On February 24, 2003, the Minnesota Department of Commerce and American Bankers Insurance reached a settlement that required the company to pay the state $2 million ($200,000 in fines and $1.8 million in reimbursement) and to "withdraw" from Minnesota for five years. In return, the department dropped charges that American Bankers had violated various state insurance laws.
Shortly after the settlement was reached, it was criticized by former Commissioner of Commerce, James Bernstein, and Attorney General Hatch. They both suggested the company was given favorable terms in exchange for a campaign contribution to the Republican Party. A Senate committee, legislative leaders, and Governor Pawlenty requested a review by the Legislative Auditor. To conduct our review, we examined documents and interviewed people involved with the negotiations between the State of Minnesota and American Bankers Insurance.
We could not substantiate the allegation that, when negotiating the settlement with American Bankers Insurance, officials at the Department of Commerce were influenced by the company's campaign contribution to the Republican Party. However, the settlement was more favorable to the company than any terms previously offered to it by the state. During negotiations in 2003, the new administration at the department never tried to obtain more than $2 million from American Bankers and accommodated the company without attempting to obtain concessions in return. We are troubled that the consent order did not disclose the full amount American Bankers paid the state as part of the settlement. We also found several deficiencies in the way the department reported the settlement.
We established that, in the summer of 2002, American Bankers Insurance agreed "in principle" to a $3.5 million settlement. Company officers backed out of the agreement on August 7, 2002, saying they feared paying a large "fine" to the State of Minnesota would trigger actions in other states. Also in August 2002, the company employed a political strategy to help resolve its regulatory problems in Minnesota. An element of the company's political strategy was to make campaign contributions to help elect either a Republican or Democrat governor of Minnesota in the November 2002 election. The company's ultimate objective was to help ensure that James Bernstein would not be retained as Commissioner of Commerce in 2003.
We could not substantiate the Attorney General's assertion that, in January 2003, American Bankers Insurance made a specific offer to pay $3.5 million to a "charity" as part of a settlement with the state. We did, however, establish that the company wanted to reach a settlement by making a payment that would not be characterized as a "fine."
In 2002 and 2003, the Attorney General tried to facilitate a settlement that would have required a $3.5 million payment from American Bankers Insurance. On January 8, 2003, the Attorney General appeared to be pursuing a diversion of settlement money from American Bankers to a charity. That kind of diversion is not allowed under Minnesota law. Although we do not think he violated the law, we are troubled by some aspects of the Attorney General's actions.