Citizens Property Insurance contracts raise questions [Sun Sentinel, Fort Lauderdale, Fla.]

Aug. 03--State-backed Citizens Property Insurance did not shop around for the best deal on at least 33 current contracts worth more than $25,000 each.

That's more than a quarter of the contracts on which Citizens is required by law to seek competitive bids unless one of more than a dozen exemptions apply.

A Sun Sentinel examination of the contracts worth more than $25,000 showed that the insurer claimed it was dealing with emergencies in 14 contracts, that only one company provided the needed service 12 times and that other exemptions applied in seven instances. Together, the 33 unbid contracts were worth up to $49 million.

Whether the state's largest insurer gets the best deals matters to all Floridians. All property insurance policyholders pay fees to cover Citizens' deficits from the 2005 hurricane season. Citizens' nearly 1.2 million policies face premium increases of up to 12 percent this year and next to cover rising costs. More increases are expected in coming years.

Citizens hires contractors to provide, among other things, claims estimates; training, employee benefits and technology services; legal and financial advice; and rental equipment and office space.

One reason the insurer hires outside help is to supplement the work done by its nearly 1,200 employees when there are catastrophes or sudden spikes in the number of policies. Florida hasn't been directly hit by a hurricane since 2005.

Earlier this year Citizens was criticized for steering a contract worth up to $10 million for home reinspections to Jacksonville-based Inspection Depot without bidding. Citizens initially claimed an emergency exemption but later asked for bids on most of that contract.

"What we are looking at appears to be a pattern of violating Citizens' requirement for competitive solicitation," said Rick Bateman, an attorney for SagoTec, the Georgia company that is suing over the Inspection Depot contract.

Citizens officials say they follow state law. When the emergency and "sole source" exemptions are used, the insurer's internal "policy requires our purchasing department to coordinate the purchase to ensure proper due diligence," said Citizens spokeswoman Candace Bunker.

State law allows government entities to claim an emergency exemption on contracts when "an immediate danger to the public health, safety, or welfare or other substantial loss to the state requires emergency action."

Citizens' policy provides more leeway, allowing emergency purchases "when the time required to issue a competitive solicitation would be detrimental to the material interests of Citizens or its policyholders." It typically takes Citizens less than three months to complete a competitive deal, based on a review of its contracts and board agendas. Complicated contracts can take longer.

Citizens has used the exemption to hire companies that process policies, manage claims and provide software.

Whenever Citizens buys services for more than $25,000 on an emergency basis, the reason must be documented. Last year, Citizens extended a contract with CEDAR Document Technologies, a software company, for five years -- including two optional years -- and called it an emergency. The total contract was valued at $13.8 million, or $2.8 million a year.

Citizens officials justified the emergency this way: "The proposed extension will ensure that Citizens can continue to receive these services efficiently until a more long-range decision is made regarding Citizens' policy administration software and more importantly, Citizens' core insurance system."

Bateman said Citizens applies the term "emergency" too liberally: "An emergency is a situation where a hurricane hits or another disaster and you need to get people going quickly, not [to expedite] multimillion dollar contracts."

The lack of competitive bidding gives some unhired contractors room to say Citizens' managers hire contractors they know.

In October, Citizens used the mergency exemption to hire BrightClaim and Engel Martin & Associates to provide "claims management, oversight and supervisory services" for large policyholders. The one-year contract is worth up to $8 million, and even more if a catastrophe such as a hurricane were to strike.

Even though it claimed an emergency, Bunker said Citizens managers informed its 28 contract adjusters of the opportunity. Nine applied, but none met the insurer's qualifications, she said. The company did not allow other adjusters to apply.

BrightClaim and Engle Martin were chosen because they are experts in handling claims for condominium buildings, she said. Citizens says it will advertise for competitive bids for future work before the end of the year.

The contracts for BrightClaim and Engle Martin were reviewed and approved by two Citizens executives, Yong Gilroy and Eric Ordway, who have ties to Crawford and Co., an insurance claims services company in Georgia.

BrightClaim was formed by three Crawford & Co. managers and a former Crawford president is one of Engle Martin's top leaders. Ordway owned a minority stake in a company sold to Crawford in 1999, and Gilroy worked as a claims representative for Crawford from 1987 to 1990.

Bunker said who owned or led the companies had nothing to do with the decisions to hire BrightClaim and Engle Martin. Citizens employees didn't know anyone at Engle Martin, she said.

Tom Kosterman, president of KMS Claims of Port Charlotte, said he no longer pursues Citizens contracts because he believes the insurer favors some companies. His company is an independent adjusting firm that estimates damages for claims.

"Unless you know someone there who says you're going to get claims, it's not a good idea," Kosterman said.

Citizens has a history of contract problems. In 2005, four executives resigned. The chief operating officer was accused of accepting kickbacks from insurance adjusters, including a $28,000 motorcycle. The general counsel's law firm allegedly had ties to insurers who sought business from Citizens. Two other executives were accused of violating conflict-of-interest rules related to a plan to launch a private insurance firm.

Thomas Bryer, an assistant professor at the University of Central Florida's Department of Public Administration, said the problem may be one of perception. But for government agencies, appearance "always matters," he said.

"Even if an organization, like Citizens Property Insurance, is acting fully within the intent of the law, if it appears that there is impropriety or favoritism, then there is a problem," he said.

Citizens should consider greater scrutiny of its contracting process, he said, perhaps creating an oversight panel that includes taxpayers "to both shine light on contracting decisions and to represent to the larger public why certain decisions are made."

Julie Patel can be reached at 954-356-4667 and [email protected].

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