RTA audit: Insurance could have covered ex-Metra CEO’s threatened lawsuit
BY ROSALIND ROSSI Transportation Reporter August 20, 2013 5:23PM
Then-Metra Board Chairman Brad O’Halloran addresses questions about former Metra CEO Alex Clifford's controversial severance package at the Union League Club in downtown Chicago on Tuesday, July 9, 2013. | Michael Jarecki~ For Sun-Times Media
Updated: September 22, 2013 6:29AM
The Metra Board’s decision to give ex-CEO Alex Clifford a “generous” farewell handshake to avoid a lawsuit was a bum deal for taxpayers because insurance would have covered most of the cost of any threatened litigation, RTA documents indicated Tuesday.
In addition, Metra underestimated the total cost of Clifford’s 26-month “separation agreement” by calculating its maximum payout at $718,000 when it was actually $871,000, RTA officials told the Chicago Sun-Times.
On Tuesday, RTA officials released briefing documents summarizing the preliminary findings of an audit scheduled to be discussed at Wednesday’s RTA meeting.
Former Metra Chair Brad O’Halloran and Metra attorneys have insisted that the June 21 Clifford buyout was cheaper than the cost of defending a whistleblower suit Clifford had threatened — even if Metra ultimately won the suit. Metra officials estimated the cost of defending a whistleblower lawsuit at $2 million to $3 million, RTA documents indicated.
Clifford had charged that O’Halloran and then-Metra Board member Larry Huggins conspired to oust him after he refused to bend to patronage and contract demands. Clifford had hired well-known attorney Michael Shakman and his law firm to represent him.
The most serious allegations in the briefing documents released Tuesday were that Metra had a $10 million insurance policy all along that could have covered almost all of the cost of any threatened Clifford suit.
The document noted that O’Halloran told the RTA board during a special hearing that Metra was “self-insured,’’ meaning Metra would have to pick up the cost of any Clifford lawsuit.
However, the RTA later discovered that Metra had paid $98,000 for a “public official and employee practices liability policy’’ that provided up to $10 million in coverage after a $150,000 deductible.
In reality, RTA Chairman John Gates Jr. said in a statement Tuesday, “All costs related to the Clifford contract dispute should have been claimed under Metra’s existing insurance policy instead of being paid from tax payer funds.’’
The existence of the policy “calls into question the reasons behind Metra’s decision to pay Clifford without notifying its insurance carrier,’’ Gates said.
“I urge Metra to review its insurance policy and if it would still be financially prudent, Metra should immediately cancel Clifford’s severance agreement,’’ Gates wrote.
The briefing document also blasts the Clifford settlement process as “flawed,’’ “inadequate” and riddled with “lack of documentation.’’ Metra board members paid a former Downstate U.S. attorney $52,000 to investigate Clifford’s claims, yet still have no written report from him. They paid $17,000 to a mediator for 12 hours of mediation, yet have no documentation about the mediation, RTA noted. And the Metra board has no proof that an “overall cost-benefit analysis” of Clifford’s legal claim was ever done, the RTA audit found.
Gates seized on the RTA’s findings Tuesday to charge that the RTA needs more oversight authority, even as a transit task force appointed by Gov. Pat Quinn has been asked to determine if the RTA and the three transit agencies it oversees need a shakeup. Gates noted that current law does not require Metra, the Chicago Transit Authority or Pace to disclose employee settlements to the RTA. In addition, Gates said, the RTA does not have the power to cancel or modify “golden parachute” agreements.
RTA officials called the Clifford deal “not financially prudent” and the process for evaluating it “inadequate.’’
“Throughout this process, Metra stated it was presented a financial choice of paying the severance agreement or facing $2 to $3 million in legal fees from a protracted lawsuit,’’ the RTA briefing document said. “The RTA audit identified the existence of a third option, the $150,000 deductible of this insurance policy.’’
The Metra board determined the “financial reasonableness” of the Clifford “separation agreement” based on the advice of outside counsel and a mediator, the RTA noted.
However, the outside legal advice was “mostly verbal” with “no benchmarks,’’ and the 26-month Clifford deal included “high” post-employment benefits and an unusually long term of post-employment payments, RTA documents indicated.
Acting Metra Chair Jack Partelow said Metra board members “were not informed by lawyers about the insurance policy, and had they been aware of it, they would have explored that option,’’ Metra spokesman Michael Gillis said Tuesday evening.
“The board is severing its ties with the board counsel,’’ JG Law, Gillis said Partelow told him.
State Rep. Jack Franks (D-Marengo) said the Clifford deal should be “nullified” immediately and noted that Metra board representatives told the House Mass Transit Committee that Metra had no insurance to cover such claims.
“We’re the Illinois House of Representatives,’’ Franks said. “You tell us the truth.’’
Franks questioned how the Metra board’s attorney could not have “told his clients their options.’’
But in addition, he said, Metra board members should have been asking whether they were insured against any Clifford suit before signing off on a deal to avoid legal action.
And, “If they paid $98,000 for a policy, the board members should have known. If they didn’t know, they were definitely asleep at the wheel, and if they did know, they lied” to House members,’’ Franks said. “Either way, they have to resign. This is unacceptable.’’
Five of 11 Metra Board members have bowed out, some under pressure, in the tumult following Clifford’s departure.
RTA officials contended that their audit is 90 percent complete. Still waiting in the wings are the results of investigations by two inspector generals.