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.”
This article appears in Jun 3-9, 2009.
