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Citizens' lawyer denies conflict

Nonetheless, he agrees to end the practice of his firm representing companies that come before Citizens' board.

By JONI JAMES
Published September 30, 2005

TALLAHASSEE - Days before Citizens Property Insurance Corp. became aware of potential conflicts of interest among its top executives, the company's longtime outside legal counsel was quietly shedding one of his.

Michael Colodny, a Fort Lauderdale lawyer who has collected millions of dollars in fees working for the state-run insurer for more than 12 years, agreed in mid August that his law firm would no longer represent insurance companies that come before the Citizens board.

For years, while Colodny received millions of dollars in legal fees to represent Citizens, his law partner, Fred Karlinsky, represented insurance companies doing business with Citizens.

In a private meeting last month, Citizens' new board chairman Bruce Douglas objected to Colodny, Fass, Talenfeld, Karlinsky & Abate cashing-in on both sides of the Citizens' equation. He said he had no evidence of wrongdoing, but didn't like the look of it. Colodny's agreement to stop the practice is effective Saturday. Colodny's pledge was disclosed this week after questions from the St. Petersburg Times. It comes on the heels of allegations that one top Citizens' executive took kickbacks from vendors and two top executives secretly plotted with a board member to start an insurance firm.

At issue is Citizens' mission to move property owners back to the open market. The company, which covers property owners who cannot find insurance, provides financial incentives to private insurers, or so-called take-out firms, who will assume Citizens' policies.

Colodny denies there was a conflict. He said Karlinsky never represented other insurers when they arranged to take policies out of Citizens, only when they were before insurance regulators. And when clients came before Citizens, Colodny said he recused himself and left the room because his law firm had done work for them.

But amid heightened public scrutiny facing Citizens, that wasn't enough for Douglas.

"I was the new kid on the block. I wanted to remove any appearance of impropriety," said Douglas, a Ponte Vedra Beach investment manager who was appointed to Citizens' board by state Chief Financial Officer Tom Gallagher. In August, he was reappointed by Gov. Jeb Bush and made chairman.

"The chairman has major concerns that there should be no perceptions of conflict and no actual conflicts," Colodny said. "It was perfectly reasonable."

Douglas and Colodny said the conversation came in mid August, before either were aware of the recent spate of revelations about potential conflicts involving other top Citizens executives.

It's been a horrendous year of public relations for Citizens, starting with the sluggish response to the 2004 hurricanes.

Adding to the company's problems this month were allegations that the executive hired to shake up the claims processing after the hurricanes, R. Paul Hulsebusch, had taken kickbacks from vendors, including a $28,095 boutique-brand motorcycle. The former chief operating officer resigned Sept. 9.

And on Tuesday, the Times disclosed that Hulsebusch and two top executives had plotted secretly with Citizens board member Edward London in June to launch a private take-out company. The other two executives, Jessica Buss and Corey Neal, have since left Citizens and started a different take-out firm, though Buss is still a paid consultant for Citizens. London left the board Aug. 1.

State legislative leaders praised Douglas' decision to force Colodny's firm to pick between representing Citizens and take-out companies. But they warned the company will face scrutiny when lawmakers return to Tallahassee for the 2006 legislative session.

"It all hints at blatant self-dealing and it is wrong," said House Insurance Committee chairman Dennis Ross, R-Lakeland. "The Legislature has definitely been put on notice that something is awry at Citizens."

State Rep. Randy Johnson, R-Celebration, who is a candidate for chief financial officer, pledged Thursday to offer sweeping reform.

"We need a total reform of the way this company operates," Johnson said.

Colodny, a former North Miami mayor, is most closely associated as a supporter of Gallagher, a Republican who is running for governor and who appointed him the outside counsel in 1993. But Colodny also kept the job under former Democratic Insurance Commissioner Bill Nelson, now Florida's senior U.S. senator. And his campaign contributions have been bipartisan. Last year, Colodny and his firm contributed more than $60,000 to Democratic and Republican candidates and parties.

Karlinsky joined Colodny's firm in 1992. Within a year, he was on Citizens' payroll as in-house counsel. In 1995, he returned to the law firm, where he quickly helped Colodny build a lucrative lobbying practice in Tallahassee for insurance firms.

Karlinsky also advised start-up insurance firms who wanted to cash in on Citizens' take-out programs. Insurers qualified for financial rewards if they assume high-risk Citizens' policies and hold them at least three years.

Since January 2004, Karlinsky has helped seven take-out firms get insurance licenses. Those seven firms accounted for 140,000 of the 400,000 policies taken out of Citizens since then.

Over the same 21 months, Colodny has collected $1-million in legal fees from Citizens. More than $710,000 of those fees have been paid since January 2005, while Colodny has been representing the insurer in a class-action lawsuit.

Policyholders sued to compel Citizens to pay for 2004 hurricane claims regardless of whether damages were caused by wind or storm surge.

"I think I do a good job," Colodny said Thursday. The state-backed insurer model "is a very hard concept and I think I learned the concept early and I learned its place in the market and how it had to function. That's why I think I've been so successful in defending its position in litigation and in obtaining financing (from bonds) to keep us going over all these years. I'm very proud of that."

- Joni James can be reached at 850 224-7263 or jjames@sptimes.com

[Last modified September 30, 2005, 10:11:02]