DRPA insurance commissions in dispute [The Philadelphia Inquirer]

Aug. 26--A long-standing, unwritten practice at the Delaware River Port Authority requiring insurance brokers to share their commissions has come under fire from some DRPA board members.

Meanwhile, a prominent Philadelphia broker has refused to pay more than $40,000 that a New Jersey firm says it is owed under the DRPA policy.

The dispute highlights a lucrative source of revenue from the bi-state authority for politically connected companies on both sides of the Delaware River: insurance contracts, fees, and commissions.

The Graham Co., of Philadelphia, and Willis of New Jersey Inc., of Morristown, N.J., work as insurance brokers for the DRPA, finding companies to insure the agency against construction, workers' compensation, property damage, and other risks.

The two firms collect commissions from the insurance companies that are hired.

In recent years, the Graham Co. has received more in commissions than Willis has. Willis says it is entitled to half the money under an unwritten DRPA policy to share the wealth equally between Pennsylvania and New Jersey.

Last year, Graham paid $64,166 to Willis to "true up" the difference between the commissions collected by Graham ($620,625) and the commissions collected by Willis ($492,294).

Since 2004, Graham has paid Willis $514,530, according to Graham.

This year, Graham has contested the commission-sharing arrangement and has refused to pay $44,703 to Willis.

"I don't think it's legal," said William A. Graham IV, chief executive of the Center City insurance broker. He said he was told in 2006 by a DRPA official, former deputy general counsel Michael Joyce, to "do it, or you lose the business."

Joyce did not return phone calls seeking comment.

William Graham was among a group of local investors that bought the Inquirer, Daily News and Philly.com four years ago. The group lost its investment when the company, Philadelphia Newspapers L.L.C., declared bankruptcy in February 2009.

In addition to commissions collected from insurance companies for DRPA business, the Graham Co. last year received $3.8 million from the DRPA in annual premiums for the authority's "bridge property and loss-of-toll-revenue and claims-made liability" insurance programs and for its "owner-controlled insurance program," according to the DRPA.

The DRPA paid Willis $1.4 million in annual premiums for the authority's various traditional property and casualty insurance policies. And it paid Willis $295,987 in insurance premiums for health and welfare benefit plans, the DRPA said.

The commission-sharing issue reached the DRPA board this month, after Pennsylvania board members John "Johnny Doc" Dougherty and Robert McCord asked for investigations into the legality of the true-up policy.

"I hope it is not legal, but if it is, it darn sure has to be unethical," Pennsylvania board member Robert Bogle said at Wednesday's board meeting, where board members asked for an investigation.

DRPA chairman John Matheussen said the unwritten policy may have been created at a meeting at the law offices of Ballard Spahr in late 2003 or early 2004.

At that gathering, former DRPA board chairman Manny Stamatakis "indicated the overall goal was to have the board consider awarding insurance contracts to qualified brokers/consultants from both New Jersey and Pennsylvania and not predominantly from one state or the other," Matheussen said in a recent letter to Pennsylvania state treasurer Rob McCord.

In attendance, "to the best of my recollection Chairman Manny Stamatakis, myself, Ballard Spahr attorneys, and I believe Steve Curtis, former Director, Risk Management & Safety and perhaps a representative from Archer & Greiner, New Jersey Counsel, but I do not recall specifically," Matheussen said in the letter.

Jeffrey Nash, vice chairman of the DRPA board and head of the eight-member New Jersey delegation, said he understood that commission-sharing had been a practice since the early 1970s.

"It doesn't cost the tollpayer any more, since the total in commissions is the same," Nash said. "They're just split for fairness."

"I've never heard a complaint about it before," Nash said. "No one is forcing these companies to participate at DRPA."

Nash suggested that "we should cut all commissions and become self-insured, as much as possible."

No other DRPA professional-services contracts have similar wealth-sharing provisions, Matheussen said in the letter.

"It is my understanding that sometime our two brokers, Willis and Graham, had entered into some discussions regarding their respective commissions and fees."

The last true-up check, for $64,166, was sent by Graham to Willis senior vice president Eric Munroe on Sept. 29, with a cover letter from William Graham. The letter was copied to Matheussen, Joyce, assistant to the chairman Mary-Rita D'Alessandro, and to Graham vice president Scott Kegler.

This summer, in a series of emails, Munroe requested another payment.

The first request, sent July 8 to William Graham and three other Graham Co. executives, was cheerful:

"I hope you all are doing well. It is that time of year to do the Commission True Up for the Delaware River Port Authority. I am attaching a spreadsheet that shows by line of coverages what our commission was on the DRPA account for the 2009-2010 year. If you can fill out your section and get it to us as soon as possible it would be greatly appreciated."

Attached was a "commission/fee reconciliation" that showed Willis of New Jersey Inc. had received $412,113 in commissions in the past year.

The tone of Munroe's third request, on Aug. 10, was less happy: "It has been a month since I sent my first e-mail about the True Up Calculation between Willis and Graham. I have not heard anything from anyone at Graham about this. We would like to get this taken care of as soon as possible. A response by someone would be greatly appreciated."

Graham received $501,519 in commissions for this year, according to Graham Co. records. That would mean a $44,703 payment to Willis, under the unwritten policy.

Munroe on Thursday referred all questions about the true-up issue to Will Thoretz, spokesman for Willis Group Holdings Ltd. in New York.

"We followed the instructions of the DRPA to share commissions with Graham," Thoretz said. "Willis has been a broker for the DRPA since 2003, and we're proud of the risk-management work we've done on its behalf. Of course, we will cooperate fully if we are asked to supply further information."

"It's really bad if it's been going on for years," McCord, the Pennsylvania state treasurer and DRPA board member, said of the policy.

"You've got this culture where they think everything has to be divided up between New Jersey and Pennsylvania, regardless of the work that was done," McCord said.

Another insurance-related storm may be brewing.

Graham Co. and Willis are among four brokers seeking DRPA business under "requests for proposals" issued by the DRPA in May and July. Previously, the authority had awarded insurance-broker services without such formal procedures, according to an audit released last month.

The other insurance companies vying for the DRPA work are Marsh Inc., the world's largest insurance broker, and Conner Strong, the Marlton firm chaired by George Norcross 3d, a major Democratic political power broker in South Jersey.

The requests for proposals include specifications that brokers may not charge fees. In past years, Graham Co. has charged service fees for its work, which it says has resulted in fewer claims and lower costs for the DRPA.

In 2009, the DRPA paid $230,000 to the Graham Co. in fees for services such as on-site safety monitoring of construction, according to the authority. It paid no fees to Willis, which did not provide such services.

Contact staff writer Paul Nussbaum at 215-854-4587 or [email protected].

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