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12 towns file complaint against LGC over insurance payments

A dozen towns, including Henniker and Northfield, have filed a complaint with the state against the Local Government Center accusing the insurer of unfairly denying them a return of millions of dollars in surplus premiums.

The towns, led by Peterborough and Durham, argue they should be eligible for a share of the overpayments because they contributed to the surplus by buying health, property and liability insurance through the Local Government Center for several years. And they want the option of getting a return in cash, not only as a break on future insurance costs as the LGC has proposed.

Yesterday afternoon, the LGC met part of the demand, announcing it will offer a cash reimbursement to any eligible community that prefers one to a “holiday” on future premium payments. That’s a change from the position LGC officials gave the Monitor a week ago and what it told town officials in an October letter.

Maura Carroll, executive director of the LGC, made the announcement late yesterday afternoon in an email to members.

“LGC . . . announced in October the return of surplus to its members in the form of a “contribution holiday” which deducts the dollar amount of the return from the member’s invoice for coverage,” Carroll wrote. “However, the LGC Risk Pools will return that surplus in the form of a check instead of a contribution holiday, should a member ask for it in writing. The board decided to approve the return by check on November 1, 2012, after some members made that request.”

That wasn’t communicated to all members before yesterday. And a week ago, LGC board member Shelagh Connelly of Holderness gave the Monitor a different account.

“Getting a check back is a nightmare for the accounting side of manipulates,” she said in a Dec. 3 story. “That’s not what our members are asking for, and it really flies in the face of what municipalities have been saying to us.”

But the LGC said yesterday that it’s sticking by its decision to refuse payments to most of the 12 communities because they have taken their insurance business elsewhere. Only Durham, Temple, Bennington and Lyndeborough are eligible for some of the more than $50 million owed in surplus returns because they continue to buy insurance through the LGC, said David Frydman, general counsel to the Concord-based insurer.

That’s unfair, according to the 12-town complaint, filed with the state Bureau of Securities Regulation.

“This proposal does nothing for those members who have left the LGC program but whose contributions help(ed) build the surplus over the time span that it was allowed to unlawfully accumulate,” wrote attorney John Ratigan on behalf of the towns. “We request that your bureau examine this issue immediately and take steps to ensure that a prorata distribution of surplus proceeds be required, based upon the annual contributions of the members that contributed to the creation of this surplus.”

The tax-exempt LGC operates risk pools that provide local governments in New Hampshire with medical, property, workers’ compensation and other insurance. While many of the state’s communities get insurance through the LGC, the city of Concord does not. The city contracts directly with Harvard Pilgrim Health Care.

Earle Wingate III, a staff attorney with the Bureau of Securities Regulation, confirmed yesterday that his office had received the complaint, but he declined to comment on it..

The Local Government Center and state securities officials have been locked in a legal fight for a number of years over several issues, including how much of a surplus the LGC should be allowed to keep annually to cover future insurance claims and how it returns the additional surplus to its members.

The Bureau of Securities Regulation began a formal investigation of the LGC in 2009, when new legislation gave it the power to do so. Following the inquiry, the bureau accused the LGC of corporate wrongdoing, partly for the way it handled surpluses.

In August, an independent hearings officer ordered the LGC to return $52 million in 2010 overpayments to its members and change its operating procedures. That order failed to resolve disputes between the LGC, the bureau and several communities that once bought insurance through the LGC.

The bureau believes that order obligates the LGC to share the $52 million surplus with any community that was paying into the risk pool as of June 2010. Under that scenario, Henniker, which didn’t part ways completely with the LGC until July 2012, is to share in the return.

LGC officials believe the trigger date is Aug. 16, 2012, the date of the hearing officer’s order. That would exempt Henniker and several other communities from a share of the surplus. Northfield left the LGC in 2009, said town administrator Glenn Smith, but town officials believe it still deserves a share of the $52 million surplus because that amount represents several years of overpayments by communities.

The LGC has appealed that order, and the case is now before the state Supreme Court.

This fall, the LGC board further angered the Bureau of Securities Regulation by voting to calculate its 2011 surplus and determine its surplus payment plan alone – without consulting with the bureau. The board decided to return about $22 million in surplus for 2011 but only to communities that are still LGC members when the surplus payments are made over the next two years.

Frydman, general counsel for the LGC, said the board struck that arrangement based on similar agreements the bureau struck with two other insurers that provide coverage to local communities, Primex and SchoolCare. But in those deals, the insurers worked with the state and returned more in surplus than the LGC has arranged for itself, said attorney Andru Volinsky, who is representing the Bureau of Securities Regulation in its case against the LGC. He also negotiated the agreements with Primex and SchoolCare, both of whom he described as being cooperative and forthcoming.

Volinsky said yesterday he believes LGC’s approach is problematic.

“The bureau will need to look at this,” he said. “There is nothing in law that says you have to be a member to get your surplus back.”

(Annmarie Timmins can be reached at 369-3323, atimmins@cmonitor.com or on Twitter @annmarietimmins.)

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