Lexington law commissioner denies problems with insurance procurement

Says council got options, more information

lblackford@herald-leader.comAugust 17, 2010 

Lexington's law commissioner, Logan Askew, denied any problems with the city's insurance procurement in the past three years, saying he even considered a defamation suit against the man who made allegations of fraud related to the issue.

"I was surprised by some of the stuff I read" in the allegations, Askew told a special Urban County Council committee Monday. "It was bogus."

The committee is investigating fraud allegations from 2008 and 2009 and whether the man who made them, Patrick Johnston, the city's director of risk management, was later targeted for firing because of them.

In 4½ hours of technical discussions about municipal insurance, Askew said he thought the insurance package from the Kentucky League of Cities was the best deal for the city.

"The council had never before been presented with options" on insurance, Askew told the committee. "What I presented was my best recommendation on the information that I had ... I was trying to give you more information, not less."

Askew has seen the fraud allegation from 2009 — he obtained it through an open records request because he was part of the auditors' investigation. External and internal auditors found no misstatement of the city's financial statements due to the allegations.

Askew said he consulted with a private attorney about defamation charges but later dropped the issue.

Askew said that changes in information given to the council were to try to make two proposals compare "apples to apples," by showing exactly what each proposal offered. For example, KLC's proposal cost more, but it also offered more services, such as claims adjusting. AIG was the incumbent carrier brought to the table by Marsh, the city's agent.

Askew said he was unhappy with Marsh because Marsh was being paid $79,000 a year, and "they would not give us an opinion. ... I was a little frustrated with Marsh."

However, committee members pointed out, a Marsh representative wrote an e-mail to Askew on Sept. 10 — the day before the council saw the insurance proposals — saying, "Based on this information and what we understand the needs and priorities of LFUCG to be, the AIG program appears to better fit your needs."

At one point in Monday's meeting, council member KC Crosbie said Johnston's 2008 allegation had revealed that KLC's director of insurance, William Hamilton, had a financial conflict of interest with KLC's claims adjustor, Collins and Co., which the city also hired.

In 2009, that charge was proven by a series of stories in the Herald-Leader and an investigation by the state auditor's office. Hamilton and his wife were renting office space in Georgetown to Collins and Co., and Hamilton and other KLC employees received free trips to the Collins CEO's Caribbean house.

Askew answered many of the questions that council members have been asking since April. The council voted unanimously to form the investigative committee because of a lack of response from the administration about facts and process.

In a May 22 e-mail from Johnston to Linda Rumpke, the city's finance commissioner, he said he had sent copies of the allegations to Rumpke and to city attorney Keith Horn, both of whom returned them without reading them.

In the e-mail, Johnston called the situation "more and more frustrating" because he had been identified by the city's internal auditor before the city hired an outside attorney to judge the allegations to be private. The month before, Johnston had found out that his job was targeted for elimination as part of a citywide reorganization. City officials have denied any connection with his allegations.

"I find it incredible that the administration now wants to work so hard to 'protect me' from council members reviewing this information, especially after recommending to the same council that Risk Management be dissolved, and has offered jobs to every other employee but the one who raised these concerns," he wrote in the e-mail.

Johnston also said his concerns were "communicated in good faith and were valid based on my understanding of all the circumstances." Last week, Johnston said he had not accused any one individual of fraud. Most of his concerns have revolved around insurance procurement.

But at Monday's meeting, council member Jay McChord echoed Mayor Jim Newberry in saying that Johnston's statements that no individual had committed fraud meant the committee should be dissolved.

"In my mind, this points out that one of the charges of this committee is pretty much over," McChord said.

Such a move would have to be made by the full council, which created the committee and meets Tuesday for a work session.

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