Officials at the Texas Windstorm Insurance Association were aware that a claims adjuster -- whose brother-in-law was a high-ranking official at the association -- had filed potentially fraudulent claims, but they failed to report it to the state, according to an investigation report by the Texas Department of Insurance.
Instead of reporting the alleged fraud, then-TWIA General Manager Jim Oliver fired the high-ranking official and another key employee in claims handling, then consulted with a team of lawyers and asked Deloitte & Touche to audit the potentially fraudulent claims.
The alleged fraud stemmed from the work of the brother-in-law of Bill Knarr, catastrophe office manager for TWIA, according to a summary report of the insurance department investigation obtained by Texas Watchdog. Neither the brother-in-law, now deceased, nor his firm are named in the report.
The report does not confirm or refute the fraud allegations, which are also the subject of a Travis County District Attorney’s investigation. Instead, it chronicles the events that led to the firings of Knarr, Oliver and Reggie Warren, vice president of claims.
Warren was aware that claims being processed by the brother-in-law were possibly fraudulent by Dec. 15, when a claims supervisor came to him with concerns, according to the supervisor's written statement summarized in the investigation report. Warren failed to notify Oliver, but the claims supervisor raised the issue with him directly on Dec. 22, Oliver told investigators.
Among the problems with the brother-in-law's work, as documented in the supervisor's statement, was "a lack of documentation to support the claim payments and billing for services that may not have been provided by the adjuster," the investigation report says.
As part of the audit, Deloitte reviewed 34 of 169 claims processed by the brother-in-law. Overall, the insurance operation that employed the brother-in-law processed more than 8,000 claims, the report states.
No names of individuals other than Oliver’s are used in the report; Warren and Knarr are referred to by title only. While the firm is not named, the report says that Knarr had previously been employed by the adjusting firm in question for more than 30 years before coming to work for TWIA in May 2007. A TWIA e-mail record from that year says Knarr came to the agency from GAB Robins, an international claims management company. Calls to GAB were not returned.
Warren did not return a call, and Knarr could not be reached for comment. Oliver said he had not seen the report and therefore declined to comment.
In an interview with TDI investigators, Oliver said that between Dec. 22 and Dec. 27, “he spoke to the association’s board members as well as outside legal counsel before reaching the decision to terminate” Warren and Knarr. Oliver told investigators that the reason for the firings was for failing to disclose Knarr’s family relationship with the claims adjuster.
The report notes that Warren received $114,273 in cash and a 2010 Ford pickup truck and Knarr got $47,289 as severance, as previously reported by Texas Watchdog. Oliver was fired late last month, and his severance will be part of business discussed in TWIA board meetings next week in Austin.
The report notes that despite the audit, the allegations and the firings, Oliver never reported the possibility of criminal activity to the state.
According to the association’s compliance handbook, “a person should report suspected fraudulent activity to the department not later than the 30th day after reasonably suspecting that a fraudulent act has been committed,” the report states. “As of February 23, 2011, a report had not been made.”
On Feb. 24, the Department of Insurance became aware of the troubles at TWIA and contacted the state auditor’s office “regarding the reasonable appearance of fraud, in the handling of some of the association’s claims,” the report says.
TWIA was placed under administrative oversight on Feb. 28. On that date, Oliver refused to sign a document provided by TDI, called a letter of representation, affirming that all documentation asked for by investigators was provided. It was not until the report was completed in late March and after he was terminated that Oliver did sign an "amended letter of representation," according to the report.
The Deloitte review, which has not been released, was handed over to the Travis County District Attorney’s public integrity unit and to the Department of Insurance's fraud unit.
The association has previously come under criticism for doing business with employees' family members. In 2009, Houston plaintiff's attorney Steve Mostyn alleged in a lawsuit that Warren had directed adjusting business to a firm where his brother and son worked, Brush Country. The lawsuit also said Warren had been offered improper gifts from adjusters. Speaking in a House committee hearing in February, Oliver said the allegations had been investigated and that Warren "did not accept any bribes."
***
Contact Steve Miller at 832-303-9420 or stevemiller@texaswatchdog.org.
Keep up with all the latest news from Texas Watchdog. Fan our page on Facebook, follow us on Twitter and Scribd, and fan us on YouTube. Join our network on de.licio.us, and put our RSS feeds in your newsreader. We're also on MySpace, Digg, FriendFeed, NewsVine and tumblr.
Photo of damage to Galveston from Hurricane Ike in 2008 by flickr user simminch, used via a Creative Commons license.