Self-insured workers' comp ill-served by $4.8m shortfall in Tenn

Nation's Restaurant News,  Feb 4, 2008  by Catherine R. Cobb

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NASHVILLE, TENN. -- Even as members of the Tennessee Restaurant Association scramble to cover a $4.8 million shortfall in a workers' compensation fund that the state alleges was mismanaged by the group's leader, other state restaurant organizations maintain that self-insured programs remain a practical business option.

More than 560 restaurateurs across Tennessee were ordered by a judge in late January to pay money bolster the fund, which the state Department of Commerce and Insurance alleges was mismanaged by the TRA's longtime president and chief executive, Ronnie Hart.

The fund was formed by the TRA in 1993 as a trust for its members to pool their liabilities under Tennessee's Workers' Compensation Law. It has been under state control since December 2005 because of substantial deficits.

The state also is suing Hart's now-defunct company, Hospitality Management Plus, or HMP, claiming the for-profit entity Hart formed to run the trust received excessive fees for administrating the organization's workers' compensation fund and dipped into reserves without authorization.

Hart did not return calls seeking comment by press time.

Three other parties also are named in the civil suit, including the claims administrator, Franklin, Tenn.-based Claims Management Consultants, which was reportedly owned in part by Hart's son, Clint Hart. The other two parties include Florida-based accountant William L. Shores, who provided accounting services to the trust, and, separately, Shores' firm: Shores, Tagman, Butler and Co., P.A.

The state's lawsuit, filed Dec. 10, contends that during the 12 years Hart ran the fund HMP was often paid double the fees it was contracted to receive. The suit also contends that the trust's claims reserves were understated and deficiencies were higher than reported.

The suit states: "Hart knew, or should have known, that such activity was detrimental to the trust. Nevertheless, HMP traded on Mr. Hart's stature as chief executive officer of TRA and Mr. Hart's personal relationships with the members of the Board of Trustees to induce them to approve otherwise excessive fees."

To complicate matters, Hart filed for Chapter 7 personal bankruptcy protection last spring.

Nathan Ridley, the attorney representing the trust, said the trust was created in 1993 because workers' compensation insurance rates were oppressive.

"So the restaurateurs said, 'Let's do this ourselves,' and they formed the trust," Ridley said. "The problem is that when they agreed to do this by state law they agreed to joint and several liability, which in legalese means they are all responsible for all liabilities of the trust."

Dan Haskell, general counsel for the TRA, said one of the issues is that the 564 trust members are being assessed liabilities for other members who might have gone out of business and disappeared.

"But their injured workers are still in this pile, so the current members of the trust are charged with the costs," he said. "For some members it is a significant amount of money. For some, that could, along with the current economy, put them out of business."

Jeff Messinger, who has owned the Mt. Vernon Restaurant in Chattanooga for 32 years and is chairman of the TRA's board, said he has paid about $25,000.

"This is not a light amount, especially right after the holidays, and with the economy being so bad," he said, "and I have a 21-year-old daughter in college. All members have these kinds of issues facing them now, not just me."

TRA members had asked for a cap on the amount they would be liable for, but Chancellor Claudia Bonnyman of the Davidson County Chancery Court in Nashville denied the request and another one to release members of liability once their current portion is paid, saying the trust must continue to serve their fiduciary duty to existing claims of injured workers.

Mark Jaquish, the receivership director for the state, said trust members' liabilities are based on their payroll for the period of time they participated in the trust.

"The longer they were in the trust, the larger the payroll insured by the trust, the greater their assessment," he said. "There are some complicated, expensive outstanding claims for injured workers [for whom] they could be liable for a long time, unfortunately."

Joseph Keane, the state's liquidator for the insurance trust, said there is a provision for payment plans for companies that would experience financial hardship.

"A company might have to document it, but the details of that are yet to be determined," he said.

Randy Rayburn, owner of three Nashville restaurants, the Sunset Grill, Midtown Cafe and Cabana, said that despite the allegations against Hart, the TRA's board voted 7-4 to retain him as chief executive of the association.

Rayburn said the allegations have been sent to the Attorney General's office to see whether there has been criminal conduct as well, which is yet to be determined. Officials at the state Attorney General's office could not be reached for comment.