News » News Lead

Wait!

Ohio's largest malpractice insurance company was liquidated, victims be damned.

Dan Ciavarelli's round, happy face greets me at the door of his Strongsville town home. He shakes my right hand with his left like you do when only one hand is free. He chuckles, asks about Scene sales job he's seen advertised. He isn't kidding.

"Yeah, everyone's cutting back," the 53-year-old says, like he's said it a dozen times this week.

Just a few years ago, when Dan and Pam Ciavarelli's youngest finished college, they bought a sleek Saturn roadster and took regular trips to Hilton Head — not bad for a kid from Parma who'd spent most of his career as a soda deliveryman. But in January, the Pepsi distributor he'd worked for 29 years laid him off. Now he has no regular income or medical benefits, and savings won't hold out forever. He could sure use the $545,000 the state owes him, part of the settlement a jury awarded him more than a decade ago when a doctor's apathy cost him a third of his right arm. The state could pay him — it just won't.

In fall 1992, Ciavarelli's wrist started to ache. And ache. He told his boss, who advised him to get it X-rayed. But Dr. John Charnas at St. Vincent Charity Hospital didn't see the need. It wasn't trauma, so Charnas gave him an anti-inflammatory and some muscle relaxers. "See me in a week," he told Ciavarelli. "Aren't you going to X-ray it?" he remembers asking. Nope. The next day, Dan was back behind the dolly. The pain was soothed.

A week later, he told Charnas' assistant that the wrist felt better but he still wondered why it started hurting in the first place. Ciavarelli asked again about an X-ray: "She walked out and asked the doctor, who says, 'No, he doesn't need an X-ray.'"

Two months passed. He had gone to the clinic at least two more times for unrelated reasons and kept mentioning the soreness. Then, one December morning, he was pouring coffee, and the pain made him drop the pot. His family doctor took over the reins. He suspected carpal tunnel syndrome. By January, a plastic surgeon at Cleveland Clinic was gearing up to give him a cortisone injection. "He asked, 'Where's your X-ray?'" recalls Ciavarelli. "And I was like, 'They haven't done one yet.' He said, 'Let me get this straight. This has been bothering you for six months, and nobody's taken an X-ray yet?' I was like, 'That's right.'"

When an X-ray was finally done, it showed a tumor. After surgery, he was told that the cancer was too far along to remove; they'd have to take his whole hand and wrist.

Pepsi kept him on, even though he had to learn how to use a prosthetic hand on the job. Ciavarelli sued over the delayed care, and a few years later, a jury awarded him $3.1 million, to be paid by the hospital and the doctor. The hospital's lawyers talked its share down from $2.1 million to $1.6 million, and Ciavarelli's own lawyer got a big piece of that. Dr. Charnas and his assistant were responsible for $1 million, to be paid by their malpractice firm, Cleveland-based PIE Mutual Insurance Co.

But, after more than a decade, Ciavarelli still hasn't collected. PIE was forced into bankruptcy by the courts and liquidated by the state of Ohio in 1998, which took over its assets and its responsibility to pay claimants. Even though he was one of the first people to settle his claim after PIE's assets were liquidated, Ciavarelli is still waiting for the state to turn over the $545,000 he's still owed.

Shortly after the liquidation, an estimated 6,000 claims were capped at $300,000, paid out of a state guarantee fund — much like FDIC insures bank customers. And Ciavarelli is nowhere near the neediest of the few hundred malpractice claimants and their descendents still holding out for full settlements, or even the thousands more who took deep-discount buyouts years ago. It's unclear how many victims have taken settlements since the liquidation, accepting checks for much less than juries awarded them just to get something, anything, in their bank and out of the state's.

Clevelander Mattie Cunningham, a quadruple amputee due to a doctor's error, still awaits half the $5 million she was awarded. Her attorney, Martin Sandel, who is now keeping his three PIE liquidation clients away from reporters, says Cunningham would like the right to collect her own interest. "It's hers, right?" he asks.

It's not like the state doesn't have the money. It's already earned about $55 million in interest on the PIE pot, which has swelled, according to recent court documents, to about $80 million. And this is key: The most recent court documents in the case show about $42 million in claims to be settled and about $80 million on hand to pay them. You do the math.

Out of this fund has come an estimated $11 million to the law firm handling the liquidation, Cleveland's Calfee, Halter & Griswold, and $7 million in rent and salaries for "consultants" — all to sit on money and see how much time goes by before someone says they have to stop. It wasn't until 2006, when Republicans rightly feared the loss of the governor's chair, that Republican Gov. Bob Taft finally authorized the release of a third of what the state owed the victims of PIE's liquidation. Aside from the money provided by the guarantee fund, this was the first and only installment thus far. The state kept holding onto the interest, of course.

"I think it's a bunch of bullshit," says Ciavarelli. "I started hearing from other people, reading up. I found out PIE wasn't even insolvent. It was a stable company. We talk about dirty politics in Cuyahoga County, and now I'm under the belief that there isn't an honest politician around anymore."

In the '90s, PIE Mutual Insurance Co. was Ohio's largest malpractice insurance firm and the first of its kind in America, with its own staff of lawyers to defend against claims. But it all began to unravel in 1997, starting with a raid by the State Highway Patrol.

CEO Larry Rogers ended up serving a 40-month sentence for insurance fraud and conspiracy for lavishing his top executives and political shakers with exorbitant bonuses and travel perks. In 1997, he reportedly paid himself $6.1 million. Several of his top lieutenants, many of whom had just gotten millions in bonuses, faced charges too. A few went to prison. And that's just the start of the stain Rogers left on the company. According to a 2003 Columbus Dispatch article, Rogers doled out $1.5 million in illegal contributions to 75 politicians in Ohio and three other states between 1990 and 1997.

But it's important to not forget the state's intimate role in this affair.

First, consider how Ohio Department of Insurance Deputy David Randall was a chief conspirator. Rogers was having his top lobbyist, Tom Strussion (also sentenced), bribe Randall, who would in turn look the other way while auditing PIE. A year before liquidation, the company reportedly overstated its value by $100 million or more. In July 1998, Randall pleaded guilty to two counts of accepting bribes and one count of falsifying official documents. According to the Ohio Inspector General, Randall had a "For Sale" sign on his office, and Rogers was using his company as his personal political piggybank.

So it was Rogers and Randall who brought the heat on, but what the steam revealed was unflattering to then-Governor George Voinovich and attorney general Betty Montgomery.

Voinovich's campaign fund, Voinovich for Governor, got one of the biggest chunks of Rogers' personal political contributions in the years just before the PIE liquidation — about $100,000. Montgomery got $72,000 between 1994 and 1996. Scene also obtained a note on Montgomery's personal stationery, handwritten just before PIE's house of cards collapsed, pleading with Rogers to send out his latest check immediately — noting helpfully that a new contribution cap would go into effect the very next day so the check needed to be dated correctly. She sealed it with a kiss: "Love, Betty."

But Rogers became an even bigger friend to GOP officials when he sent more than $300,000 to right-wing issue campaigns (soft contributions) during PIE's last gasps. He also had the company pay more than half the cost of renovating Ohio Republican Party headquarters. Thanks, Larry!

All of this looked a little incestuous, sure. But shut the whole circus down for the sins of the ringmaster? How could 150 PIE workers, 15,000 policyholders and thousands more claimants end up paying that high a price?

Today, Bob Grevey lives the unassuming life of a Westlake insurance salesman. But in the mid-'90s, he was PIE's senior vice president for marketing, communications and underwriting. He's one of two former PIE executives who told Scene that the PIE liquidation was a sham from day one.

When the state troopers raided, they were accompanied by a new insurance deputy, David Meyer (who effectively replaced Randall), and Alan Berliner, previously Voinovich's chief counsel. Receivership began immediately, and Rogers and a handful of others were soon gone. Receivership is supposed to be when the state determines whether a company should be kept afloat, says Grevey, but that's not what happened.

"I was part of a committee of some of the top execs trying to figure out how to rehab the company, but it became obvious early on that they had no intention of saving the company," says Grevey. "They didn't include us in discussions on reserves and the like. The two heads of the claims department weren't even invited to the meetings."

The two claims department leaders tapped off a letter to Meyer: "It is not in the best interest of any party for the company to be forced into liquidation," they wrote. "It will devastate our insureds, claimants, creditors and remaining employees. The company is in a position unlike any in its history, and this will have a dramatic impact on claims liabilities."

They were ignored.

The books were being cooked in the opposite direction, says Grevey. Early settlements made with "runoff" claimants (cases accumulated before the liquidation) were estimated to save PIE as much as $30 million, but that figure wasn't applied to the books. PIE officials also tried to show that the company was clearly owed between $50 million and $130 million by Lloyd's of London, but it was never pursued or factored into the final equation. Grevey also remembers Meyer permitting the inclusion of leases as expenses, but not the income from subleased space.

The committee of PIE officials came up with a 200-page plan to keep the liquidation from occurring, says another ex-official who asked to remain anonymous. But they might as well have brought the state a phone book: "It was obvious that they didn't even read it. It was a setup from the beginning. Dave Meyer ... said [the company] was in a lot worse shape than what it was."

Plus, according to several sources, the company had a reputable buyer all lined up: the Doctors' Company, a California firm that was negotiating before and during the liquidation to assume all risk in return for PIE's assets and all new policies. PIE would continue as an underwriting agent for the runoff claims. A nine-page memorandum of understanding obtained by Scene outlined the details, including how the new company would pay PIE, as underwriter, about $47 million over seven years — another unaccounted-for asset in the final tally.

In July 1998, Meyer wrote to Doctors' Company CEO Manuel Prueba to say thanks but no thanks. The new deal was off, even though the company had already started transferring payments to PIE. "They never allowed for any credibility for that sale," says Grevey.

"When you add all this up, it wasn't insolvent," says the anonymous former executive. "The fact that they're sitting on $80 million 11 years later proves it. They're collecting interest on all the money sitting there, and they wiped out all the bondholders. They wiped out everybody. And the sad part is, it didn't have to happen."

The ex-official also alleges that the state destroyed all computers used by PIE's top executives, including his own, before the liquidation was organized. The state recently alleged that the FBI must have taken them, but a letter from the feds obtained by Scene points the finger back at state investigators.

"As soon as I left, my computers disappeared from the state's inventory," says the ex-official. "The only thing there was a 19-inch monitor. All the receivables, the memos — they trashed them because it would have made them look foolish."

He adds, "Normally, if you go into bankruptcy, everything is cleared up in two or three years, right? But this has dragged on for years and years. There's been no operation in this company since '97, so why are they keeping it alive? What are they keeping the corpse alive for?"

Grevey concurs with all of this. Does he think the state is just using the interest on PIE's assets as a cash cow? "Sure," he says. "And it's a lawyers' racket too."

In March 1998, Franklin County Common Pleas Judge Michael Watson declared PIE "hopelessly insolvent." Meyer had showed him claims that exceeded assets by $275 million. Fortuitously for the state's case, Watson (who declined comment) once served as Voinovich's chief counsel. After the liquidation, Voinovich — elected to the U.S. Senate in November 1998 — wrote Watson a letter of commendation to help the judge get his current job on the federal bench.

Meyer, who went on to oversee Kentucky's Department of Insurance until being sued in a eerily similar scandal dubbed "Kentucky's Enron" by the press there, works for Ernst and Young in Cincinnati now. He and Alan Berliner, now at a Columbus firm, both declined comment. Voinovich and Montgomery didn't even return our calls.

By now, Tom McManamon is an expert on the power of the state. The owner of McManamon Insurance in Westlake owned one of PIE's smaller subsidiaries. It was liquidated too, and took years to settle. The ordeal led McManamon to file suit in 2002, to find justice for the hundreds of liquidation victims.

"The Department of Insurance's first responsibility is protecting the consumers of Ohio — the policyholders and people who file claims against those policies," he says. "And quite frankly, in a liquidation, they're the ones who get taken care of last."

Now, he adds, "The state is saying to wait while it collects more interest on this money."

But try to get a Republican judge to touch this case with a 10-foot gavel and see just how expensive things can get. McManamon's case sat under the bench of a Columbus Court of Claims judge for 18 months before he ruled that another court would have jurisdiction. Then Judge John Bender, who served as Republican Gov. Bob Taft's chief elections counsel in the '90s, sat on the case for three-and-a-half years before announcing in 2007 that he shouldn't have jurisdiction and sent it back to the Court of Claims.

McManamon's attorney, Ken Seminatore, is tired of the run-around too.

"This is what the state always does in these cases," he says. "They try to bounce you from court to court to court, so they exhaust you and you'll never have an opportunity to get to the merits. We're just now getting to the merits."

Seminatore believes that those politicians closest to Larry Rogers had an interest in PIE's downfall.

"They panicked — Voinovich, Mont-gomery, David Meyer — and I believe that they said, 'The best defense is a good offense. If we show we're really tough with this company and put it down like a dead dog, nobody is going to pay any attention to all this money that Larry Rogers admitted he stole from the company to give to the governor and the attorney general.'"

(According to an Associated Press article in August 2003, Voinovich said that, in 2002, he gave back $15,450 that Rogers had donated to his senate campaign, but he would keep the $85,000 Rogers had given to his gubernatorial kitty.)

When PIE's board tried to challenge insolvency, Seminatore claims they were threatened with "personal financial ruin and criminal prosecution." He's got depositions to prove it. When Seminatore factors in the income and savings that Meyer allegedly ignored, the company had a surplus, upon liquidation, of $24 million. "If I ignore your assets and your liabilities, I could make Warren Buffet look insolvent," says Seminatore.

What the state should have done in the case of PIE — as well as in the liquidation of another insurance giant, Credit General — was supervise and rebuild, says Seminatore. "Assuming the management of this company was bad, you don't liquidate it. You bring in new management. The department has done that routinely, 10, 20 times a year."

So if the liquidation was done for political expediency, why drag it out this long?

"If you were cynical, you might say that the lawyers, accountants and consultants are making money here, and that this is one or two or three of the fat cows that's funding the liquidators' lavish offices in downtown Columbus," says Seminatore. "And really: The only interest they have to worry about now is the interest they're collecting year after year."

Last summer, when questioned about the PIE debacle, Democratic Governor Ted Strickland hastily promised to investigate. A year later, his director of insurance, Mary Jo Hudson, was the only state official — past or present — to call Scene back about whether the liquidation was justified.

Hudson sounds downright apologetic for the actions of previous administrations and doesn't want to believe that there was any one-sided decision-making. "There's a lot of moving parts outside of our control," says Hudson. "In every liquidation, it's the policyholders that are harmed because they're delayed in getting settled in full, so we're trying to get them paid as quick as we can."

Did any of this even need to happen at all?

Hudson points to "a mountain of evidence" that PIE was hopelessly insolvent — reviews by actuarial firms, health-care consortiums and the Academy of Trial Attorneys — "and all of them determined that PIE should go."

Except that Scene obtained a January 1998 letter from the Academy of Trial Attorneys that urged "trying to resolve PIE's problems without a finding of insolvency." And when asked about the alleged book-cooking by Deputy Meyer once the state started its speedy path toward liquidation, Hudson feigns indignation. "Clearly you don't understand," she says. "This is a complex form of litigation."

And the reneged offer of sale to the Doctors Company? "I've never even heard of that," she attests. Hudson has been on the job for two years, and somehow the main arguments in the biggest lawsuit against her department escape her.

"I will say that if anyone was trying to hide something, they certainly wouldn't do that by making a company insolvent and putting them in liquidation," she opines. "It's a fairly transparent process, so I wouldn't say a liquidation was done to hide anything."

And the key question: Why not just not cut all these people their checks and be done with it? Wouldn't that still leave about $50 million to cover the few dozen claims still being litigated and any potential future claims?

"Claims of this nature have what we call a long tail, and that means that liabilities can stretch out for many years," she says. "So you have to make sure, before you pay out money, that you know how much you have to pay out in the end." Then she springs the good news: The state intends to file a closing plan in court soon, "with the full intent to close this out by the end of year."

Lawyers like Ken Seminatore and Martin Sandel, insurance guys like Tom McManamon and Bob Grevey, and victims like Dan Ciavarelli and Mattie Cunningham must beam when they catch wind of this. But some can't shake the feeling that they're still being ignored, that the victims here are still victims, and that the true perpetrators of this ruse are the ones who clearly just don't understand.

"OK, so they say they're finally gonna pay off everybody now, right?" says Ciavarelli, scratching his forehead with a fake finger and shaking his head. "Great. But you know what? Now I want my interest."

dharkins@clevescene.com

comment

Add a comment