More Than One Story

The cases of the three insurance commissioners are not one story, but several. In Bernard’s case, undercapitalized companies paid bribes to get licensed. In Green’s, Champion Insurance got into major financial trouble, while his office winked and nodded and failed to follow up on complaints.

Brown, however, was drawn into the investigation of former Governor Edwin W. Edwards over corruption in the granting of riverboat gambling licenses. The investigation turned toward insurance after wiretaps revealed discussions of the liquidation of Cascade Insurance Co.

“It’s unfair to throw Jim Brown in with the other two,” says Ray Lamonica, now a law professor at LSU and the former U.S. Attorney whose office prosecuted Green. Brown, Lamonica notes, was convicted of making false statements, but, unlike the other two, was acquitted on all counts relating to alleged misdeeds as the insurance commissioner. Veteran Louisiana reporters also draw a line separating Brown from Bernard and Green. James Gill, a long-time journalist for the New Orleans Times-Picayune, sees Brown’s as “a relatively venial offense, at least by the standards of Louisiana.” John Maginnis, a veteran local political commentator who publishes The Louisiana Political Fax Weekly, says Brown’s mistake was “in talking to the FBI.”

Insurance agents and brokers tend to separate the cases based on business impact. Brown’s conviction was “a tragedy,” says Donald Beery of Eustis Insurance in Baton Rouge. Bernard and Green, he says, “were really scoundrels; the third was an excellent insurance commissioner.”

Brown on Brown

Brown has appealed his conviction several times, and has steadfastly proclaimed his innocence and protested the unfairness of his treatment. “I felt like I was caught in the crossfire in their efforts to get [Edwards],” he says. “I was a political victim of a drive-by shooting.”

Central to Brown’s defense was District Court Judge Edith Brown Clement’s refusal to give Brown or his counsel access to the notes taken by FBI Agent Harry Burton during a crucial interview. The judge attested that the typed report of the interview was consistent with the agent’s notes, but Brown was not allowed to see the notes. In contrast, defense counsel for co-defendant Weems was granted access to notes from his FBI interview—which helped his case for acquittal.

Thus far, the Fifth U.S. Circuit Court has upheld Brown’s conviction. In March 2003, the U.S. Supreme Court refused for a second time to hear his case, making his conviction final. At that point, he relinquished his official designation as Louisiana Insurance Commissioner, from which he’d been suspended since his conviction.

Brown set up a website where he has posted a column every week since first going to prison. In his columns, he painted a picture of his life at the federal prison in Oakdale, Louisana. He reviewed the books he was reading. He shared stories of some of his fellow prisoners. He commented on his case, on law enforcement and prosecution, and on Louisiana politics. Lately he’s followed the trial of Martha Stewart who, like Brown, defended herself against charges of lying to the FBI. But unlike Brown, her counsel got access to the agent’s notes.

When interviewed earlier this year, Brown was looking at trying to gain a new trial on newly discovered evidence, and his petition for a pardon from the governor was pending before the Louisiana Pardon Board.

Tolerance for Corruption?

Does all this matter today to the business of insurance in Louisiana? To some, no, but others disagree. “It affects us dramatically,” says Beery. “Insurance companies have the opinion that the regulatory piece is out of control.” Having three insurance commissioners go to jail was “a difficult cross to bear.”

Markham McKnight, president and CEO of Wright & Percy Insurance in Baton Rouge, thinks Bernard and Green’s tenures “set our state back quite a bit.” Brown’s reforms significantly helped bring companies back to the Louisiana marketplace, which made his conviction “a setback from the standpoint of [being] another coat of tarnish on the office…but I don’t think many people lost confidence in Jim or in the ability of the office to operate,” he says.

But Louisianans love their political bad boys. They say, with perverse pride, that political corruption has been one of the main spectator sports in the state ever since Huey Long. And the perception that Louisiana is the most corrupt state in the Union “might be heightened because our politicians are somewhat more blatant,” says Gill. Take Edwin Edwards’ 1991 election bumper sticker in his race against Ku Klux Klansman David Duke: “Vote for the Crook. It’s Important.”

“Few would contest the proposition that among its professional politicians of the past two decades, Louisiana has had more men who have been in jail, or who should have been, than any other state,” said V.O. Key in his 1949 book Southern Politics. In 2000, according to the online newsletter Gambit Weekly, a survey by the local FBI office found that Louisiana’s 32 convictions led the nation in federal public corruption cases.

But the tolerance for corruption may have roots that go even deeper. Gill cites a theory that the roots begin in colonial days, when public office under the Spanish and French governments was literally for sale. Also, “Property tax assessments were famously low-balled. So you had politicians doing favors for their constituents, and thereby sort of involving them and making them party to the corruption as well.” People went along. “Now that life is not so easy, that attitude is changing,” he says.

The state’s historical populism was also possible because of the oil and gas industries, says Manes. “People see oil and gas revenues as money for nothing, and so were less likely to get exercised if it was misappropriated,” Gill says.

Insurance and Politics in Louisiana

Insurance and politics are tightly intertwined in Louisiana. To begin with, it’s one of only 12 states that elect their insurance commissioner. To many who see the need to finance a campaign as a sure path to temptation and corruption, having the governor appoint the commissioner would be scandal-prevention medicine.

Jim Brown disagrees. With an appointed commissioner, “you just move the politics from the insurance department into the governor’s office,” so if someone is determined to bring undue influence, they just do it through the governor. Watchers from the media tend to buy that argument, too, adding that Louisiana voters seem attached to their direct elections. Politics has wrapped its tentacles around insurance in other ways, too. Until 2004, the state’s Insurance Rating Commission, appointed by the governor, had to bless every premium increase. And this panel had a reputation for beating on insurance companies. During his tenure, Bernard—as ex officio chair of the commission—would be sure to attend if the issue was controversial enough to draw TV cameras, recalls Manes. “Sherman Bernard would be sitting in that chair grilling these Yankees from out of town,” he says. “It was a lot of theater.”

Good-government watchdogs in the state partly blame the structure of government. In an ethics white paper last fall, the Public Affairs Research Council of Louisiana, an ethics watchdog group, recommended that the insurance and agricultural commissioners be appointed instead of elected, and the state’s lobbying law be extended to cover the executive branch, as it does in 35 states.

The Council for a Better Louisiana (CABL), sees danger in the extraordinary power of the governor, who appoints members of 500 boards and commissions and has so much influence over the legislature “that it's almost impossible for a lawmaker to ascend to [the post of President of the Senate or Speaker of the House of Representatives] without the governor’s backing.”

When unavailability of homeowners insurance came close to crisis proportions after a two-hurricane season, Commissioner Robert Wooley surveyed insurance companies and asked what it would take to get them back. The answer: do something about the rating commission. The first bill that passed to abolish the commission fell victim to the governor’s veto. But a compromise measure took effect this January: a flex-band rating system, which permits changes up to 10% without commission approval.

The perceived power of the commissioner is another key factor in the tendency toward corruption, says Lamonica. “Insurance commissioners in Louisiana are perceived as having more authority” than they actually do...and that’s a very dangerous perception” that fosters corruption, he says. Then there is the insurance business itself, which leaves a lot of latitude to cook the books.

The Future

To the question of whether Louisiana has changed, the nearly unanimous response is “yes,” but with a bit of hesitation and perhaps a few crossed fingers. “We’re living in hope,” says Gill. “Once you put a few very high profile people in prison, it does get people’s attention.”

The insurance department is better too. In November 2003, the accreditation team of the National Association of Insurance Commissioners recommended the department be reaccredited with what appears to be its highest score ever. “That office is no longer snake bit,” says Gill.

Others believe that it stopped being snake bit under Jim Brown. One of those is McKnight. “We’re better off for having had Jim in office, and Wooley is carrying forward the tradition of all the right things that Jim did,” he says.

And U.S. Attorney Jim Letten, whose team won a Justice Department award for the successful prosecution of Gov. Edwards on the riverboat gambling case, has vowed to keep attacking corruption: “Truly, this success marks not the end of an important anti-corruption process, but the beginning,” he said when he accepted the award.

A CABL post-election survey last year found that the number of people who believed state government was headed in the wrong direction has fallen from 60% in 1994 to 28%. But concerns about corruption remain deeply ingrained: more than 40% of voters think Louisiana politics is so corrupt that their vote for change won’t make a difference.

Yet, there is a note of wistfulness for the era of colorful characters and “laissez les bon temps roulez.” Says reporter John Hill: “It’s getting really dull. It used to be that you didn’t have to worry about what to cover because Edwin Edwards would provide you with the scandal-du-jour or lines like, ‘the only way I'll lose this election is to be caught in bed with a dead girl or a live boy.’ We were entertained. Now everybody’s very serious.”

Although the reality may be changing, the old perception lingers like a Mardi Gras hangover. That perception, says Maginnis, is “the last debris on the shore from the Edwards regime. It takes a while for it to stop washing up.”

Three Strikes Against Louisiana

Sherman Bernard
DEK: Insurance Commissioner 1972–1988 (four terms)

Indicted: November 1992
Charged: Extorting $80,000 in campaign contributions from five insurance companies in the 1987 election campaign
Convicted: May 1993 after pleading guilty to extorting one payoff
Sentenced: 44 months in prison
Served: 30 months
Released: 1998

Bernard was indicted during his last re-election race, which he lost to Douglas Green, yet it was Bernard’s successor who was the first to fall. Green already had been sent to jail, as had Green’s former deputy commissioner, Tom Bentley (convicted of lying to a grand jury) before Bernard was convicted. Bernard’s former deputy, John Browne, had pleaded guilty to conspiracy to commit extortion, and several principals of Champion Insurance Co. were serving time as well.
Bernard had been a house mover. Michael Manes, a former insurance industry executive who now owns Square One Consulting, describes Bernard as “a bold, aggressive caricature” who ran on the fact that he was not part of the insurance industry. In Louisiana, Manes explains, “running against the insurance industry is the best way to get elected.”

Douglas Green
Insurance Commissioner 1988–1991
Convicted: March 1991 on 27 counts of mail fraud, three counts of money laundering, one count of conspiracy
Sentenced: Up to 25 years
Served: 12-plus years in Pensacola, Fla. federal prison
Released: September 17, 2003 on parole

The investigation that led to Green’s conviction began with Champion Insurance Co., one of the largest auto insurers in Louisiana at the time. The state, says Ray Lamonica, former U.S. Attorney whose office prosecuted Green, was investigating Champion openly, while the U.S. Attorney’s office was investigating quietly.
Champion was hiding insurance business so fewer reserves would be required, with the knowledge and cooperation of the insurance commissioner, according to Lamonica.
Green, it appears, was really the creation of Champion and its owners, the Eicher family. They “bought the office” by financing Green’s campaign with small contributions made in the names of numerous individuals, says John Hill, of the Baton Rouge Business Report. “In Louisiana you don't have to identify the contributor, where he works, or any of those kinds of things. So there was no way of knowing that all the money was coming through.”
Under Louisiana’s mandatory auto insurance law, the Eichers wanted to get into the market, dominate it with low rates, then, when competitors were driven out, return to solvency by raising rates, says Manes.
The Eicher family, according to Manes, were disgruntled with Bernard and picked Doug Green as their candidate to oppose him. Quoting the book that John Eicher’s wife Patricia penned in prison, Manes relates that Green was chosen for his “moral casualness.” Calling it “the first extreme makeover,” he describes how the Eichers paid consultants to help Green dress the part and run successfully. “When you invest a couple million dollars in a candidate and he gets elected, you expect him to be beholden to your needs. And I think it’s safe to say Doug was,” says Manes.
Green ran as a reform candidate, following Bernard. Green did go after insurance company fraud, but his quarry was competitors of Champion, which wanted everybody else out of the business.
Of the three jailed Louisiana insurance commissioners, Green served the longest—more than 12 years.

Jim Brown
Insurance Commissioner: December 1991–April 2003
Indicted: September 1999, just before election to third term
Charged: 43 counts of mail, insurance and wire fraud, conspiracy and witness tampering, and 13 counts of making false statements
Convicted: November 2000 on seven counts of lying to an FBI agent; acquitted on all other counts
Sentenced: March 2001
Served: six months in Oakdale, Louisiana federal prison
Released: April 11, 2003, on probation until 2005
Pardon: Petition pending at press time

“Jim Brown recently went to prison,” began an article in Best’s Review. But that was October 1994, long before his conviction. Brown’s first visit to prison on insurance-related issues was not to serve time, but to learn how to mount an attack against insurance fraud. He wanted to interview Carlos Miro, convicted of stealing money from Anglo-American Insurance Co. and for bribing state officials to obtain a license. The article went on to detail the steps Brown took to create a new fraud detection team, tighten regulations, seek new legislation, hire more financial auditors, increase the frequency of audits and order reviews of reinsurance transactions.
The results? Thirty-two insurance executives convicted of white-collar crimes and 36 companies closed down for insolvency. And that was only up to 1994. There were many more yet to come.
Best’s Review quotes Boitmann, then assistant U.S. attorney in New Orleans, as saying “A big part of our success is that we have been given cases that are eminently take-able. Brown’s office gives us cases we can get convictions on.” Brown took office in December 1991. It’s hard to find people in Louisiana who don’t give him credit for turning around the dismal legacy of Sherman Bernard and Doug Green. He “took an office that lacked a considerable amount of public confidence and basically remodeled” it into an exemplar of how a commissioner’s office should run, says Wright & Percy’s Markham McKnight.
Donald Beery, of Eustis Insurance in Baton Rouge, says when Brown took office, the department’s image was so bad, and insurers so reluctant to do business in Louisiana, that Brown traveled with agents (including Beery) to call on companies to persuade them there was a new climate. Brown “did a remarkably good job,” he says.
McKnight credits Brown with bringing a lot of the companies back.
You can’t talk about Brown’s prosecution—or indeed, the last quarter-century of Louisiana politics—without talking about Edwin W. Edwards. Gov. Edwards, first elected in 1972, served four non-consecutive terms. During that time, he was the target of nearly two dozen grand jury investigations, endured two federal trials, and was acquitted by two juries before his eventual conviction.
In 1996, the FBI wiretapped Edwards’ home phone in an investigation related to extortion for riverboat gambling licenses. Edwards and others were convicted in May 2000.
The wiretap that led to Edwards’ prosecution also generated the charges against Brown. The tap disclosed 71 conversations related to Edwards’ legal representation of David Disiere, who owned Cascade Insurance Co. Disiere had hired Edwards to help advance the rather heated liquidation negotiations with the receivership judge. Some of those discussions were with Brown. The prosecutors charged that Edwards, Brown, Disiere and his attorney Ronald Weems, insurance duty judge “Foxy” Sanders, and Louisiana Receivership Office Director Robert Bourgeois all engaged in a complex trading of favors related to the Cascade settlement. Edwards supposedly offered Sanders a way to influence closure of a federal grand jury investigation. The government said Brown wanted Edwards to help him run for a U.S. Senate seat and regain authority over receiverships (ceded to Sanders in 1995). Disiere’s “prize” allegedly was an incentive for a court-appointed investigator not to pursue legal action or criminal investigation of Disiere.
In January 1999, Brown and the other defendants were indicted on 43 counts of mail, insurance and wire fraud, conspiracy and witness tampering. Brown’s indictment also covered 13 charges of making false statements to federal officials. Sanders, Disiere and Bourgeois pleaded guilty to reduced charges.
At the end, Brown was convicted of seven charges of lying to an FBI agent. The jury acquitted Brown, as well as his co-defendants, of all other charges.
“Jim was left being convicted of lying about a crime which the jury said did not occur,” asserts John Hill. “Believe me, as a political journalist in Louisiana, I have had a career of going into courtrooms covering trials, and most of the time you can say they deserved to be there because they were greedy. In this instance, what did Jim Brown do? Well, he approved a settlement agreement that everybody agreed to.”

Indictments, Charges, Not Exclusive to Louisana

While Louisiana gets noticed for its “three-strikes” status in the jailed insurance commissioner ballgame, it’s not the only state with problems alleged in the insurance office.

Oklahoma

In February, the State Attorney General won a four-count indictment of Insurance Commissioner Carroll Fisher for diverting money from the department’s continuing education fees, and for illegal activities related to management of a charitable organization he established – the Fisher Foundation for distributing shoes to needy children.

California

Charitable foundations also were targeted in the investigation that led California Insurance Commissioner Chuck Quackenbush to resign in 2000. He allegedly demanded that insurance companies contribute to foundations he had created, in lieu of paying fines related to mishandling of earthquake-related claims. His deputy commissioner, George Grays, later pleaded guilty to participating in this kickback scheme.

Mississippi

Insurance Commissioner George Dale was indicted twice in 1994 on charges of interfering with interstate commerce and violating campaign finance laws. Both indictments were dismissed, and Dale went on to be the first regulator to go after Martin Frankel. First elected in 1975, Dale is now serving his seventh term, making him the longest-serving insurance commissioner in the U.S.

By Shari Dwyer, contributing writer for Leader’s Edge magazine
Dwyer can be contacted at s.dwyer@starpower.net

Reprinted by permission from Leader’s Edge magazine (May/June 2004)