RTD Audit Calls Claims System Flawed, Costly

Auditors have found that mismanagement of a huge and growing volume of injury and accident claims against the RTD is costing the district millions and the “situation could be literally out of control” unless corrected soon.

Contradicting earlier audit findings and statements by RTD officials that gave the district’s insurance adjuster high marks, the new report outlines a series of management deficiencies at Leonard J. Russo Insurance Services Inc., which has handled the transit district’s injury claims program since 1980.

The Southern California Rapid Transit District spends $35 million a year settling and administering injury and accident claims. The auditors, who were hired by the RTD following criticism of its management practices, found that $8 million to $12 million in legal fees and payments could be saved by better management and expanded staffing of the district’s outside claims handling firm. Under the RTD contract, staffing levels at Russo are up to the RTD to determine.

Currently, the claims, most of which are filed by persons allegedly injured in bus accidents, are poorly investigated, referred to RTD attorneys unnecessarily, inadequately reviewed by managers and paid off “at the higher end” of potential settlements, the auditors found.

While saying Russo is making a “good-faith” effort to act in RTD’s interest, the insurance firm “is not as professional and cost-effective as it could be, or should be,” the auditors said. Most of the problems are blamed on understaffing and a Russo-RTD contract that is “impossible to perform on its face,” the auditors said.

Leonard J. Russo, owner of the insurance firm, strongly denied that his firm was being overwhelmed by the RTD work. “It’s not going to get out of control,” he said.

He said the number of outstanding cases has grown only slightly in the past several months and he has increased his staff of adjusters. “There’s been a lot more scrutiny and a defensive posture taken because of all (reports) about fraudulent claims,” he said.

End to Contract Recommended

The audit findings come as the Russo firm is struggling to hold onto its two large RTD contracts worth more than $3 million a year. RTD staff members are recommending that Russo’s contracts not be renewed, although the firm is expected to seek a renewal when new bids are sought.

Controversy over the Russo contracts has been part of the continuing stream of alleged RTD management failures.

The district attorney’s office is investigating a phony injury claims ring that may have collected hundreds of thousands of dollars in RTD funds and allegedly included former Russo employees. The Russo company had been the target of a separate district attorney’s investigation into alleged “irregularities” and possible payoffs in the obtaining of a separate RTD contract to administer workers’ compensation claims. In that case, sources familiar with the investigation have indicated that no charges are likely to be filed.

Russo managers have denied any wrongdoing in either case.

About 8,000 injury and accident claims are outstanding against the district and the number is expected to rise over the next few months as the Russo “claims staff loses ground,” the auditor said. “By the end of the year, the situation could literally be out of control unless (recommended changes) are implemented in the immediate future.”

The RTD and Russo have acknowledged that the transit agency is a major target for fraudulent injury claims.

Investigations Called Lacking

But the auditors--Torrance-based Fisher Associates--found that thorough investigations, which can help discourage phony claims, have not been regularly made.

The study also found “no evidence” that another safeguard against fraud had been practiced. The contract with RTD requires Russo claims adjusters to establish face-to-face contact with claimants before payments are made. Earlier this year, The Times reported that the RTD had informally decided not to enforce the “eyeball” contact provision, an omission that experts said probably reduced chances of catching phony claims while making the contract more profitable for Russo.

While criticizing Russo’s performance, the auditors warned that shifting the huge claims account to another firm could make matters worse. No insurance adjusting firm in the area is prepared to handle the large volume of RTD claims, the auditors said, and the transition would be costly and disruptive to a system already suffering from management problems. Instead, they recommended that RTD work with Russo to improve management of the program.

But the RTD staff has called for Russo’s contracts to be terminated after temporary extensions to allow time to develop new management plans and seek competitive bids.