From the state Capitol to county executive offices, officials are questioning whether an unusually chummy relationship between a giant insurer and the Travis County district attorney’s office should stand.
The quick reactions came in the wake of a six-month investigation of the public-private partnership by The Texas Tribune and the Austin American-Statesman. Under the arrangement, allowed under a decades-old state law, privately held Texas Mutual Insurance Company funds a special unit in the DA’s office dedicated to prosecuting acts of fraud against the company.
Travis County Judge Sarah Eckhardt, a Democrat, said Monday she is consulting with county lawyers about the legality and appropriateness of the arrangement and is awaiting their response.
She has placed an item on the Travis County Commissioners Court’s Sept. 22 agenda to discuss the court’s responsibility and authority, if any, relating to the contract between Texas Mutual and the DA’s office.
“The arrangement makes me uncomfortable,” she said.
According to county records, obtained by the Statesman and the Tribune under the Texas Public Information Act, the contract renews automatically on Oct. 1 for one-year periods unless the agreement is terminated.
Both the company and the DA’s office say that there is no conflict of interest and that their contract and the law ensures prosecutorial independence.
“Our current arrangement with the Travis County district attorney's office is authorized by statute," said Terry Frakes, Texas Mutual’s vice president for public affairs. "If the Legislature wishes to review that arrangement it is within their authority to do so and we would be happy to work with them and follow their guidance. We would also look forward to working with any public officials and answer whatever questions they may have regarding the program.”
The company released numbers late last week showing only a small fraction of the overall number of cases it investigates as fraud are presented to prosecutors.
Assistant District Attorney Gregg Cox, who oversees the division in which the privately funded fraud unit is located, said the funding is needed because the Texas Department of Insurance has not been doing an adequate job of policing insurance fraud in the state.
“If we didn’t have this agreement, crime would go unprosecuted,” Cox said. “I think this is something that was born out of necessity. You can’t let crime go unprosecuted despite what the Legislature thinks.”
However, state Sen. Kirk Watson, the Democrat who represents most of Travis County in the Legislature, questioned why the state isn’t paying for fraud investigations. He said he would welcome a critical look at the arrangement on the local level and also plans to review the deal during the next legislative session in early 2017.
The Tribune and the Statesman reported that the company has authorized payments of about $4.7 million under its contract with the DA’s office since 2001, when Texas Mutual became a stand-alone mutual insurance company.
The company was created by the state to ensure the availability of workers’ compensation in Texas amid crisis in 1991, and in the early days it was subject to rigorous government oversight. But in 2001 the Legislature converted it to a mutual insurance company, owned by its policyholders, and in ensuing years lifted control and oversight. It’s now the largest provider of workers’ compensation insurance in Texas by far.
Watson said he wants a “significant analysis” into whether allowing public prosecutors to contract with the privately held company is appropriate.
“This is problematic in that it creates at the least an appearance that a governmental entity is prosecuting people at the behest of what is in essence a client,” Watson said. “There needs to be an in-depth analysis of why it’s even needed.”
Watson said he worries that the deal could become “a means and a tool for the insurance company to intimidate so that people might not want to make claims for fear that they might be prosecuted.”
The senator added that insurance fraud impacts all Texans and that programs targeting it should be coordinated and paid for by state government “as opposed to an insurance company spending its money in order to, in essence, privately prosecute.”
Watson isn’t the only member of the Travis County legislative delegation who learned about the deal by reading news reports about it — or who find it problematic.
Rep. Eddie Rodriguez, D-Austin, said that at a minimum, the county should consider postponing its next contract renewal, and, like Watson, he wondered why an insurance company and not the state is picking up the tab for prosecuting insurance fraud.
“I think it is a conflict of interest,’’ Rodriguez said. “You cannot have the very people that are investigating some of these fraud cases being reimbursed by an insurance company. There is an innate conflict of interest.”
While the arrangement has been on the books for years, even high-ranking officials inside the DA’s office had no idea that the insurance company, which reported $321 million in net income last year, was funding prosecutors and pursuing criminal complaints from its private investigators.
Among them is Gary Cobb, a Travis County assistant district attorney who is running to lead the office as DA next year.
“On the face of it, it certainly gives the appearance of impropriety. At the very least it is an unusual arrangement,” Cobb said. “I definitely think we should revisit it, but I can’t tell you what I’d do.”
Disclosure: Texas Mutual Insurance is a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.