Ruthardt of darkness

State insurance commissioner Linda Ruthardt keeps looking worse and worse. And Paul Cellucci keeps looking the other way.

by Michael Crowley

Understandably, not many people keep up with complex insurance developments reported in the dusty corners of the daily newspapers' business sections. And for that, Acting Governor Paul Cellucci is breathing a sigh a relief.

That's because the public's indifference and ignorance when it comes to insurance policy is allowing Cellucci to get away with dodging his administration's biggest embarrassment: the Massachusetts Division of Insurance.

For a revealing introduction to the modus operandi of that troubled office -- and its controversial commissioner, Linda Ruthardt -- consider the now-notorious tale of what is known as the Emlico affair.

Emlico, or the Electric Mutual Liability Insurance Company, is a Massachusetts insurer that came to Ruthardt in 1995 seeking her permission -- as the state's top insurance regulator -- to move to Bermuda.

Executives at the company, an insurer established by General Electric in the 1920s to cover GE's liabilities, weren't drawn there for the beaches and bikinis. Rather, saddled with perhaps $2 billion in environmental cleanup liabilities, they were looking for the company to go belly-up under Bermuda's corporate-friendly bankruptcy laws.

After Ruthardt's office held a single, 37-minute hearing on the matter, attended only by Emlico executives and their supporters, Ruthardt issued perhaps the most controversial ruling in her four-and-a-half years as commissioner.

Where Massachusetts law says that a company like Emlico may relocate to another state, Ruthardt's office bizarrely interpreted the word state so broadly as to include a foreign entity like Bermuda.

So off went Emlico, which promptly declared bankruptcy, leaving reinsurers with the tab for its huge liabilities, including GE's massive cleanup of contaminated land in Pittsfield, Massachusetts -- a tab that may ultimately be passed along to the state's consumers through higher rates.

The episode has gutted Ruthardt's remaining credibility. The US Attorney's office is conducting an investigation of the matter; on January 5, the state's Supreme Judicial Court (SJC) ruled that she erred in letting Emlico move; last fall, an investigation by the state's House Post Audit Committee found that her Emlico deliberations were "inappropriately and imprudently conducted"; last June, then-Senate Insurance Committee chair Dianne Wilkerson (D-Boston) called the Emlico decision "a major indictment of the integrity of the administration of the insurance laws of the Commonwealth."

It gets even worse. Last fall, Ruthardt suggested that she had felt political pressure from the Weld-Cellucci administration, testifying before the Post Audit Committee that in June 1996, she'd felt then-consumer affairs chief Nancy Merrick was trying to get her to ignore critics who wanted her to reconsider the Emlico case.

"I was getting signals that I should perhaps just sort of forget the whole thing," the Boston Globe reported Ruthardt as testifying. "And Nancy made it pretty clear that [she] was communicating this on behest of the governor's office." Although Ruthardt now says she doesn't believe the governor's office was leaning on her, what exactly Merrick was trying to say has never been clearly explained.

The Emlico tale -- whose final outcome will be determined after more legal wrangling -- provides a damning case study of the Division of Insurance and of Linda Ruthardt, who has become the most controversial and most castigated member of Paul Cellucci's administration. And more broadly, it suggests that his administration is giving big corporations special treatment that shafts ordinary consumers.

It is essential that Massachusetts have a strong insurance commissioner to keep what are perhaps the state's most politically wired and aggressive special interests in check. Lawmakers on Beacon Hill tend to be poorly versed in insurance policy, so it's the commissioner who must stand between an often rapacious industry and the consumer's wallet.

That's why in recent months, it's become increasingly clear that Ruthardt must go. Her office has made one mistake after another, climaxing with the embarrassingly weird Emlico affair. A growing brigade of critics say Ruthardt has at best demonstrated incompetence and poor judgment in her job, and at worst a pro-industry bias and shoddy ethics. Although it is her job to act as a neutral judge, Ruthardt routinely shuts out consumer advocates and other critics when she makes decisions. Her erratic personal style has left her mistrusted by even the local insurance chieftains. For good measure, she has doggedly resisted outside scrutiny and accountability; she refuses to admit errors, and the courts have had to force her to disclose her office's public records.

"She has seemed to be more interested in representing industry than protecting the public," says state senator Lois Pines (D-Newton), who has cosponsored legislation calling for an elected insurance commissioner. "And I have questioned her commitment to encouraging and allowing input from the public."

Poor insurance regulation is far more than a matter of bureaucratic trivia; it brings real consequences for ordinary citizens. "Insurance costs are one off the biggest bills that we as consumers bear year in and year out, whether it's health care, homeowner's, or auto insurance. " says state representative Jim Marzilli (D-Arlington). "When the chief policymaker in that field operates incompetently and with ideological blinders on, consumers pay."

The issue, however, goes deeper than Ruthardt herself. That somebody with so many credible critics and virtually no defenders can survive in state government is a testament to Paul Cellucci's election-year mindset. Having stepped out of Bill Weld's shadow last summer, Cellucci is carefully crafting his public image in hopes of winning November's gubernatorial election. And in a triumph of cynical political calculation over good government, Cellucci has apparently concluded that continual headlines about Ruthardt's exploits -- those dry stories few voters actually read -- are preferable to the political fallout of jettisoning a top official.

Of course, Cellucci says no such thing, publicly maintaining that Ruthardt has done "a good job."

"The governor still has full faith in Commissioner Ruthardt," says Cellucci press secretary Jose Juves. "She's done a remarkable job of reducing rates for consumers and reducing the cost of living for people in Massachusetts." (Cellucci's office didn't respond to a request for the acting governor himself to elaborate.)

But if Ruthardt -- disrespected, distrusted, relentlessly defensive -- has done a good job, what could the standard for a "bad job" possibly be? And so there is no other explanation for this see-no-evil stance: Cellucci has chosen political caution over giving the public a commissioner it can trust.

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Linda Ruthardt joined the state government in 1993 under ominous circumstances. She was at least the third person on Bill Weld's list. Weld had dropped his first candidate because of questionable ties to insurers, and the second one had to withdraw after his résumé was revealed to have a Pinocchio problem.

And as it happened, the woman Ruthardt was succeeding, Kay Doughty, had been axed by Weld after concerns were raised about her competence and her relationship with insurance lobbyists.

Ruthardt, 53, arrived with an unorthodox background. A 1967 graduate of the New England Conservatory of Music, who majored in applied voice and once planned a career singing German art songs, she happened into the insurance field through a part-time job. Before joining the Weld administration, she was an insurance executive with the Girl Scouts.

Once installed in the insurance division's downtown offices on Atlantic Avenue, Ruthardt soon became known in state government and industry circles for her quirky style and her penchant for oddball non sequiturs. By March 1995, the respected Boston Globe business columnist Joan Vennochi was reporting on "growing unease" about Ruthardt among both consumer advocates and industry lobbyists and executives, based not least on her "flaky" personality.

For many people, nearly five years into Ruthardt's tenure, unease has become alarm. A perusal of lowlights from her almost comically extensive record of bad calls, embarrassments, and reprimands explains the widespread concern -- and illustrates why Paul Cellucci owes it to the voters either to dump Linda Ruthardt or to explain in detail why anyone should still have faith in his administration.

Emlico. As we've seen, Ruthardt's ruling has been discredited by the state's Supreme Judicial Court. The US Attorney is investigating. And the scathing report of the House Post Audit Committee not only found that Ruthardt had ignored several "red flags" but called Ruthardt's very competence into question, concluding: "The citizens, policyholders, and companies of Massachusetts are entitled to a more informed and aggressive insurance regulator."

In 1996, the Phoenix's Tim Sandler found that, far from playing an impartial role, Ruthardt had been an aggressive proponent of a controversial, multibillion-dollar "demutualization" by the Worcester-based State Mutual Life Assurance Company in 1995. Critics said the process, by which an insurer converts to a publicly held company, bilked consumers out of some $105 million ("Bill Weld's Insurance Screw," September 20, 1996). In a characteristic move, Ruthardt's office barred one of the plan's most strident critics -- the Center for Insurance Research, a Cambridge-based consumer group -- from participating "in any way" in the division's lone hearing on the deal. And ultimately, division employees actually helped State Mutual draft its demutualization plan.

Ruthardt's management of a huge reorganization of the state's largest insurer, Blue Cross and Blue Shield of Massachusetts, has drawn harsh criticism. "The public has been locked out of the process," complained Laurie Martinelli, legal counsel for the consumer advocacy group Health Care for All, to the Boston Globe last month. "The reorganization is being rushed," added Lois Pines. "There's just not been enough time for careful public analysis." Among other things, Pines and Martinelli charge that Ruthardt initially allowed just 10 days for public comment on Blue Cross's complex plan -- four of which were weekend days and one of which was Christmas.

When the Center for Insurance Research sought some 200,000 pages in public documents on the State Mutual deal -- documents that revealed Ruthardt's inappropriate cheerleader role -- it took an order from the SJC to force Ruthardt to release them. The office of Attorney General Scott Harshbarger, which typically represents state agencies, had originally represented Ruthardt's office in its legal battle with the center -- until it bailed out last spring, declaring in letters to Ruthardt's office that "the division provided us with inaccurate information" and expressing "serious concern" about "ethical issues" the division's conduct had raised.

The issue of public records is a recurring problem. In February of last year, when then-consumer affairs director Michael Duffy -- whose office oversees Ruthardt's -- tried to make the records of state agencies more accessible, Ruthardt balked, prompting an open split: "Our interpretation of the exact same statute," Duffy told the Boston Globe, "is that of course the records should be made public."

Even observers outside Massachusetts have begun to take note of Ruthardt's track record. Bob Hunter, director of insurance for the Consumer Federation of America and the former insurance commissioner for the state of Texas, notes that when it comes to insurance regulation, "historically, Massachusetts has been one of the toughest states. A lot of what I would say has protected consumers developed initially in Massachusetts," Hunter says. "It's been going the other direction lately."

In an interview with the Phoenix, Ruthardt -- employing a politely combative manner -- offered no apologies for her tenure and was quickly dismissive of criticism. Nor did she concede any worries that a torrent of negative headlines has eroded public trust in her office. "We're doing a good job for the consumer," she says. "We're protecting the consumer."

Ruthardt did let on, however, that the past several months have been trying for her. Asked to name her principal accomplishments at the Division of Insurance, she replied: "Besides not being in mental health care?"

In fact, the signature achievement both Ruthardt and Cellucci point to in her defense is a decline in Massachusetts's auto insurance rates. But rates are falling largely because people are driving more safely, and to some extent Ruthardt -- like Mayor Tom Menino with respect to the economic boom -- benefits from being in the right place at the right time. Ruthardt argues, however, that she's done more than simply sign off on lower rates, because her interpretation of the state's group auto insurance statute has allowed more people to join affordable group insurance plans.

Ruthardt also argues that she's fostered healthy competition in the state. "I think we've opened up competition in both personal and commercial lines in ways that haven't been seen in years," she says. And although even her critics agree that Ruthardt's office must make do with inadequate funding and staffing, she declines to blame her troubles on scarce resources.

But on some level, Ruthardt just doesn't seem to get it -- as when she argues that "most people appear to find the division consistent and fair. We'll listen to both sides or 17 sides of any argument. It's pretty much an open policy," she says.

If, indeed, there are people who find the Division of Insurance "consistent and fair" -- either among the consumer advocates with whom Ruthardt's done battle or among the industry executives whom she often leaves baffled -- they've been keeping awfully quiet lately.

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Paul Cellucci did not appoint Linda Ruthardt, and he wasn't governor during the vast majority of her storied escapades. But whether he likes it or not, she has become his problem. And if Cellucci is serious about winning the trust of the Massachusetts electorate, and is serious about good, honorable government, he can't hide from the Ruthardt issue.

Unfortunately, it appears that is exactly what he intends to do. Cellucci dispatches questions about Ruthardt as quickly as possible. Beyond pat assurances that Ruthardt has his full backing, he has made no attempt to explain why people ought not be concerned about fiascoes like Emlico and State Mutual, or about the constant ethical questions swirling around Ruthardt's office.

"I have confidence in Linda Ruthardt," Cellucci told the Globe after the SJC's Emlico ruling. "You can focus in on one little case, but let's look at what's happened with auto insurance rates. . . . In general, she's done a very good job." (One little case? The US Attorney is investigating this one. What, pray tell, constitutes a "big case"?)

Likewise, when it comes to that mysterious conversation in which Ruthardt felt pressured by Nancy Merrick, Cellucci's aides seem interested only in distancing the governor from the episode, rather than exploring the question of what the hell Merrick was doing and why.

Unfortunately, this is the same head-in-the-sand attitude that Cellucci has adopted toward a broader range of questions about his administration's code of ethics.

The clearest example is a culture of revolving-door influence-peddling that Cellucci inherited from Weld. Four former top aides to Weld and Cellucci -- John Moffitt, Ray Howell, Robert Cordy, and Sandy Tennant -- are among the state's best-paid lobbyists and consultants. Two of them, Moffitt and Howell, regularly give Cellucci political advice. Cellucci recently appointed Cordy to chair the state's Judicial Nominating Council. Tennant helped organize a $500-a-head Cellucci fundraiser last week.

Cellucci has already been feeling the heat on this from state treasurer Joe Malone, his rival for the '98 Republican gubernatorial nomination. "We don't think Linda Ruthardt is the problem," says Malone spokesman Eric Fehrnstrom. "The problem is that lobbyists have a seat at the decision-making table in Paul Cellucci's office. Consequently, when decisions are made, the public is left to wonder if they are based on the facts, or based on undue influence from these lobbyists. That's how you end up with crazy rulings such as the one that determined Bermuda is a `state.' "

Cellucci's camp seems to think that dismissing the charges will make them go away. To Malone's attacks, Cellucci advisers simply respond with counterattacks, steadfastly refusing to address charges they dismiss as political.

Privately, they say "bring it on," noting that campaigning against Bill Weld's ethics earned Democratic nominee Mark Roosevelt 28 percent of the vote in 1994. The charges, they seem to believe, won't stick.

But Paul Cellucci is no Bill Weld. He lacks Weld's above-the-fray stature and style. Cellucci fits in too well with the State House gang, and the charges that bounced off Weld could cling to him, becoming a serious campaign liability.

In this context, Cellucci would serve himself well by forcefully and forthrightly addressing the Ruthardt problem. Instead of seeing a strong action like her dismissal as a prescription for more unwanted controversy, Cellucci might think of it as a way to send a clear, good-faith message to the electorate: You deserve better than this.

Cellucci would still have to deal with other ethical questions -- including his administration's coziness with big lobbyists, and the startling $750,000 in personal debts he had accumulated by 1996. But sending Ruthardt packing would be a brave start.

Don't bet on that happening, however. Cellucci is counting on the inattention of Massachusetts voters, the majority of whom surely cannot even identify Linda Ruthardt. He has decided that it's better to suffer piecemeal, little-noticed revelations about Ruthardt's failings than it is to face what would undoubtedly be breathless page-one stories about a high-level ouster in his administration.

But that is a strategy that sells the citizenry short, and Cellucci ought not to get away with it.

Michael Crowley can be reached at mcrowley[a]phx.com.