Carson City Administrator John Dangleis steered city insurance business worth $300,000 a year to an insurance company with which he is affiliated without telling City Council members of the connection, according to several council members, other officials and employees.
"There is nothing wrong with it," Dangleis said in a brief interview. However, council members said they should have been told of his business relationship and friendship with the agent who sold the life insurance policies.
They also said they were troubled because Dangleis did not seek bids from other life insurance companies. Dangleis said he was not legally required to do so--a point confirmed by the Carson city attorney who said that many cities seek bids anyway.
The Los Angeles County district attorney's office, queried about the propriety of the arrangements, is reviewing the situation as a possible conflict of interest, according to Deputy Dist. Atty. Candace Beason.
The insurance, which was offered to city employees in 1986, was provided by Pacific Standard Life Insurance Co. through the Peter H. Cobo Insurance Agency in Covina. Dangleis is a registered agent for Pacific Standard and lists the Cobo agency as his office address on state records.
Cobo, the broker listed on city records, said in an interview that he is a longtime friend and business associate of Dangleis. In a March 20 memo to the council that was triggered by The Times' investigation, Dangleis also acknowledged that he used to work "as an independent agent through (Cobo's) agency on a part-time basis."
But Dangleis asserted in his memo that he took only a minimal role in the decision to award the business to Cobo's agency and that he no longer is active as an insurance agent. He added that rumors circulating in City Hall that he received a commission from Pacific Standard for the city's business are "ludicrous." He did not say whether he continues to receive any other commissions from the company.
Cobo also denied any wrongdoing.
But several council members said they should have been told of Dangleis' connections to Cobo and Pacific Standard.
"It stinks. We have been had," said Mayor Kay Calas. "Oh, this stinks. Three hundred thousand dollars!"
Listed as Agent
Dangleis' memo was apparently his first notification to council members of his connection with Cobo. Although a Pacific Standard representative said Dangleis is considered inactive, he is still listed on company and state records as an agent for the company. Dangleis declined to comment further.
All members of the council at the time--Calas, Sylvia Muise, Vera Robles DeWitt, Tom Mills and Walter J. (Jake) Egan--said in recent interviews that Dangleis had not informed them of his connection with either Cobo or Pacific Standard when the council chose Pacific Standard in two votes in January and February, 1986.
"I didn't understand what was going on," said DeWitt. "I really feel like a jerk for letting that go past without questioning it."
Dangleis' relationship with Cobo and Pacific Standard goes back to his 11-year tenure as city administrator for Azusa. Cobo was the insurance broker and agent for Pacific Standard, which sold life insurance for Azusa city employees, according to Dangleis' memo.
After Dangleis was ousted by a newly elected majority on the Azusa City Council in January, 1983, "Mr. Cobo suggested that I would be good in the insurance industry," Dangleis said in the memo.
"As a result of this, I went to school, obtained a state license to sell life insurance and went to work as an independent agent through his agency on a part-time basis."
State records show that Pacific Standard sponsored Dangleis for his insurance license, which he obtained in June, 1983.
"I continued selling insurance into 1984," Dangleis said. "I have not written a policy application in over three years, and certainly not while employed by the city of Carson."
Came to Carson in 1984
Dangleis came to Carson as acting city administrator in November, 1984, and was named to the post on a permanent basis in February, 1985.
John McDonough, corporate counsel for Pacific Standard, said in a recent interview that Dangleis remains listed as an agent with the company "although he has not written any business for us for some time. We would call him an inactive agent."
Pacific Standard has sold insurance to a handful of Carson city employees since 1969, Cobo said. But the company's sales were small. The monthly premiums to Pacific Standard were about $330 in 1985. In February of this year, they were about $27,000.
Cobo called Dangleis in late 1985 to see about improving the policies and "asked about the possibility of contacting other employees regarding this program," Dangleis' memo said.
Referred to Specialist
"I indicated to him it would be inappropriate for me to be involved and referred him to Mike Bell, risk management specialist."
Dangleis said Bell compared the insurance to programs available through other insurance companies and "ultimately, Mr. Bell and the finance department decided to recommend this program to the council and the employee organizations."
That account, however, was contradicted by Bell and Charles Bauman, who was personnel director at the time and now works for Huntington Beach.
Both men said in interviews with The Times that they normally would have been involved from the beginning in any decision to add insurance or other benefits for city employees, but Dangleis made it clear from the outset that Pacific Standard should get the business .
"That was something that John Dangleis brought in himself," said Bauman, who signed the recommendation to the council--approved by Dangleis--that the city provide employees with expanded insurance coverage. "My impression was that John Dangleis knew the broker from working in Azusa and invited him in. We were just told, 'Here it is. Here is the program. Figure out a way to administer the thing.' We were never in on the beginning--on having the program (or) not having the program or who to have the program (with)."
Bell said the decision to go with Pacific Standard was "done" by the time he was informed.
"It came out of the blue," he said. "I've been here seven years and I've never seen anything like this handled this way before. This was a completely new ball game. I was shocked."
He disputed Dangleis' assertion that he played a central role in the decision to give Pacific Standard the insurance business. "I was just one of the troops," he said.
He relayed his concerns to Treasurer Mary Louise Custer, who told The Times, "I had heard that it was out of the risk manager's hands and that Mr. Dangleis was more or less taking charge of it, according to the risk manager."
Bell said that contrary to Dangleis' memo, he had not reviewed life insurance offered by other insurance companies, although he had reviewed deferred compensation plans offered by Pacific Standard and several other life insurance companies. The deal with Pacific Standard eventually included both insurance and deferred compensation, and Bell said Pacific Standard's deferred compensation plan is a good one.
Nevertheless, Bell said, the experience left him with many questions.
"Who OKd it? How was it done? Was council aware of it or was wool pulled over their eyes? Did they understand what was done?" Bell said. In a reference to Dangleis and Cobo, he added that the arrangement "would appear . . . advantageous to friends."
Finance Director William Parrott is Bell's superior and the employee who made the recommendation to the council that the city purchase its deferred-compensation plan from Pacific Standard. He defended the choice as a good one because Pacific Standard, at the time, was offering a 12% return on money put into the plan.
But he said he was unaware how Pacific Standard's proposal came to the attention of the city, did not remember when he first met Cobo, and was uncertain what, if anything, Dangleis said to him about Pacific Standard.
"I don't know whether we talked about it or not," he said. "I do not know. I do not know. That is all I can say. I am not a person who knows a lot about things." He added, "I'm as honest as the day is long."
Parrot did say that it is city tradition not to seek competitive bids or proposals on insurance. "We do not do that. It has never been done," he said.
City Atty. Glenn Watson said in an interview that insurance, which is viewed as a service similar to legal or architectural services, is exempt from bidding requirements in general-law cities, such as Carson.
"Many cities do (seek bids for insurance) but it is not required," he said.
Among other South Bay cities contacted by The Times, officials in Manhattan Beach, Inglewood and Hawthorne said they seek competitive proposals when changing insurance companies or coverage. In Gardena, the city reviews its insurance programs annually, checking with all the big insurance companies, according to City Manager Ken Landau.
On Consent Agendas
Dangleis put the deferred compensation plan before the City Council on Jan. 21, 1986, and the additional life insurance on Feb. 4, 1986. In both instances, he put the items on the consent agenda, which is reserved for matters not considered to require discussion. In neither instance was the amount of the annual premium described.
In both cases, the matters passed without public debate.
Behind the scenes, however, it was a different matter.
DeWitt and Calas said Dangleis briefed them both on the insurance matter just before the council meeting. DeWitt said she asked then why the city did not seek bids.
She said Dangleis replied that the insurance was a good deal and that everybody would get covered without physicals. She said she did not think to ask how Dangleis could know there was no better deal available without bidding.
Method of Financing
Another reason Dangleis gave for favoring the insurance plan, according to Calas, was the method of financing it. Dangleis proposed paying for the additional insurance with the unused difference between fees for health insurance and a cap of $286.11 a month per employee that the city had set for health insurance. Calas said Dangleis argued that this money, set aside in a separate account, "was going to waste."
DeWitt said, "They never gave us a thorough briefing. We didn't get a full briefing." Calas said she "had qualms" about the matter afterward but voted for the staff recommendation anyway. "Why did we go for it?" she asked ruefully. "We had funny feelings."
So did Nancy Severtson, an accounting clerk who at the time was president of Local 809 of the American Federation of State, County and Municipal Employees, which represents Carson employees.
Labor negotiations had broken down in 1985, and on Jan. 1, 1986, the city imposed a memorandum of understanding--municipal jargon for labor agreement--on its employees that, among other things, increased life insurance from $10,000 to $14,000. In addition, the memorandum said, "the city will rebid the life insurance program to determine if coverage can be increased within the existing premiums."
Surprised by City Action
Severtson said she first heard that the city was willing to provide employees with additional insurance and finance it with the excess health insurance money in a meeting with Dangleis, Parrott and Bell that took place sometime in January, 1986, shortly after the memo was imposed.
The excess health insurance money was a sore point with the union, Severtson said, adding that the city had repeatedly rebuffed union demands that the money be used for employee benefits. Severtson said she was surprised at the city's shift in position.
"I couldn't believe that they altered the memorandum of understanding so easily when we had fought for it for so many years."
Severtson said that Dangleis spoke in favor of Pacific Standard, saying at the meeting, "Don't look a gift horse in the mouth."
She said she argued at the meeting for deferred compensation as an option to increased insurance coverage. "Why should we be forced to buy life insurance?" she recalled saying. The city eventually offered such a plan, through Pacific Standard.
'Broke the Contract'
Severtson said she was also upset to learn that the city was not seeking bids. "To me, if they didn't go out and rebid this, they broke the contract. The whole thing had me bent out of shape."
Nevertheless, she called an emergency meeting of the union's executive board and urged members to accept what was offered.
The recommendation on insurance that went before the City Council on Feb. 4, 1986, stated that using the excess health insurance money for additional life insurance had been "inadvertently omitted" from the earlier council resolution on the memorandum of understanding, according to the agenda memorandum.
When Cobo attempted to sign up city employees, several were upset at the way the meetings were conducted.
"The presentation was a public forum in which personal financial data for all present was disclosed openly with insurance people running around in a circus-like atmosphere," administrative specialist Robert Millard complained in a memo he wrote to Dangleis dated Aug. 25.
No Options for Employees
"The city is giving this vendor big-money insurance business without giving the employee any option or choice as to the use of the money. The impression given some is that there is more emphasis on revenues to the insurance vendor than benefit to the employee."
Bell said Dangleis directed that the marketing meetings be held and insisted that all employees attend.
Custer, the elected city treasurer, said a rumor later circulated at City Hall--"in such loud tones that any passer-by, any citizen from the community, could have heard it"--that Dangleis had received a commission from Pacific Standard for the city's business.
She said that after she relayed the rumors to Dangleis, he and Cobo came to her office and denied them. They did not say during that meeting, however, that Dangleis had worked for the company or that he was still listed as an agent for the firm, Custer said.
Cobo confirmed that he and Dangleis met with Custer and he resented being asked again about the rumor that the administrator had received a commission.
"You are goddamn right I deny that," he said. "That is absurd. My records are open. I don't do those things. I have been in the business too long and deal with too many public employees to do those things. That is the most absurd thing I have heard in my life. John is getting a kickback? No, flat out, no. I would be insane to do that. I would walk away from the business. The contract can stand on its own. It is a good policy. It is a good contract. The thing was bought on its merits."
Cobo added that he has sold the same policy to a number of other cities where he has no personal friendship with city officials, including some cities where officials had sought bids. Among the cities he sells insurance to are San Fernando, Bishop, and Ridgecrest, in addition to Carson and Azusa.
Michael I. Mitoma, recently elected to the council, said the city should look into the insurance situation.
Last week, when he was signing paper work as a new city employee, the city's arrangement with Pacific Standard was explained to him by the council's secretary. He said he wondered aloud why an insurance company was offering a deferred compensation plan, and why Pacific Standard's was the only plan offered.
"You should talk to Mr. Dangleis," the council secretary said, according to Mitoma. "I don't want to talk about it."