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Tidewater retains role with state in insurance

THE BALTIMORE SUN

A quarter-century ago, the name Tidewater Insurance was synonymous with political influence in Maryland. The company, owned by the friends of then-Gov. Marvin Mandel, wrote millions of dollars worth of insurance contracts on state projects. One subsidiary alone had 28 state contracts during Mandel's tenure.

But Tidewater's fate changed when three of its owners were convicted along with Mandel on mail fraud and racketeering charges.

Though the convictions were overturned, Tidewater's political lifeline appeared to be severed and, with new owners, it dropped from view - or so it seemed.

Records show the insurance firm has quietly forged a relationship with one state agency - the Injured Workers Insurance Fund.

A Tidewater subsidiary, International Underwriters, has had for more than a decade an unusual series of no-bid contracts with IWIF.

Last year, another three-year contract was awarded retroactively to International Underwriters, an agreement that more than doubled the premiums paid to the company to nearly $1.4 million a year. That deal was never brought before the IWIF board for approval.

And, the state piggybacked on the IWIF contract to purchase insurance of its own through International Underwriters, boosting annual premiums paid to the company by another $500,000.

In each case, International Underwriters receives a commission - generally figured as a percentage of the premium - from an insurance carrier, which is the insurer.

IWIF officials and officers of International Underwriters defend the contracts as proper and beneficial to the state agency.

"If they didn't think we were doing a good job, they would fire us," said J. Timothy Reid, vice president of both insurance companies, which have offices near Baltimore-Washington International Airport.

IWIF, run by a board appointed by the governor, sells workers' compensation insurance coverage to Maryland businesses, competing directly with private insurance carriers.

IWIF in turn needs a type of coverage, known as reinsurance, to protect itself from potential catastrophic losses on the policies it sells. The state buys into the same reinsurance plan to cover major workers' compensation claims from its employees.

Under its contract with IWIF, International Underwriters places that coverage through agreements with insurance carriers. Acting as the insurance agent, International collects its commissions from those carriers.

Company officials declined to disclose the amount of its commission on the state deal, and IWIF officials said they have no knowledge of what International earns. Industry officials said commissions are negotiated privately between agents and carriers and vary widely, ranging up to 10 percent of the premium.

Though it is a state agency, IWIF is not subject to state laws requiring competitive bidding. IWIF's procurement guidelines do require competitive bids in some cases, but specifically exempt reinsurance contracts from those requirements.

Reid said the former owners of Tidewater who were central figures in the political scandals of the 1970s no longer have any ownership interest in the company.

Tidewater and its then-owners were at the center of a political scandal that landed Mandel in federal prison on corruption charges.

Mandel and the three Tidewater owners - Harry W. Rodgers III, his brother, William A. Rodgers, and W. Dale Hess - were convicted in 1977 on charges of mail fraud and racketeering in connection with a scheme to influence racetrack legislation. The conviction was overturned a decade later on appeal.

Though Tidewater's operations were not directly involved in the charges against Mandel, the original investigation leading to the indictments stemmed from allegations that Tidewater had received favored treatment from the Mandel administration.

In a recent interview, Reid said he and David A. Fisher, Thomas Lowe and Alan Etridge now own the firm. He said Harry Rodgers left Tidewater in 1982, William Rodgers in 1986 and Hess in the 1970s. None of the three former Tidewater owners responded to requests for comment.

Reid said International writes the specifications for IWIF's reinsurance coverage and distributes them to companies interested in seeking the business. Under its contract, it is also charged with recommending a "suitable" reinsurance plan after insurance carriers submit proposals.

Defending arrangement

Preston Williams, IWIF chief financial officer, defended the exclusive arrangement with International Underwriters, pointing to the company's extensive experience with the agency. Williams, who did not work for IWIF when the most recent contract was signed, said International also provided similar services for state workers' insurance funds in other states.

He said that while the International Underwriters' 1999 contract was not presented to the board, the panel had voted earlier on the overall reinsurance package. That vote came early last year, nearly a year before the contract was signed.

Under its 1999 contract, IWIF agreed to pay International Underwriters a fee based on the amount of money it collects from its clients. For every $100 in premiums IWIF collects from Maryland businesses it insures, IWIF pays International $1.35 for reinsurance protection on any workers' compensation claim from those businesses that exceeds $1 million.

That payment rate is nearly three times higher than IWIF was paying under its previous contract in 1996. The new higher payment rate was made retroactive to July 1, 1999, the date the 1996 contract expired. The new pact expires June 30, 2002, but can be extended for an additional three years.

IWIF officials say the increase was justified because the new policy provides considerably more protection against catastrophic claims. While the old policy provided a maximum payment of $500,000 on most large claims, the new policy provides unlimited coverage for any claim exceeding $1 million.

Documents provided The Sun by IWIF under a public records request show that the estimated premiums for the first 16 months of the new contract were $1.85 million or slightly less than $1.4 million for 12 months. Under the 1996 contract, annual premiums totaled about $600,000.

Officials in the state Department of Budget and Management said the Maryland government also participates in the exclusive arrangement with International Underwriters. Neil Bergsman, an official in the budget agency, said that under the arrangement, the state purchases the same coverage as IWIF for workers' compensation claims filed by state employees.

Records show that IWIF bills the state for the coverage and passes the added premium, about $500,000 a year, along to International. The arrangement differs from virtually all other state insurance purchases.

Thomas C. Kelley, chief of the insurance division in the state treasurer's office, said all other state insurance is purchased through his agency through a competitive selection process. But, Kelley said, his agency does not have anything to do with the workers' compensation coverage.

Records reviewed by The Sun show a close relationship between IWIF and the insurance agency.

"Mr. Reid has a keen awareness of the reinsurance market and is very knowledgeable of IWIF's operations. ... We have full confidence in his ability to compile an appropriate reinsurance program for IWIF," one memo states.

Letter to IWIF official

In a Feb. 12, 1996, letter to IWIF's then-chief executive officer, Paul M. Rose, Reid urged that his company's contract be renewed without putting it out to bid.

"Paul, putting the [contract] out to bid will stir up the market place but not result in any significant gain. As you know I believe there is value in the continuity and service International Underwriters brings to the fund," Reid wrote.

In addition to its role in purchasing reinsurance, the Tidewater agencies have two other unique arrangements with IWIF, neither of which has been subject to competitive bidding.

In one case, another Tidewater affiliate, U.S. Underwriters, formed a joint venture that included IWIF to offer insurance to small businesses over the Internet. The arrangement, known as EmployersLink, was established in 1999.

U.S. Underwriters, Reid said, is owned by the same people who own Tidewater.

Williams, IWIF's chief financial officer, said that despite an extensive and expensive advertising campaign the EmployersLink program has been a disappointment and efforts are now under way to renegotiate the contract.

"The program has just not taken off," Williams said.

In fact, IWIF's board was informed recently that only three policies had been sold over the Internet, despite its spending about $100,000 advertising EmployersLink. Reid said IWIF has decided to end the relationship.

In another arrangement, U.S. Underwriters acts as the agent for IWIF when Maryland employers with locations outside the state buy their out-of--state coverage through IWIF.

U.S. Underwriters collects commissions on those policies, but IWIF officials said they did not know the amount of those payments. Reid declined to say what commission his company is paid for placing out-of-state coverage.

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