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Conflict laws different for state-run Citizens, so lawmaker pushes for change

TALLAHASSEE — In the past three years, at least three senior executives at Citizens Property Insurance who were in charge of multi-million dollar contracts awarded to private companies went to work months later for those same companies.

Florida's ethics laws ban state employees from going to work for a company for two years if their duties for the state job involved a contract related to that company. But Citizens, the state-run insurer of last resort, reads the statute more narrowly. Its executives say no one has done anything wrong.

Critics say the situation is evidence of a revolving-door mentality at the public company that handles millions of dollars in contracts each year, and add that it raises serious questions about the fiscal management of the company, whose claims will be paid by taxpayers if Citizens runs out of money after a storm.

"Every dollar you don't spend is a dollar that can go to pay somebody's claim," said Sean Shaw, the former Florida Insurance Consumer Advocate from 2008-10. "They should have a moral compass that says, 'This is taxpayer money. We are going to be as careful as we should with our own pocketbook.' "

The head of the Florida Senate Banking and Insurance Committee, Sen. David Simmons, is calling for the ethics law to be tightened relating to Citizens' contracts, and has ordered Senate staff to draft legislation to do that.

The exodus of senior staff from Citizens, the state's largest insurer, to companies hired to handle Citizens claims or provide services includes:

• Yong Gilroy, former chief insurance officer at Citizens, who while working for the state signed two five-year contracts in 2013 with Bankers Insurance Group — one for $209 million divided among five companies to provide telephone and other communication services after a major storm, and another for $9.1 million for temporary staffing services. In January 2014 Gilroy went to work for Bankers Financial Services, a subsidiary of Bankers Insurance.

• Lance Malcolm, former vice president of claims at Citizens, who in May 2013 supervised and presented to the Citizens board the renewal of a contract with Crawford & Co. worth $8 million for adjuster services. In September 2013, he was hired by the company.

• Eric Ordway, former head of claims at Citizens, who supervised an $8 million contract under an emergency exemption in 2010 to hire BrightClaim for claims management, oversight and supervisory services for large policy holders. The contract was effective through June 2013. Ordway was hired by BrightServ, a subsidiary of BrightClaim, in January 2013.

The Times/Herald asked Citizens and its general counsel, Dan Sumner, to review each of these circumstances and in each case Citizens concluded the employee broke no ethics laws.

"The contracts were procured through the normal evaluation process that included a public solicitation, structured evaluation procedure, protest period, etc.," said Citizens spokesman Michael Peltier.

"None of the employees — Malcolm, Ordway or Gilroy — were on the evaluation or negotiations teams that reviewed, ranked and recommended the particular contract proposals," he said. "The Board of Governors has final approval."

In the case of Bankers Insurance, the firm that won two five-year contracts, the company has received no money from the contract for communications services — primarily because there has been no storm. But if a storm hits and the services are needed, the money flowing to the outside vendors could be as much as $30 million a year, when the previous budget was closer to $7.5 million.

Gilroy explained to the board at its July 27, 2012, meeting that the decision to include more vendors and expand outsourced services was needed to safeguard Citizens and save money.

But Gilroy's pitch drew the attention of Tom Lynch, a member of the Board of Governors, especially since Citizens was intentionally trying to downsize by shedding policies. With fewer policies, there would be less of a need to hire outside people to service the contracts.

Lynch said that the proposed contract would double the amount of money Citizens was spending on staffing services and raised questions about why it was needed.

The board was not given a clear explanation, but approved the contract nonetheless. Peltier told the Times/Herald that, after the contract was awarded, Citizens management had similar concerns that the staffing services weren't needed as much as Gilroy originally planned. Citizens has since moved forward with only two of six outsourcing contracts from that meeting.

But, critics note, when Citizens divides up its contracts to more than one vendor, it should be getting a better rate, not higher costs.

"I don't care if State Farm does this and Allstate does this, I care when it is taxpayer money," Shaw said.

Ian Barber, senior vice president of Tampa-based Bankers Insurance, said that if the contract was supposed to be a boon in business for his company, it hasn't worked out that way since they haven't been paid anything yet.

"We actually had high hopes that something would happen and then nothing happened," he said. He also said that Gilroy was not given any preferential treatment when he was hired.

"We didn't enter into discussion about hiring him until way after the procurement was done," Barber said.

Ordway also denied receiving any special treatment because of the contract BrightClaim signed with Citizens.

"I did not have any contract signing authority in my role when I was at Citizens," he said. "And I was not an officer of the company." Ordway also said that BrightClaim didn't make as much as it had expected to get from the contract. "The approval was up to $8 million for two suppliers. The other supplier earned two-thirds of it and less than $300,000 was paid out over that contract."

If Ordway or his colleagues were working for any other agency in state government, the rules would be different.

For most state employees, Florida Statutes Chapter 112.3185 prohibits them from employment with outside businesses that benefit from contracts they are responsible for. Employees who violate the law can be publicly reprimanded by the Ethics Commission or ordered to pay the attorney general a civil penalty of up to $10,000.

Kerrie Stillman, spokeswoman for the Florida Ethics Commission, which applies the state's conflict of interest statutes, said the purpose of the ethics laws "is to prevent situations where regard for your private interest leads to a disregard of your public duties."

The law regulating employment with contractors and vendors "is designed to prevent employees from feathering their nest by working on a contract with a company in their public capacity and then jumping over and working for the private company in the very same contract," she said.

The state laws governing Citizens requires only senior managers and members of the board of governors to be subject to the Chapter 112 rules, but Citizens does not apply the rule to lower-level officials such as Ordway.

Malcolm and Gilroy are "subject to the two-year restriction only if their new duties are related to the contract that was awarded," Peltier said. "If they take a job with a company in another area, they are not subject to the two-year ban."

Shaw calls that interpretation of the ethics laws "tone deaf — like all their other problems."

"It looks bad, it smells bad, it is bad," he said.

Simmons, an Altamonte Springs Republican, said he also believes Florida's ethics laws should apply more broadly to Citizens employees.

"I don't know the facts and circumstances with respect to each of these individuals," he said. "I do know there needs to be an amendment to provide greater applicability and broader coverage of our existing ethics laws to Citizens."

The goal should be, he said, "the assurance that we not only prevent impropriety but any appearance of impropriety."

Contact Mary Ellen Klas at and on Twitter @MaryEllenKlas

Conflict laws different for state-run Citizens, so lawmaker pushes for change 06/01/14 [Last modified: Sunday, June 1, 2014 11:48am]
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