By DAN REYNOLDS, senior editor of Risk & Insurance®
Goaded by inglorious press coverage and the results of a July audit, board members of the Delaware River Port Authority (DRPA) voted on Aug.18 to push for numerous changes in the way the authority does business.
The board plans to investigate an oral agreement between the Philadelphia-based insurance brokerage The Graham Co. and Willis of New Jersey Inc., a subsidiary of Willis Group Holdings Inc., to split the authority's insurance commissions, something known in the industry as a "true-up" agreement.
According to a July 2010 audit of the authority's operations by TransTech Management Inc. of Greenville, N.C., the authority has historically had no written processes or policies for securing insurance
brokerage services. The audit recommends that the authority now conduct RFPs.
When reached by telephone, an official with TransTech said that it is part of its working relationship with its clients that it does not comment on the results of its audits.
Although it found nothing wrong with the authority's insurance brokering per say, the auditors wrote, the authority should evolve its policy.
"There does not seem to be a mutual understanding of goals and objectives between DRPA and its agents/brokers," the auditors wrote.
"This is evidenced by a fee being paid for which DRPA has received no services," the auditors wrote in their audit (available here).
In written responses to questions from Risk & Insurance®, William A. Graham IV, CEO of The Graham Co., stated that the company has been the broker for the Delaware River Port Authority since 1996. He added that the company was "forced" into the relationship with Willis by the authority in 2003 and that he found out about the relationship later that year.
In 2006, according to Graham, he questioned the legality of the arrangement in a meeting also attended by Eric Munroe, a senior vice president with Willis of New Jersey Inc. There, Graham said, he was told by then-deputy general counsel Mike Joyce of the DRPA that if The Graham Co. didn't agree to the arrangement it would be removed as the insurance broker for the authority. Joyce has since resigned from the authority, besmirched by allegations that he borrowed a DRPA E-Z Pass for his daughter's personal use, according to an Aug. 20 report in the Philadelphia Inquirer.
Under the oral agreement, Graham told Risk & Insurance®, Willis handles lines that include general liability for DRPA office buildings, excess workers' compensation, crime, employee benefits and marine liability, including wharves, piers and one patrol boat.
The Graham Co. is responsible for lines such as the authority's owner-controlled insurance program (OCIP), excess property for the authority's four bridges and excess liability coverage for all operations. Graham said that a mid-term RFP is being done for the OCIP, which the Graham Co. has a four-year contract on extending to March 7, 2012.
Under the true-up agreement, according to Graham, the brokerages count up their fees and commissions at the end of the year and the brokerage that has earned the most in compensation from business with the authority makes a payment to the other so that the brokerage compensation is split 50-50. Graham said that his company has made payments to Willis since 2004 that total $514,530.
"Apparently the intent of this was that the New Jersey broker and the Pennsylvania broker earn the same amount of commission each year regardless of workload," Graham wrote in his response to Risk & Insurance®.
Graham disputed the audit's findings that his company was ever paid a fee for services that it did not provide.
"We are unclear on what basis the TransTech audit statement was made about us not providing services for fees we were paid," Graham wrote.
"Documentation detailing the services performed under this agreement has been provided to the DRPA," he wrote.
DRPA AND WILLIS SPEAK
At the start of the audit period, there was no risk manager at DRPA, but the audit reported that the authority hired a risk manager on Sept. 22, 2008.
Ed Kasuba, a spokesman for the authority, told Risk & Insurance® that the authority's risk manager was not "allowed" to speak to the media. However, Kasuba said the authority issued RFPs for various broker functions in May, June and July.
Kasuba told Risk & Insurance®in a written response to questions that the authority paid $3,801,593 to The Graham Co. in 2009 for 2009-2010 policies for bridge property and toll revenue loss, for claims-made liability coverage and for renewal of its owner-controlled insurance program.
He said that the authority paid Willis of New Jersey $1,417,499 in 2009 for various property/casualty insurance policies, including an additional $295,986.90 in premiums for health and welfare benefits plans for the 2009-2010 policy term.
Kasuba said the authority paid The Graham Co. $230,000 for additional risk management services in 2009 and paid no additional brokerage fees to Willis of New Jersey Inc. in 2009.
"We've been a broker for DRPA since 2003 and are proud of the risk management work we have done on its behalf," said Will Thoretz, a spokesman for Willis.
Thoretz did not respond to more specific questions about the arrangement.
The DRPA operates and maintains four bridges including the heavily travelled Benjamin Franklin and Walt Whitman bridges, as well as the Port Authority Transit Corp., which operates a commuter rail line between Philadelphia and New Jersey.
Its board members are political appointees, with half of its board members having been appointed by Pennsylvania Gov. Ed Rendell, and the other half of the board having been appointed by former New Jersey Gov. Jon Corzine.
August 24, 2010
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