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I have ambivalent feelings about the nation's 25 state funds. These are workers' compensation insurers that are to some degree sponsored or controlled by their respective state governments. Some have performed superbly. Others, like California's State Compensation Insurance Fund, have been racked by corruption scandals within the past few years.

Overall, the funds seem to be valuing professionalism more highly, with at least one glaring exception.

When Blunt assumed the position as the state fund's CEO, he was entering a post that had been occupied by three others within the prior four years. He set out to turn around morale and boost performance. Because he came from another state fund--Ohio's--he was used to the constraints on management within a public agency.

But just as he settled in, a newspaper attacked the WSI as growing into an "unchecked empire" since gaining its autonomy. Over the next few years, the WSI was the target of a state auditor's investigation, intense media attention and legislative hearings. The public paid a lot of attention to salary increases for WSI employees that other state employees didn't seem to enjoy. The claimant bar also wasn't a fan of the fund, according to one observer.

In late 2006, state prosecutor Cynthia Feland began to investigate Blunt. In April 2007, she charged him with criminal misapplication of entrusted property. Virtually all of the evidence was trivial, such as the $320 the fund spent on lunches at an employee summit and others sums for gift certificates, flowers and small employee bonuses.

Blunt was also charged with misusing an employee's license plate number in trying to identify who had leaked WSI's payroll data to reporters.

Blunt, no stranger to public bureaucracies, responded that this spending was normal even for public enterprises and consistent with prior WSI practices. He also said that neither he nor his advisors knew the expenses were illegal.

In August 2007 a district court threw the case out as lacking merit. The prosecutor won a reversal from the North Dakota Supreme Court. In December 2007, the state fund board, under political pressure, terminated Blunt.

Blunt's criminal trial took place in December 2008. Feland, lacking a respectable case, tarted up the criminal count with three more heavier-looking allegations, one of which the judge threw one out (claiming that Blunt had improperly awarded a grant to a volunteer firefighter association).

The two remaining new charges dealt with Blunt's handling of an employee he had recruited, then forced out. Supposedly, Blunt had allowed the departing employee to earn his unused sick leave and also did not seek repayment of relocation expenses incurred when the person came onboard.

After Blunt was convicted, it came to light that neither the prosecutor nor the state auditor's office had disclosed in discovery or in court testimony a state auditor's memo that exonerated Blunt of error relating to the forced-out employee.

Subsequently, the board was abolished, and control of the fund reverted, by public referendum, to the governor's office. A state police official assumed the CEO's position, saying he could learn on the job.

Sandy Blunt is awaiting a North Dakota Supreme Court response to his appeal of his conviction as of this writing. His witch trial was, in my opinion, the most viperous of the steps the state took to regress to the past.

The prosecution of Blunt was nasty froth atop a wave of popular distrust of the autonomous status of the fund. With the Blunt conviction, North Dakota has marched toward, not away from, more political intrusion into workers' compensation.

Let's hope that this kind of political vindictiveness remains rare in our field. Best wishes, Mr. Blunt, in your career.

PETER ROUSMANIERE is a Vermont-based columnist for Risk & Insurance®.

January 5, 2010

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