HomeMy WebLinkAbout550 KomoroskiMr. Arthur Komoroski
525 Carothers Avenue
Carnegie, PA 15106
Re: 85 -16 -C
Dear Mr. Komoroski:
T
2'1 •_'
STATE ETHICS COMMISSION
308 FINANCE BUILDING
HARRISBURG, PENNSYLVANIA 17120
ORDER OF THE COMMISSION
Order No. 550
DECIDEDJAN 3 0 1987
r, AILEDyE Z: 7
The Ethics Commission has received a complaint regarding you and a
possible violation of Act 170 of 1978. The Commission has now completed its
investigation. The individual allegations, conclusions, and findings on
which those conclusions are based are as follows:
I. Allegation: That you, Commissioner in Scott Township and the township's
representative on the Allegheny League.of Municipalities, violated Section
3(a) of the Ethics Act which prohibits a public official or public employee
from using his or her office for financial gain other than compensation
provided by law and /or Section 3(c) which prohibits a public official from
contracting with his or her governmental body for $500 or more unless it is
done through an open and public by having insurance placed with your
township and serving as an agent for that insurance.
A. Findings:
1. You have served as a Scott Township Commissioner for over 20 years.
2. You are also a real estate and insurance businessman and have been in the
insurance business for over 37 years.
3. The Allegheny League of Municipalities (ALOM) authorized the establishment
of Municipal Risk Management, Incorporated at its October 14, 1981 meeting:
a. You served on the league's board of directors and also as its
treasurer.
b. You were Scott Township's representative to ALOM.
Mr. Arthur Komoroski
Page 2
b. The following persons signed as incorporators:
(1) Francis R. Daley, Mayor of Duquesne.
4. Minutes of the Allegheny League of Municipalities' Board of Directors
meeting of October 14, 1981 record the following:
a. The corporate name of Municipal Risk Management, Incorporated had
been reserved for the filing of articles of incorporation and 77
municipalities that expressed an interest in joining the League's
Workmen's Compensation Program.
b. Workmen's Compensation Committee Chairman,' Gallo, directed Solicitor
John Means to prepare the articles of incorporation. Solicitor Means
reported that he and the league's Executive Director, Matthew R.
Mathews, had reviewed the draft by -laws prepared by Frank 8. Hall and
Company, relevant Pennsylvania law, and IRS regulations and it was
his opinion that Municipal Risk Management, Incorporated should be
incorporated by municipalities, not the league because the league was
merely an association and he wanted MRM Incorporated to be in full
compliance with the Pennsylvania Intergovernmental Cooperation Act.
c. A motion to have the City of Duquesne, Borough of Sharpsburg, and
Township of Wilkins be the incorporators was passed unanimously. You
seconded the motion and voted on it.
d. You also seconded and voted on a motion to establish the charter
membership and non- charter membership fees.
e. Chairman. Daley, then appointed an Advisory Committee to MRM
incorporated. You were appointed as the representative of first
class townships.
5. Incorporation papers, for Municipal Risk Management, Incorporated, were
filed with the Commonwealth of Pennsylvania on November 23, 1981.
a. Municipal Risk Management (MRM) was established as a non - profit
corporation to provide an organization for municipalities, municipal
and other tax exempt governmental agencies to provide "...protection
from liability for workmens' compensation, unemployment compensation,
public liability and automobile liability ...including the making of
contracts with insurance companies, associations or exchanges for
such purposes."
Mr. Arthur Komoroski
Page 3
(2) J. Gallo, President of Sharpsburg Borough Council.
(3) Joseph J. Dombrosky, President of Wilkins Township Board of
Commissioners.
6. Minutes of the Allegheny League of Municipalities' meeting of November 24,
1981, record your appointment to the board of directors.
7. On November 24, 1981, the board of directors of Municipal Risk Management,
Incorporated held their first meeting. The minutes record the following:
a. Approval of the corporation by -laws.
b. You were listed as a member of the board of directors.
c. In addition to voting, you made or seconded the following motions:
(1) To approve Matthew R. Mathews as chief executive officer of the
corporation.
(2) To appoint Matthew R. Mathews as assistant treasurer and
assistant secretary.
(3) To appoint John Means as solicitor, to appoint Robert G. Gallo
as first vice chairman.
(4) To appoint Frank B. Hall, Risk Management, Incorporated, as
the broker -of- record for the corporation.
(5) To authorize the solicitor and the chief executive officer to
negotiate a contract with the Frank B. Hall Company.
(6) To approve charter a.nd non - charter membership fees.
(7) To approve the positive Incentive Formula as contained in the
gold sheet for distribution of surplus premiums.
8. Minutes of the same meeting also show the following:
a. On the recommendation of Frank B. Hall Company, Vice President,
Roger Pearse, the bid of Old Republic Insurance Company was accepted
as "fronting carrier;" and Crawford and Company was retained as
claims administrator for MRM Incorporated, Workers' Compensation
Program.
Mr. Arthur Kcmoroski
Page 4
9. Minutes of the Municipal Risk Management, Incorporated Board of
Directors' meeting of April 8, 1983 show that you were appointed to an
additional two -year term on the board. You resigned from the board in
September of 1984.
10. Scott Township carried the following insurance coverage with Old Republic
Insurance Corporation through the MRM program.
a. 1982: Policy No. MCW 12602.
1) Total premium - $60,470.00.
2) Payable in quarterly payments, first of $15,119 and remaining
installments of $15,117.
b. 1982 - 1983:. October 1, 1982 to October 1, 1983, Policy No. MCW
12603 (renewal).
1) Total premium - $63,115.
2) Quarterly premiums $14,437 plus $5,367 initial payment.
c. 1983 - 1984: October 1, 1983 to October 1, 1984, Policy No. MCW
12603).
1) Total premium: $82,314.00.
2) Quarterly premiums: $22,049.00.
d. 1984 - 1985: October 1, 1984 to October 1, 1985, Folicy No. MCW
12605 (Renewal of 12604).
1) Total premium - $64,6
2) Quarterly payments, first of $16,164 remaining installments of
$16,161.
e. 1985 - 1986: October 1, 1985 to October 1, 1986, Policy No. MCW
12606, Renewal of 12605.
1) Total premium - $64,873.00.
2) Monthly premium October 1, 1985 - $5,407.00, remaining monthly
premiums of $5,406.00.
Mr. Arthur Komoroski
Page 5
11. MRM received payments from Old Republic as follows:
a. The MRM 1982 -83 Fiscal Year Budget Committee Report recorded that MRM
had an administrative contract with Old Republic Insurance Company
for $90,000 in revenue for the full fiscal year beginning October 1
and ending September 30, 1983 ($7,500 per month). "A handwriten
marginal note says "Obtain renewal of this contract."
b. In addition to the administrative fees, MRM also received 3% of the
premium reinsurance cost according to the following:
(1) On or about November 1, 1983, Municipal Risk Management,
Incorporated, Board of Directors, approved a resolution
authorizing the placement of "all such savings on reinsurance or
brokerage cost and other revenues as deemed appropriate by the
board of directors, be placed in a special reserve fund until
such fund equals $250,000 for payment of catastrophic loses.
The resolution noted that the chief administrative officer of
the appropriation had deemed a "reduction of (3% points of the
10 %) of premium reinsurance cost."
(2) October 19, 1983, letter from Matthew R. Mathews, Chief
Administrative Officer, Municipal Risk Management, Incorporated
to Mr. George Newmeyer, Old Republic Company, Greensburg,
Pennsylvania, requested that Old Republic send a separate
monthly check to MRM representing the 3% agreed to on September
28, 1983 and not co- mingle these funds with the monthly
administrative fee. The letter also stated "for your
information, only the nine signatorees to this Resolution (and
three staff members of MRM) have seen or will see this
Resolution other than the people you show it to. Nobody else,
per our agreement. ".
12. The original contract arrangements and changes between MRM and Frank B.
Hail, Risk Management, were as follows:
a. The agreement was effective from Novemer 16, 1981 to December 31,
1984.
b. Frank B. Hall was retained as MRM's primary insurance agent and
broker.
13. MRM took the following actions to terminate the services of Frank B.
Hall.
Mr. Arthur Komoroski
Page 6
a. January 27, 1984 letter from Spencer LeRoy, Lord, Bissell and Brook
to Mr. Louis M. Wasneski, stating the following:
Letter was in response to MRM's request for Old Republic assistance
in making changes in the Workers' Compensation Safety Group Program,
letter notes they are somewhat dissatisfied with the services they
received from Frank B. Hall and Company. This letter further states
in this regard, you should keep in -mind that if MRM cancels their
brokerage agreement with FBH Company and asks that you pay the
commissions instead to one of their employees who holds an agents
license, a difficult question of rebating would arise, even though
Pennsylvania law would prohibit the employee -agent from sharing or
paying his commission to anyone else who is not also licensed as an
agent or a broker. Pennsylvania law also prohibits the unlicensed
person or entity from receiving the commission. While we do not
think this would amount to rebating within the meaning of the
Pennsylvania insurance laws, the mere suggestion of rebating is often
enough to create great difficulties, not to mention embarrassment."
b. February 2, 1984 letter marked "personal and confidential" from Louis
M. Wasneski, Management Client Services, Old Republic Companies, to
Mr. Matthew R. Mathews, Chief Administrative Officer, MRM, noting
that ORC had asked their legal counsel for advice concerning the
changes MRM contemplated with F. B. Hall. This letter was in
response to a request of. Mr. Matthews.
c. May 31, 1984 letter from Robert C. Gallo, Chairman, Municipal Risk
Management, Incorporated, to George Newmeyer, Vice President, Old
Republic Companies, advising that Frank B. Hall, Risk Management
will not be the broker -of- record to Municipal Risk Management,
Incorporated when policies were renewed with Old Republic as of
October 1, 1984.
d. July 6, 1984 request for proposals from MRM Incorporated, Board of
Directors, seeking "a broker /agent to act as a
consultant /administrator for its Workers' Compensation Safety Group
and Program.
e. August 10, 1984 letter from Robert C. Gallo, Esquire, Chairman,
Municipal Risk Management, Incorporated, to Robert Lloyd, Old
Republic Company naming Arthur J. Komoroski of the Komoroski Agency,
525 Carothers Avenue, Carnegie, Pennsylvania, 15106 to be the agent
of record for the placing of Workers' Compensation Policies, for MRM
for the 1985 program year beginning October 1, 1984. Nothing in the
letter stated that Mr. Komoroski was not the agent of record for
Scott Township policies.
Mr. Arthur Komoroski
Page 7
f. Undated letter from Robert C. Gallo, MRM Incorporated, Chairman, tr
Mr. Roger Pearse, Frank B. Hall, Risk Management, notifying Mr.
Pearse that the MRM board of directors, at a November 8, 1984
meeting, unanimously voted that the contract between MRM and Frank B.
Hall, expire on December 31, 1984 as provided and that MRM would not
renew or extend the contract.
14. On July 6, 1984, MRM sought proposals for a "...broker /agent to act as a
consultant /administrator for its Workers' Compensation Safety Group Program."
The following are the minimum requirements:
1. Licensed in the State of Pennsylvania
2. An office in Allegheny county to service an account of
this nature.
3. Two qualified account executives, with a minimum of five years
experience in commercial lines and /or a CPCU or ARM
designation.
4. Evidence of Errors and Omissions insurance with a minumum limit
of $2- million dollars per occurance.
5. Agreement to prepare an annual report for the MRM, Inc. Board
of Directors including, but not limited to, a complete
accounting of all hours, fees, commissions and other forms of
compensation earned on this account.
a. On October 1, 1984, Frank B. Hall responded to that
request.
b. There is no record of anyone being appointed as a
result of this "Request for Proposals."
15. Agents of Record for insurance administered by MRM include the
following:
a. September 24, 1984, MRM Board of Directors meeting. You submitted
your resignation as board member. Matt Mathews, CAO reported that
the Komoroski Agency (your company) had replaced Frank B. Hall
Company as agent -of- record. You were to receive $12,000 annually.
1) The MRM staff was to assist you with your administrative
services.
Mr. Arthur Komoroski
Page 8
2) As a result, CAO Mathews and Assistant Administrative Officer
McConaha received $4,800.00 salary increases, MRM corporate
secretary $2,000 and bookkeeper $1,200.
b. Old Republic Insurance Company records confirm that you were actually
paid $3,600 quarterly. ($14,400 annually).
c. On September 28, 1984, John L. McConaha, Assistant Administrative
Officer, MRM wrote to Bob Lloyd, Old Republic companies, informing
him that "Norwood McDaniel of the McDaniel Agency... is to be
authorized to be the agent of record for the Scott Township account
with Municipal Risk Management, Incorporated Workers' Compensation
Safety Group Program."
d. On August 29, 1985, Kay Heilman of MRM wrote to Pat Wodnicki, Scott
Township, telling her that the township should sign and return an
attached form if they required Act 477 coverage for its police and
firemen. The form was a statement that the township recognized the
McDaniel Agency as the Agent of,Record for the placement of Act 477
coverage." There is no indication that other member... townships
were handled in this way.
e. On November 18, 1985, Mr. Matt Mathews, MRM, CEO, wrote to
Mr. Lou Wasnesky, Old Republic Insurance Companies,_ informing him
that MRM had "...re- negotiated the fee for the Komoroski Agency for
our 1985 -1986 Fiscal year." The new fee was $19,200 payable at
S4,800 quarterly. Payments were to be made directly to the
Komoroski Agency. The subject of the letter was "Re: Komoroski
Agency Commission." There was no indication that this commission
was only for Scott Township.
f. Records submitted by MRM do not show any other Agent of Record for
MRM nor other agreements for commissions to other agents.
16. The by -laws of MRM do not speak to the negotiation of agency
Commissions. A letter of Novembr 18,. 1982, from Mr. Matthew R. Mathews,
C.E.O. of MRM states In short, we are not an insurance company. We do not
receive insurance premiums. We receive a management fee from the insurance
carrier to undertake certain safety group functions..."
17. The 1932 agreement between Old Republic Insurance Company (the company)
and MRM (the manager) also does not include fee or commission negotiations
under the responsibilities of MRM as manager.
Mr. Arthur Komoroski
Page 9
18. Minutes of the Scott Township Commissioners' meetings disclose the
following actions taken by the board of commissioners regarding workmen's
compensation insurance plans:
a. February 10, 1981, Page 228: A resolution from the Allegheny League
of Municipalities regarding workmen's compensation plan is presented.
A motion was made by you that Resolution 121 -81 be placed on first
and final reading. Motion carried.- Resolution 121 -81 be resolved
that the Allegheny League of Municipalities' request to the State
Legislature to provide remedial legislation so that municipalities
may be permitted to jointly self insure. Motion by you that
Resolution 121 -81 be passed on first and final reading. Motion
carried.
Item 9. Township manager discusses renewal policy for workmen's
compensation. You question when policy is due and state that it
would be a good idea to bid out this policy.
b. June 10, 1981, Page 60: Item 2: Legislative Review Committee
report. You report that municipalities can now pool workmen's
compensation programs. You stated that the League of Municipalities
will begin the program which will result in a savings of about
S40,000 for each township.
c. July 14, 1981, Page 104: Legislative Review Committee Report. You
stated a meeting was held. You advised that by the first of the .
year, the township will be able to pool resources resulting in a 55%
savings. You also stated that 131 municipalities in Allegheny County
will be involved in the program.
d. October 13,. 1981, Page 198: Item 5. Motion by you, second by
Westcott, that Scott Township join the Allegheny League of
Municipalities Workmen's Compensation Plan which requires a 2%
payment in advance. Motion carried.
Page 199: Motion made by you that Resolution 131 -81 be passed on
first and final reading. Resolution 131 -81 authorized membership in
the Municipal Risk Management Corporation created by the Allegheny
League of Municipalities to provide joint self insurance safety
programs. Motion carried.
e. February 9, 1982, Page 2: Correspondence from Matt Mathews to the
Township appointing Scott Township to the Lost Control Advisory
Mr. Arthur Komoroski
Page 10
Committee of the workmen's compensation program. Township manager
Wodnicki will be assigned to this committee.
Page 24: Motion by Colarosa, second by Komosinski that Resolution
147 -82 be passed on first and final reading. Resolution 147 -82 is
the assignment of dividends under the policy of Old Republic
Insurance Company. Motion carried. You are reflected as attending
that meeting.
Page 27: Finance Committee report. =Municipal Risk Management
assignment of dividends form to be executed. You suggested taking a
look at the cost ratio and bring this item up at the next meeting.
Township manager stated that this was previously done and the loss
ratio was not that great.
f. May 11, 1982, Page 84: Correspondence, Item 1. MRM, Incorporated,
correspondence regarding the assignment of dividends forms to be
executed. Township manager explains that authorization is needed
from the proper officials to sign these forms. Motion Diebold,
second Eureka, that the proper officials be given authorization to
sign the assignment of dividend forms. Motion carried. Minutes
reflect you as being present at this meeting.
• December 11, 1984, Page 220: Item 3. Committee reports. Bid for
public officials errors and omissions insurance discussed. You
reported that the policy is being cancelled on February 15. Motion
by you, second by Barrett, that the public officials errors and
omissions insurance be placed out on bids. Motion by Budinsky,
second by Barrett, that-amendment be added to include all insurance
being bid out by the township. You stated that the board should vote
on the original motion only, that the errors and omissions insurance
is the only item included in that motion. You continued stating that
you did not want all insurance included in-this motion. Roll call
vote, four yes, five no. Motion defeated to bid all insurance. You
are recorded as voting no.
Roll call taken on the original motion of putting errors and
omissions insurance out for bid. Motion carried.
Motion Diebold, second Tinney, that all insurance policies be put
out for bid on the expiration date of the policies. Questions, if
policies are put in a group together instead of separately, would a
Netter price be obtained. You are reported as stating that this line
of reasoning is questionable because you are in the insurance
Mr. Arthur Komoroski
Page 11
business. Roll call vote; six yes, three no. Motion carried. You
are reported as voting yes.
Motion Budinsky, second Barrett, that the motion, as amended, be
tabled. Roll call vote; seven no, two yes. Motion defeated. You
are reported as voting no.
Discussion by board members follows_
Motion read that all insurance policies, as they expire, be put out
for bid. Roll call vote; eight yes, one no. Motion carried. You
are reported as voting yes.
h. July 9, 1985, Page 227: Item 2. Workmen's compensation policy
expiring October 1, 1985. Discussion ensues regarding putting this
policy out for bid. If it is to be advertised, it should be done so
for the August bid opening. You are reported as stating the township
is not going to bid that out yet. Motion made by Barrett that the
township advertise for bids for workmen's compensation insurance.
You are reported as questioning the bid procedure and state that
companies will not give a bid that far in advance. Motion dies for
lack of second.
i. August 13, 1985, Page 5: There is no record o f firms, other than
Frank B. Hall Company, submitting proposals
Page 5: Finance Committee Report, Manager reports last month on the
agenda an item appeared concerning advertising for the workmen's
compensation insurance and whether or not there would be a bid
opening in August. It was suggested that this bid opening be delayed
and again be brought up at the August meeting for advertising. You
are recorded as stating. as far as insurance for municipalities goes,
it is the toughest thing in the world right now. If you people want
it, fine. It makes no difference to you. You are also reported as
saying, I am just as soon ready to go with the MRM corporation, as we
always do. Motion by Budinsky, second by Colarosa, that the
insurance be put out for bid. By roll call vote, that motion was
defeated by five no, three yes and 1 absent. You are recorded as
voting no.
At that same meeting, you also state that you want to be
recorded as not voting. Lengthy discussion ensues as to whether or
not it was legal to change the vote. The solicitor states it was
legal for you to change your vote.
Mr. Arthur Komoroski
Page 12
J•
September 19, 1985, Page 104: Barrett stated that in July he
requested workmen's compensation insurance be put out for bid. He
also stated that he was informed that the matter would be discussed
at the August meeting. However, the matter was never brought up.
Barrett questions why the township cannot get a workmen's
compensation bid to see if we are getting a fair shake. No further
discussion was held on that matter.
k. October 8, 1985, Page 121: Bill listings. Motion by Colarose,
second by Westcott, that the bill listings and addendum to the bill
listings be approved. Under general fund expenditures for
administration, a bill listing for Old Republic Insurance Company,
forth quarter premium, workmen's compensation insurance in the amount
of $16,161 was presented. By roll call vote, motion was carried
unanimously. Included in that vote, was your vote.
1. October 8, 1985, Page 195: Motion by Falon that the Municipal Risk
Management's compensation policy be renewed at the cost of $65,007.
Motion second by Diebold. Barrett states that you were the
representative for MRM. You deny that you were the MRM
Representative. Lengthy discussion followed regarding the rates
charged by MRM. Barrett states that there is to be a 12.7% increase
and questions why MRM will not provide a figure as to the exact cost
for the coming year. Barrett states that MRM presents an arbitrary
figure and subsequently charged more money. That money is repaid
when a conference is held at Seven Springs in March or April of each
year. You state that Barrett is a liar. Discussion again follows as
to the rates and why workmen's compensation insurance was not put out
for bids. Vote on Falon's original motion carried, six yes, two no
and one not voting. You are recorded as not voting.
19. Records of Scott Township disclose the following payments made to the
Old Republic Insurance Company relating to the workmen's compensation
insurance program that was established by MRM:
Date Amount Check No.
2/16/82 $15,119 007612
5/14/82 $15,119 008028
8/13/82 $15,117 008497
11/12/82 $5,367 008796
1/14/83 $14,437 009005
3/11/83 $14,437 009379
6/17/83 $14,437 0010432
Mr. Arthur Komoroski
Page 13
Date Amount Check No.
10/28/83 $22,051 0010930
1/6/84 $22,049 0011165
3/15/84 $22,049 0011429
5/11/84 $16,167 0011670
6/15/84 $22,049 - 0011821
10/12/84 $16,164 0012228
12/24/84 $16,161 0012522
20. Scott Township records also disclose receipt of letter dated January 28,
1982 from the Frank B. Hall Agency stating workmen's compensation coverage
effective February 24, 1982, with the first quarterly installment of $15,119
due. Remittance to be paid to the Old Republic Insurance Company.
a. Letter dated February 9, 1982, from Frank B. Hall Company stating new
policy at an annual premium of $60,470.
b. Letter dated March 2, 1982, from Frank B. Hall Agency stating that a
member of the Allegheny League of Municipalities, Scott Township
would be eligible for any dividend declared by the board of directors
of ALOM.
c. Letter dated October 1, 1982, from Matt Mathews, MRM, Incorporated,
stating policy renewed effective October 1, 1982, policy CW- 12602.
21. Minutes of the Municipal Risk Management, Incorporated board of directors.
meeting for September 24, 1984, disclosed the following:
a. Chairman Gallo states the first order of business is to take care of
written resignation of you. Motion Witherel to accept Komoroski's
resignation. Second by Swantack. Unanimously approved.
b. Chief Administrative Officer Mathews reports that Frank B. Hall
Agency was replaced by the Komoroski Agency. Mathews reports that
Komoroski agency will receive approximately $12,000 annually for this
service. Mathews also reports salary increase for chief
administrative assistant and corporate secretary.
c. Mathews reports that requests for proposals were sent to various
insurance brokers and MRM search for new agent /broker. Mathews
reports that the firm Reed Stenhouse responded with a letter
declining to participate in the program.
Mr. Arthur Komoroski
Page 14
d. Legal Counsel, John Means, submitted an opinion regarding MRM
contract termination with Frank B. Hall. Means opinion stated that
MRM has the right to use another agent or broker to obtain policy
during the final three months of the term of the MRM /FBHM contract.
22. Information obtained from the Old Republic Insurance Company disclosed
the following information relative to your appointment as an agent for the Old
Republic Insurance Company:
a. August 15, 1984: Handwritten memo marked "priority" addressed to Vi,
which states "need to send appropriate license forms to Arthur J.
Komoroski to appoint him as an agent of ORIC. The memo also states
that once licensed, a four thousand agent number is needed. Agent on
MRM program. The memo bears the initials R.L.
b. August 15, 1984: Correspondence to Komoroski from Bernice Furin,
which states per request from Robert Lloyd, we are enclosing an
application for resident /agent license form IDAB -2. The letter
states "please complete this application and return in the business
reply envelope which is enclosed."
c. Application for resident /agent license without examination. This is
identified as form IDAB -2, bears the name Arthur Komoroski, bears the
signature of Komoroski. Page 2, lists company endorsement as Old
Republic Insurance Company and bears the signature of Robert Lloyd,
Representative of Old Republic Insurance Company. Form is dated
September 6, 1984.
d. September 18, 1984, correspondence from Bernice Furin to Komoroski
which states enclosed find your Pennsylvania fire and casualty
license representing Old Republic Insurance Company. Attached to
that letter is license for Arthur Komoroski which indicates he is
licensed in the capacity to act as an agent on behalf of Old Republic
Insurance Company. The effective date of the license is September
10, 1984.
e. Records reflect your agent number as 4549.
f. September 28, 1984 correspondence from John McConaha MRM,
Incorporated to Bob Lloyd, Old Republic Insurance Company that
Norwood McDaniel of the McDaniel Agency was authorized to be the
agent of record for the Scott Township account with MRM.
Mr. Arthur Komoroski
Page 15
23. Records obtained from the McDaniel Agency reflect that as of August 13,
1985, that agency had no file for the Scott Township employees Workmen's
Compensation Insurance Program.
a. Norwood McDaniel Agency stated to State Ethics Commission
investigators that he only handled Scott Township workmen's
compensation insurance as a favor to Attorney John Means, a friend of
his.
b. McDaniel knew nothing about the Scott Township policy, had no records
and was apparently only the listed agent for this policy.
c. McDaniel further stated that he had handled the Scott Township
insurance for only about 90 days. He said he had no copy of the
policy, no files, no correspondence, and as of that date, had not
been paid by MRM, Incorporated or the Old Republic Insurance Company.
24. Information obtained from Robert Lloyd, ORIC, disclosed the following:
a. Worksheet for Scott Township Insurance Plan which reflects change
agent number from 4549 to 4552. The number 4552 is the number
assigned to Norwood McDaniel. That worksheet bears a stamp date
October 31, 1984.
b. Survey form dated February 13, 1985, listing Scott Township board of
supervisors agency Komoroski.
c. Old Republic check 53314 payable in the amount of $400 to the
McDaniel agency. The check was dated February 5, 1985. The reverse
of the check is stamped processed March 15, 1983 by Mellon Bank and
bears what appears to be the signature of Norwood McDaniel. The
check is also stamped deposit in the account of the withnamed payee
CNA Insurance.
25. Information obtained from the ORIC indicates that from September 19, 1984
through September 15, 1986, you were paid a total of $34,204 in commissions
relative to the Municipal Risk Management Workmen's Compensation Insurance
program.
a. Same document also confirms that as of September 15, 1986, the
McDaniel Agency was paid a total of $400.
26. Lewis Wasnesky, Vice President, Old Republic Insurance Company, stated as
follows:
Mr. Arthur Komoroski
Page 16
a. After Frank B. Hall Company was terminated as agent of record, John
McConaha was suggested by MRM as agent -of- record. Wasnesky contacted
corporate counsel who advised that McConaha's appointment could
possibly violate Pennsylvania's insurance laws.
b. Subsequently, MRM named Komoroski as agent -of- record.
c. Wasnesky stated that Matt Mathews of MRM may have mentioned Komoroski
in June or July when ORIC wrote to their attorneys relative to
breaching the contract with the Frank B. Hall agency.
27. When MRM sought proposals in search of a new broker /agent -of- record, the
minimum requirements included two qualified account executives with at least
five years experience in commercial lines.
a. Your firm employs no such account executives nor did your firm
ever have any experience handling an account such as the nature
or size of the MRM workmen's compensation account.
b. Your agency is a one man agency specializing in home and auto
insurance. You never handled any major accounts prior to
accepting the MRM account.
c. There is no record of you submitting a proposal.
28. There is no record of firms, other than Frank B. Hall Company submitting
proposals to MRM.
a. At the September 28, 1984 meeting, Mathews did not disclose that
Frank B. Hall Company submitted bids substantially lowering its
fees.
b. Frank B. Hall Company also offered additional services for its fees.
B. Discussion: As a township commissioner in Scott Township, a township of
the first class, you are a public official as that term is defined in the
State Ethics Act. 65 P.S. §402. As such, your conduct must conform to the
requirements thereof. Mlakar, 84 -011; Pennsylvania State Association of
Township Supervisors v. Thornburgh, 45 Pa. Comm. Ct. 361, 405 A.2d 614;
affirmed per curiam 496 Pa. 324, 437 A.2d 1 (1981).
In light of your position as a public official in Scott Township, we must
review your activities under Sections 3(a) and 3(c) of the State Ethics Act.
We also believe, moreover, that not only must we review your conduct as it
Mr. Arthur Komoroski
Page 17
pertains to your actions as part of the Scott Township Board of Commissioners,
but we also believe that we must review your conduct as a member of the
Allegheny League of Municipalities and the Municipal Risk Management
Corporation. In this respect, we believe that in your position on both of
these entities, you were still to be considered a public official representing
Scott Township and, therefore, your conduct in both of these positions must
similarly be reviewed within the provisions of the State Ethics Act. Our
conclusion, in this respect, focuses on the fact that the Allegheny League of
Municipalities was established to provide various services to local
municipalities in Allegheny County. The Allegheny League of Municipalities is
comprised solely of municipalities and was created pursuant to the statutory
authorization of the Intergovernmental Cooperation Act. 53 P.S. §481.
Pursuant to that law:
Two or more municipalities in this Commonwealth may
jointly cooperate, or any municipality or municipalities
may jointly cooperate with any municipality or
municipalities located in any other state, in the exercise
or in the performance of their respective governmental
functions, powers or responsibilities. For the purpose of
carrying the provisions of this act into effect the
municipalities cooperating shall enter into such joint
agreements as may be deemed appropriate for such purposes.
53 P.S. §483 (emphasis added).
While the above provision does not delineate all of the powers and duties
that can be performed through intergovernmental cooperation or the method and
procedure through which such is to be accomplished, there is no doubt that the
Allegheny League of Municipalities was created pursuant to this particular
provision of law and that the members who served as the board of directors for
that League served by virtue of their elected public office in the respective
municipalities that they represented. You were the representative of Scott
Township serving on the League pursuant to your elected position as a Scott
Township public official. The purpose of the League was to effect the duties
and responsibilities and functions of the participating municipalities
including those of Scott Township. This League is comprised solely of public
officials. The funds expended come from municipalities. A review of the
instant matter clearly indicates that the League is involved in performing
essential governmental services insofar as they related to the acquisition of
workmen's compensation insurance. This, generally, is one of the delineated
powers and duties of a municipality. In the instant situation, that power and
duty was obviously delegated to the Allegheny League of Municipalities in
1931. You, along with the other directors of the League of Municipalities
jointly exercised the collective functions of the participating
Mr. Arthur Komoroski
Page 18
The Ethics Act provides as follows:
municipalities. As such, it is clear that your conduct, in this respect, was
exercised solely as a public official. The powers and duties vested in you
and your power to expend funds for the purchase of workmen's compensation
insurance could only be vested in the Municipal League by virtue of your
position on Scott Township. We, thus, believe that your activities, while
serving on the Allegheny League of Municipalities, were clearly exercised as a
public official and that your conduct in that position is also subject to
requirements of the State Ethics Act. See, E.C. Camile v. State Ethics
Commission, 36 Pa. Commw. Ct. 518, 425 A.2d 60 (1981).
Based upon the foregoing, we believe that you are a public official as
defined within the purview of the State Ethics Act as a result of your service
on the board of directors of the Allegheny League of Municipalities. A review
of the findings in this matter indicate that this body was clearly more than
mere advisory in nature and that it did have the power to exercise the
authority of political subdivisions. This board was empowered to purchase
insurance and define the terms and conditions of such insurance as well as
administer such insurance programs without referring back to or obtaining the
approval of the municipalities that were participating in the program. Based
upon these factors, we believe that your conduct must be reviewed as a member
of this board as well as a member of the Scott Township Board of
Commissioners.
Section 3. Restricted activities.
(a) No public official or public employee shall use his
public office or any confidential information received
through his holding public office to obtain financial gain
other than compensation provided by law for himself, a
member of his immediate family, or a business with which
he is associated.- 65 P.S. 403(a).
In addition to the foregoing, we must also review this situation within
Section 3(c) of the State Ethics Act which provides as follows:
Section 3. Restricted activities.
(c) No public official or public employee or a member of
his immediate family or any business in which the person
or a member of the person's immediate family is a
director, officer, owner or holder of stock exceeding 5%
of the equity at fair market value of the business shall
Mr. Arthur Komoroski
Page 19
enter into any contract valued at $500 or more with a
governmental body unless the contract has been awarded
through an open and public process, including prior public
notice and subsequent public disclosure of all proposals
considered and contracts awarded. Any contract made in
violation of this subsection shall be voidable by a court
of competent jurisdiction if the suit is commenced within
90 days of making of the contract. 65 P.S. 403(c).
As a member of the Scott Township Board of Commissioners, you were
involved in that municipality's decision to participate in the Allegheny
League of Municipalities and to also obtain the township's workmen's
compensation insurance through the MRM company. Your participation in these
matters began in 1981 and continued through 1985. You, therefore,.exercised
your authority as a township commissioner in relation to how workmen's
compensation insurance would be purchased. Upon the participation by Scott
Township in the Allegheny League of Municipalities, you were appointed to that
league's board of directors and you also served as a treasurer. You served as
the representative from Scott Township. In 1981, the Allegheny League of
Municipalities formed Municipal Risk Management as a non - profit corporation
for the purpose of obtaining the workmen's compensation insurance. You served
as a member of the board of directors of this corporation also. You,
therefore, were in key positions both on the league and on the board of
directors for MRM and were involved in those entities' decisions regarding the
purchase of insurance. The hoard of directors of MRM Incorporated originally
obtained their insurance for the participating municipalities from the Old
Republic Insurance Company. The agent -of- record at that time was Frank B.
Hall and Company. You participated in the decisions of MRM in these matters.
You also participated in MRM's decision to appoint Mathew R. Mathews as the
Chief Executive Officer, Assistant Treasurer and Assistant Secretary for MRM.
You participated in the selection of the solicitor for that organization as
well as its vice - chairman. The original agreement between MRM Incorporated
and Frank B. Hall established this entity as the broker for the acquisition of
the insurance and effective date of the contract between these two entities as
November 16, 1981 to December 31, 1984. Beginning in January of 1984,
however, MR1.1 Incorporated began to express dissatisfaction with the services
of the Frank B. Hall Company. As early as May 31, 1984, a letter from Robert
C. Gallo, the Chairman of MRM Incorporated to one of the officers of Old
Republic, advised that Frank B. Hall would no longer be the broker -of- record
for NRM when the policies are renewed. Municipal Risk Management, in July of
1984, established requests for proposals seeking a hroker -agent for the
workers compensation insurance. Interestingly, minimum requirements were set.
Those requirements included two qualified account executives with a minimum of
5 years experience in commercial lines and /or a CPCU or ARM designation,
Mr. Arthur Komoroski
Page 20
evidence of errors and omissions insurance with a minimum limit of two million
dollars per occurrence as well as an office in Allegheny County to service an
account of this nature. The request for proposals were noted in certain
records of MRM Incorporated. It is not clear, however, as to whether anyone
actually submitted a response to these requests or whether these requests for
proposals were dispatched or advertised publicly. Throughout this entire
period, up until September of 1984, you remained a member of the MRM board of
directors as well as a director of ALOM. You, thus, would have had
discretionary authority in relation to those - board's decisions regarding the
Frank B. Hall and the decisions to hire a new broker /agent for the acquisition
of workers' compensation insurance. You were named MRM's broker -of- record on
August 10, 1984, giving you the exclusive right to place MRM's insurance. You
were still a member of the board at this time. On September 24, 1984, it was
reported by Mathew R. Mathews that the Komoroski Agency, your company, had
replaced Frank B. Hall as agent -of- record. You received $20,000 annually
pursuant to this notation. On that date, you resigned your position as a
member of the MRM Board of Directors. Your agency's appointment was merely
announced. Clearly the decision to appoint you had been made prior to your
resignation. There is no indication as to how this decision was made. There
is evidence, however, indicating that in August, prior to your resignation,
forms and papers were being processed to have you named as an agent for Old
Republic.
While the MRM Company had requested minimum requirements, your company
failed to meet those requirements. Specifically, your firm did not employ
account executives, as noted above, nor did your firm have any experience in
handling an account such as the nature and size of the MRM workmen's
compensation account. Your firm had no errors and omissions insurance. Your
agency was a one man agency specializing in home and auto insurance. You
never handled any major accounts prior to accepting the MRM account. Further,
we found no record of your submission of a proposal to MRM in response to the
request for proposals. The only such proposal submitted was by the Frank B.
Hall Company.
As a result of the hiring of your agency to act as the broker -agent for
MRM Incorporated, additional services would have to be performed by the MRM
staff. As a result, chief executive officer and other staff members received
a salary increase. It is not clear as to who awarded this compensation to the
chief executive officer, however, this most likely would have to be
accomplished by the board of directors of MRM on which you were a member until
September of 1984. Strikingly omitted from the information obtained in the
files of both the Allegheny League of Municipalities and the board of
directors for MRM is any information relating to the action by the board of
directors of those entities in relation to this situation. That is, it is not
Mr. Arthur Komoroski
Page 21
clear as to whether these individuals participated in the hiring of the
broker -agent or whether this was done by Mr. Mathews on his own with no other
authority to act. In any event, it is clear that as a member of the board of
directors of the Allegheny County League of Municipalities as well as the
board of directors of MRM, you were in a position of control, influence, and
responsibility. It was clearly within your power and authority to participate
in and influence the decisions of those entities in relation to the hiring of
the MRM broker - agent. As such, we beleive that your receipt of $34,000 in
commissions relating to the placement of workers' compensation insurance by
the Allegheny County League of Municipalities on which you served as a public
official through MRM Incorporated on which you sat as a board member, violated
the provisions of the State Ethics Act as set forth above.
In relation to this situation, we also note that you have asserted, as
part of this matter, that you abstained from participating in any matter
relating to the placement of insurance with Scott Township. While we do not
believe that this particular issue is relevant to the foregoing, especially in
light of the fact that we have primarily reviewed your activities as an
official of the Allegheny League of Municipalities, we are not certain that
the facts support this assertion. Specifically, the firm that supposedly
handled the Scott Township Workers' Compensation Insurance placement was the
McDaniel Agency. Mr. McDaniel, however, confirmed that he had no documents,
no records, no files and was unaware of anything relating to Scott Township
Workers' Compensation program. From the foregoing, it is apparent Mr.
McDaniel merely was the "official agent-of-record" and in reality, performed
no functions in relation to Scott The functions obviously were
performed by the lead broker in this matter, your agency. As such, we believe
that the fact that as an official agent -of- record was named for that matter is
not determinative as that agent was a mere straw party.
In addition to the foregoing, we also note that you were involved in 1985
in key Scott Township decisions regarding whether or not Scott Township should
terminate its relationship with MRM and open the purchase of insurance to
public bidding. You expressed substantial reservations on July 9, 1985, in
relation to the township's discussions as to whether the workers' compensation
policy which would expire on October 1, 1985, should be placed to open bid. A
motion to place that policy out to bid did not proceed for lack of a second.
On August 13, 1985, you once again indicated, as a member of the township's
board of commissioners, that you preferred to stay with the MRM Company. This
was at a time when you were clearly agent -of- record for that company in
relation to the placement of workers' compensation insurance. You voted
during that meeting against placing the workers' compensation insurance out
for open bid. This vote was made by you at a point in time when you clearly
were aware of the fact that you were the agent -of- record for MRM. (On October
Mr. Arthur Komoroski
Page 22
8, 1985 you denied, during that meeting, that you were the agent -of- record for
MRM in the placement of that insurance). This is at a time when you were
clearly involved with that company as their agent of record.
Based upon all the foregoing information, we believe that you violated
the provisions of the State Ethics Act and that you used your position as a
Scott Township Commissioner, as a member of the board of the Allegheny County
League of Municipalities, and as a member of_the board of directors of
Municipal Risk Management, to insure that the placement of the Allegheny
County League of Municipalities was accomplished by your agency. Your receipt
of commissions in relation to that placement would be a financial gain other
than the compensation provided for by law.
In addition to the foregoing, we also must review, as noted previously,
this matter under Section 3(c) of the State Ethics Act. This Commission has
held that the above provision of law would require the use of the open and
public process in any situation where a public official contracts with his own
governmental body in an excess of $500 in any given year. Bryan, 80 -014;
Lynch, 79 -047. Generally, the open and public process would require that
prior to the entering of a contract between a public official and his
governmental body, the following procedures must be met.
. Prior public notice of the contracting possibility.
. Sufficient time for a reasonable and prudent competitor or applicant to
be able to prepare and present an application or proposal.
. Public disclosure of all applications or proposals considered.
. Public disclosure of the contract awarded or offered or acceptance.
Cantor, 82 -004.
In the instant situation, there is no evidence that any effort was made
to accomplish this open and public process. While documents of MRM
Incorporated indicated that requests for proposals would be published, there
was no evidence of such publication. There were no other public documents or
meetings which would reflect the compliance with the provision of law. As
such, we believe that Section 3(c) of the State Ethics Act has been violated.
In this respect, we point out that our finding in this matter relates
specifically to the issue that you were a public official serving on the
Allegheny League of Municipalities and the entity that it created, Municipal
Risk Management. Section 3(c) of the State Ethics Act would require that the
open and public process be employed prior to your contracting with your own
governmental body. Governmental body includes the following:
Mr. Arthur Komo roski
Page 23
Section 2. Definitions.
"Governmental body." Any department, authority,
commission, committee, council, board, bureau, division,
service, office, officer, administration, legislative
body, or other establishment in the Executive, Legislative
or Judicial Branch of the State or a political subdivision
thereof. 65 P.S. §402.
We believe that these entities, the Allegheny League of Municipalities as
well as Municipal Risk Management, are your governmental bodies as a public
official.
In addition to the foregoing, we must point out that additional
information was obtained during the course of this investigation regarding the
procedures through which insurance was purchased. Municipal Risk Management
Incorporated had obtained its insurance through the Old Republic Company.
That company paid back to MRM a yearly administrative fee for the rendering of
certain services. It is not clear as to what services were rendered for this
fee. In addition to that administrative fee, Old Republic turned over to MRM
3% of a 10% premium re- insurance cost for deposit in a special reserve fund
for payment of catastrophic losses. This Commission, of course, has no
jurisdiction to review or interpret the provisions of the Insurance Company
Law of Pennsylvania. We do, however, believe that this information should be
referred for further review and consideration.
In relation to the instant situation, as we have found that you violated •
the provisions of the State Ethics Act, we believe that we must act in
accordance with our statutory powers and refer this matter to an appropriate
law enforcement officer for further review, consideration and disposition. As
such, we will refer this matter to the Office of Attorney General for
review in accordance with the discretion of that Commonwealth agency. We will
also refer this matter to the Pennsylvania Department of Insurance for
additional review.
C. Conclusion: You violated the provisions of the State Ethics Act when you,
as a township commissioner, hoard member of a municipal league and board
member of a non - profit corporation established for governmental purposes, used
your position to become the insurance broker /agent in relation to placement of
the workers' compensation for the participating members of that league. You
also violated Section 3(c) of the State Ethics Act in that no open and public
process was used in relation to the instant situation. This matter will be
referred to the Office of Attorney General and the Pennsylvania Department of
Insurance for further review, consideration and disposition.
Mr. Arthur Komoroski
Page 24
Our files in this case will remain confidential in accordance with
Section 8(a) of the Ethics Act, 65 P.S. 408(a). However, this Order is final
and will be made available as a public document 15 days after service (defined
as mailing) unless you file documentation with the Commission which justifies
reconsideration and /or challenges pertinent factual findings. See 51 Pa. Code
2.38. During this 15 -day period, no one, including the Respondent unless he
waives his right to challenge this Order, may violate this confidentiality by
releasing, discussing or circulating this Order.
•
Any person who violates the confidentiality of a Commission proceeding
is guilty of a misdemeanor and shall be fined not more than $1,000 or
imprisoned for not more than one year or both, see 65 P.S. 409(e).
By the Commission,
er. ,e�2d v� arwt�rt
G. Sieber Pancoast
Chairman