Pinnacol To Revise Ethics And Incentive Trip Policies

Pinnacol CEO: We Agree Wholeheartedly With Changes

Significant changes are recommended at Pinnacol Assurance after a special committee of board members examined the policies and practices of the worker's compensation insurer.

Changes include limiting attendance on incentive trips, a recommendation that board members not be included in such events and revisions to Pinnacol's ethics and conflicts of interest policies.

The report comes in the wake of a CALL7 Investigation.

Read the Special Task Force report to the Pinnacol Board of Directors

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"The Special Committee of the Pinnacol Assurance Board of Directors has completed a full, rigorous examination of Pinnacol's business practices and policies. This examination was done at the request of Gov. John Hickenlooper," said a news release from the Pinnacol board.

CALL7 Investigator Tony Kovaleski spoke with Hickenlooper who praised the new board members for its work and for a new era of accountability at Pinnacol.

"This is all good and allows us to look at, 'What is the role of Pinnacol? Should they be more public or more private? Is there a different relationship between the state and Pinnacol?'" said Hickenlooper.

The governor acknowledged that mistakes were made in the past, but said now is a time to look forward and for Pinnacol to remain transparent.

"We are a glass house," explained Special Committee member John Plotkin. "We should operate accordingly."

The report read, "The Special Committee found no substantial improprieties in Pinnacol’s executive compensation or other business practices. The Special Committee, however, noted some particular areas where Pinnacol’s practices and policies can be improved."

Specifically the committee found 85 employee expenses that were "potentially excessive." It recommended limits on incentive trips and that Pinnacol board members be prohibited from such trips.

Other recommendations include ensuring that lobbyists, hired by Pinnacol, adhere to all applicable state laws. This came to light after a CALL7 Investigation in May, 2011 found state lawmakers accepting meals paid for by Pinnacol lobbyists. Those lobbyists then asked Pinnacol for reimbursement.

When asked by Kovaleski, the lawmakers could not provide documented proof that they had paid for their share of the meal.

It is against the law for members of the state legislature to accept anything from lobbyists regardless of cost.

"I think these are very positive changes we can make," said Pinnacol CEO, Ken Ross, at Wednesday's board meeting. "We agree wholeheartedly [with the changes]."

The issue of Pinnacol's spending and questionable oversight by the board of directors was highlighted in a CALL7 Investigation into a high-priced golf junket to Pebble Beach. The May, 2010 trip included wine tours, lavish meals and expensive spa treatments.

During the trip, Kovaleski approached Gary Johnson -- chairman of Pinnacol board at the time -- and began asking questions as to whether it was appropriate for an independent oversight board to take part in such an event.

Kovaleski and Johnson were interrupted by Ross and any questions about excessive spending or proper board oversight were rebuffed.

Pinnacol initially refused to turn over receipts from the trip and took 7NEWS to court asking a judge to affirm their position. The court ruled in favor of 7NEWS and forced Pinnacol to release expense records that showed the trip cost more than $318,000. The trip included more than $20,000 in liquor, golf for as much as $525 a round with caddy and one meal that cost more than $19,000.

At the time of the Pebble Beach trip, Debra Lovejoy was the head of ethics for the Pinnacol board of directors. She is no longer on the board.

Johnson remains on the board, but has been replaced as chairman by newly appointed member Blair Richardson.

Also, a new Colorado law that takes effect on July 1 will limit travel spending to federal reimbursement rates and prohibits any spending on spouses or immediate family members.

"The foundation of the bill is solely the trip to Pebble Beach," said House Minority Leader Sal Pace D-Pueblo, in May, 2011. "I hope this sends a strong message to Pinnacol that their past practices are unacceptable."

Pinnacol Assurance is defined by state statute as a "political subdivision of the state." It's the same definition used to describe entities such as the University of Colorado. As such, the firm pays no taxes and its employees are eligible to receive generous benefits from the Public Employees' Retirement Association of Colorado, or PERA.

The same statute also directs Pinnacol to operate as a "private mutual insurance company" and the insurer of "last resort" for businesses in Colorado.

The board of directors of Pinnacol is appointed by the governor to oversee the firm's operations including the approval of Pinnacol’s expenses as well as hiring and approval of pay for the top executives.

During its examination, the Special Committee retained lawyer and corporate governance expert J. William Callison.

In its report, the Special Committee said, "Mr. Callison highlighted the complex nature of Pinnacol’s corporate governance model, characterizing Pinnacol’s origins as a “muddled pedigree,” with the Board and management having to operate simultaneously as a political subdivision of the State and a mutual insurance company. Mr. Callison confirmed that these multiple legislative directives create inherent tension for the Board and senior management in executing their respective roles and responsibilities. In addition, Pinnacol’s identity as a political subdivision subjects it to greater public and legislative scrutiny than a private insurance company."

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