INSURANCE

Corporate cauldron of misconduct alleged at Citizens Property Insurance

 

A report drafted by internal investigators at Citizens Property Insurance outlines widespread misconduct at top levels within the organization.

Herald/Times Tallahassee Bureau

At Citizens Property Insurance Corp., a corporate culture plagued by inter-office scandals, sexual impropriety, lavish spending, alleged cover-ups and big severance checks for disgraced employees has simmered under the radar for years, according to hundreds of internal documents obtained by the Herald/Times.

The corporate cauldron of misconduct boiled over this year when internal investigators tracked the trail of scandal up to the highest levels of the company, drafting a scathing 73-page report that highlights a laundry list of improprieties.

Last month, the investigators were terminated, their report was gutted, and Citizens’ Office of Corporate Integrity was abruptly shut down.

As Citizens has become notorious throughout the state for hiking homeowners’ insurance rates and slashing their coverage, the company’s internal scandals and corporate excess now offer a new reason for infamy.

For the second time in three months, Gov. Rick Scott is calling for an investigation into Citizens’ highest levels of senior management.

“Citizens is committed to ensuring the highest level of ethics and welcomes a full investigation by the Inspector General into the changes made in the office of corporate integrity,” said president Barry Gilway, who has requested a special hearing next week to discuss the recent developments with his board of directors.

There will be much to discuss, including the following allegations, unearthed by the now-fired investigators:

• Susanne Murphy, Chief Administration Officer at Citizens, served as a legal advisor to the company for years, despite not being a licensed attorney in Florida. When it was discovered, top officials at the company altered incriminating documents and allowed Murphy to resign in August while continuing to receive salary and benefits until December.

• Citizens paid more than $80,000 in severance to an underwriting executive accused of having an affair with a subordinate, and helped him receive unemployment benefits after he resigned from the company. The company declined to pursue an investigation.

• Citizens executives showed favoritism to certain employees, firing one employee who used company resources to promote a line of sex toys, while barely disciplining an executive who drunkenly slipped off her bra during a company retreat and promoted a side-business on company time.

• The company outsourced several internal investigations to private law firms. In some cases, the firms cleared high-level employees of charges without considering crucial pieces of incriminating evidence.

A Citizens spokeswoman declined to comment further on the various allegations prior to next week’s hearing.

Scott said he was concerned that Citizens terminated the very employees that discovered these improprieties.

“In light of this report, the timing of the firings raises new concerns,” Scott wrote in a letter this week, calling on his chief inspector general to investigate. “Given the appearance of impropriety, I request that you conduct a thorough review of the terminations to determine whether any of them were retaliatory in nature.”

Executives at Citizens claimed that members of the Office of Corporate Integrity were terminated as part of a company restructuring, aimed at “avoiding unnecessary redundancies” and beefing up fraud detection.

Scott, who had earlier called on his investigators to probe reports of lavish spending by Citizens executives, is no longer satisfied with that explanation.

He wants his chief inspector general, Melinda Miguel, to conduct a deeper probe into why four corporate watchdogs were abruptly terminated at Citizens.

Miguel is likely to find that the Citizens’ investigators had drafted an explosive report before they were terminated, documenting evidence of botched internal investigations, employee favoritism and generous severance packages for executives involved in office scandals. The report — which features hundreds of pages of exhibits — comes on the heels of a Herald/Times investigation documenting lavish spending by company executives, including $600-a-night hotel stays.

The evidence of corporate excess and impropriety comes at a time when Citizens is seeking higher insurance rates for most of its 1.4 million customers, claiming that the company is undercapitalized. The state-run company currently holds more than $6 billion in cash, a record amount that heightens the risk for waste and abuse.

Here are some of the things that Scott’s Chief Inspector General, Miguel, is likely to find as she probes the recent developments at Citizens:

“Hush Hush” money

The anonymous tipster that set off a four-month investigation by the Office of Corporate Integrity was particularly concerned that Citizens was wasting money on questionable severance agreements with disgraced employees.

“When they are afraid they can’t protect certain employees or are afraid an employee will report these mishandlings, they pay them $$$$$ to keep this quiet and ask them to resign,” the employee wrote in a posting to the company’s complaint system.

During its investigation, the OCI uncovered more than $750,000 in severance payments to employees, including large five-figure separation checks to executives who resigned amid scandal.

A former underwriting vice president resigned after an inter-office sex scandal blew up, with allegations that the executive had asked an underling for $5,000 to help cover up an affair he was having with another employee.

The executive received nearly $80,000 in severance pay, along with another $40,000 in accrued annual and sick leave time. An investigation into the alleged sex scandal was never carried out and Citizens helped the executive to collect unemployment benefits.

OCI’s draft report found that Citizens gave out five-figure severance payments to several high-level employees who left the company after being investigated for misconduct.

The employees who received severance-type payments after being investigated include a former Chief Insurance Officer ($41,046), vice president of claims ($66,983) and a Tampa area vice president ($22,810).

As a part of their lucrative severance packages, outgoing employees signed release agreements promising they would “not make any derogatory or disparaging statement to anyone regarding Citizens, its current and former board members, officers, executives, or employees,” according to documents reviewed by the Herald/Times.

External law firms

Some of the more embarrassing allegations against top executives at Citizens were outsourced to private law firms to investigate.

Repeatedly, those law firms found that the allegations against the executives were “unsubstantiated.”

But when OCI went back to review the external investigations, it found cases where the law firms had been less than thorough in their probes, perhaps shielding executives from full scrutiny.

In one case, Citizens brought in an outside law firm to investigate an anonymous tip that Murphy, the Chief Administration Officer, had been misrepresenting herself as a lawyer for years. While the law firm determined the allegation to be “unsubstantiated,” a later probe by the Office of Corporate Integrity found that the law firm failed to include relevant information. After OCI unveiled documents showing that Murphy—who is not a member of the Florida Bar—had identified herself as “corporate counsel,” and “attorney” at Citizens, she resigned abruptly.

OCI found that Citizens paid more than $2.4 million to external law firms handling investigations into employee misconduct that ranged from drunken misconduct during company retreats to sexual harassment.

In 92 percent of the cases investigated by outside law firms, the allegations were determined to be “unsubstantiated.” For comparison, Citizens’ Office of Corporate Integrity found only 48 percent of the allegations it investigated were without merit.

Playing favorites

According to OCI’s findings, some Citizens employees caught up in scandals were given a slap on the wrist when they should have been fired.

Employees within the Human Resources department were shielded from disciplinary action, even as other employees were fired for committing similar offenses.

“From the files reviewed and results previously presented, there appears to be a certain level of favoritism towards personnel within Human Capital Management in that their own staff is treated differently than those in other departments,“ reads a 5-page report released by Citizens’ chief auditor last week.

Two investigations into similar allegations offer a useful example:

A Citizens underwriter was fired after supervisors discovered that she was using her company computer and the mailroom to promote “Pure Romance,” a female sex toy business. The employee would regularly accept packages at work, and would disappear for long periods of time. Images of various sex toys — and their prices — were found on her company computer.

But two other employees who were also caught promoting side-businesses while on the clock at Citizens were not disciplined.

Both were members of the Human Resources department, and one had been involved in an earlier scandal in which she got drunk after a company event in Tampa, stripped off her bra and danced on top of a table at the Coyote Ugly bar. She was simply given a warning.

Restoring public trust

The various scandals unearthed by the Office of Corporate Integrity represent yet another black eye for Citizens, which has had more than its fair share of public hiccups this year.

The company has sparked widespread consumer outrage with its unpopular home reinspection program, reports of exorbitant corporate travel spending and a plan to transfer $350 million to private insurance companies in low-interest, forgivable loans.

The chairman of Citizens’ board of directors, Carlos Lacasa, said Tuesday that restoring public trust in the company is tantamount.

In a letter to Gilway, Lacasa agreed to a request to address the various controversies at the next board meeting.

“Given these factors and the need to set the record straight with respect to matters concerning the public, it is vital that we make every effort to restore the public trust as quickly as possible,” he wrote.

Toluse Olorunnipa can be reached at tolorunnipa@MiamiHerald.com or on Twitter at @ToluseO.

Read more Political Currents stories from the Miami Herald

Miami Herald

Join the
Discussion

The Miami Herald is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

The Miami Herald uses Facebook's commenting system. You need to log in with a Facebook account in order to comment. If you have questions about commenting with your Facebook account, click here.

Have a news tip? You can send it anonymously. Click here to send us your tip - or - consider joining the Public Insight Network and become a source for The Miami Herald and el Nuevo Herald.

Hide Comments

This affects comments on all stories.

Cancel OK

  • Marketplace

Today's Circulars

  • Quick Job Search

Enter Keyword(s) Enter City Select a State Select a Category