Laconia insurance agency sued over ’03 case

Melcher & Prescott Agency Inc is again on the legal hot seat relating to a fraud perpetrated by a rogue employee selling a self-insurance program to the city of Laconia and its school district.

The longstanding Laconia agency had admitted to the fraud in 2003 and paid some $3 million to the city and state. But despite being “made whole” by the agency – in the words of City Manager Eileen Cabanel – the city and school district sued Atlantic Administrators Insurance Agency and Brokerage Concepts, the Massachusetts and Pennsylvania companies that administered the claims for the self-insurance program, for some of that $3 million, arguing that the company should have known about the fraud and told the city.

“It’s really a matter of Atlantic administrators being asleep at the wheel while millions of dollars were going through their books on behalf of the city,” Cabanel said.

But Atlantic, in a suit filed last week in Federal district court, said it was the agency – which was representing Laconia — that perpetrated the fraud, and Atlantic shouldn’t be blamed for those misrepresentations, which included forged documents.

The legal tangle revolves around the actions of Melcher’s former agent, Alexander B. Ruch.

Ruch, both sides agree, engaged in a number of deceptive practices, including:

• Failing to pass on information from Atlantic that the city’s “worst-case scenario” would cost some $256,000 more than anticipated. The city underfunded the program based on the information.
• Intercepting a letter from the city to Atlantic that would have revealed the discrepancy, and then altering both the date and figures on it, obtaining the city’s manager’s signature on the forged document.
• Instructing Atlantic to push excess claims onto another contract year without the city’s authorization.
• Assuring the school district that it could save money on a similar self-insurance plan by representing that it would provide the same benefits as the old plan, when it didn’t.
• Forging an e-mail purporting to be from the school district to Atlantic Administrators directing it to take $60,000 out of the school district account.

It was the last act that caused city and school officials to contact Ruch’s superiors at Melcher, who in turn contacted the state Insurance Department which – on Aug. 29, 2003 — stripped Ruch of his license and fined him $7,500 for unfair and deceptive trade practices and misrepresentation of terms of an insurance contract. (The Insurance Department refused to release the specific facts and violations Ruch admitted to, saying that it was not public information.)

But the city contends that Atlantic should have known something was up when an Atlantic official raised questions about the first forged letter in May 2003. If Atlantic were more vigilant, the city says, it could have prevented the loss of millions of dollars.

But Atlantic said it they were “justifiably” relying upon the “misrepresentations made by Melcher & Prescott.”

Melcher president H. Thomas Volpe said the suit filed against it by Atlantic was just a countersuit and would not comment beyond that. – BOB SANDERS