Medical Mutual to pay state $75,000 in settlement

Triangle Business Journal – by Chris Coletta

Medical Mutual Insurance Co., the state’s largest malpractice insurer, will pay the state $75,000 to settle allegations that it broke state law by investing in real estate partnerships meant to compensate top executives.

The Raleigh company did not admit to any wrongdoing in the settlement and says it believes the arrangements were legal.

In an audit earlier this year, the state Department of Insurance found that Medical Mutual entered into five real estate investments through nine limited liability companies starting in 1997. Investments ranged from $535,000 to $2,578,750, an Insurance Department report states.

Executives of Medical Mutual also invested in the companies, the reports state. Their combined investments ranged from $240 to $6,860. Executives who invested included CEO A. Dale Jenkins, senior vice presidents David Paul Sousa and Brian Kent Tucker, and treasurer Paul Mark Davidson.

Despite their smaller investments, the report says, the executives held larger stakes in the real estate LLCs than Medical Mutual itself. Executives’ holdings in the companies ranged from 24 percent to 94.8 percent, while Medical Mutual’s holdings ranged from 2.34 percent to 60 percent.

The Insurance Department says the arrangements were violations of state law, which prohibits insurance companies from investing directly or indirectly in their officers.

“In a mutual company, the policyholders – not its executive officers – should benefit from the company’s investments,” state Insurance Commissioner Jim Long said in a written statement. “That’s why the statute is on the books, to protect policyholders.”

Medical Mutual disagrees, saying it interprets the law differently and that the deals were part of an overall compensation package for its executives. The company’s only goal was to help reward officers who had worked hard for the company, it said.

“While we are disappointed that the (N.C. Department of Insurance) did not agree with our position regarding these transactions, we are nevertheless pleased to have settled this matter,” Dr. Henry Carr, chairman of Medical Mutual’s board, said in a written statement. “For the last several months, we have worked cooperatively with the NCDOI by providing them with all documentation supporting these transactions and meeting with them to further explain our position. Medical Mutual’s Board of Directors fully approved and supported the transactions, which were carefully structured to reward the executives only if the projects were successful.”

Medical Mutual’s settlement with the state requires that the executives end involvement in any joint investments. The executives also must transfer their stakes in the real estate LLCs to the company and return any money they’ve made on the deals.

A plan of divestment must be submitted to the Insurance Department within 30 days.
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