, again, this city will focus on doing everything possible to prioritize safety going forward.

May 21

April City Manager's Monthly Report Released

Posted on May 21, 2019 at 2:59 PM by Trisa Parker

Council and Community:

I’m pleased to report on progress made as part of the city’s Capital Improvement Program.

Here’s a quick look at the accomplishments for the month of April:
  • Starting on page 9, the Police Department reports on crime and arrests, including a five-year comparison.
  • The Public Works department made progress with the SB1 slurry project finishing 9 of 96 lane miles to be completed by the end of 2019. See detailed maps on page 13.
  • Community & Economic Development has started a Bus Turnout project on Dale Road. The project will help traffic flow south of Veneman Avenue.
  • For Parks, Recreation, and Neighborhoods, construction continued on the Mellis Park Improvements project, and included the pavement of pedestrian walkways and the construction of the picnic pavilion. You can read the full report and see pictures of the Mellis Park project on page 15. 
  • In the Utilities Department, significant work was accomplished on the construction of the Water Corporation Yard, including the framing, and underground utilities; more on page 17. Construction officially kicked off for the Amtrak North Parking Lot – more on page 19. And at Del Rio Tank 14, the installation of the 16” water main was installed and completed. See page 16.
Looking ahead to pleasant weather, I anticipate a strong month of construction in May.
 
As always, please let me know if you have any suggestions on sharing this material more broadly with the community.

Read the full April City Manager's Update