DA Probes Glendora Insurance Practices : Government: Mayor Bob Kuhn is co-owner of an insurance firm handling some of the city’s business.

The Los Angeles County district attorney’s office is reviewing the city’s insurance practices, including its purchases through a brokerage agency co-owned by Mayor Bob Kuhn, The Times has learned.

City records show that the city, without soliciting competitive bids, has paid $126,528 for insurance policies purchased through Kuhn’s Glendora-based company, Alandale Insurance Agency, since Kuhn joined the City Council in April, 1986.

“To avoid any possible conflict of interest,” the city is moving to terminate a Parks and Recreation policy, carrying a $4,500-a-year premium, obtained through Alandale, Finance Director Larry Schroeder said. That is the only Alandale-brokered policy currently in effect, he said. Other policies have been shifted since 1988 from Alandale, co-owned by Kuhn and Cleve Traughber, of La Canada Flintridge, to a firm Traughber co-owns with other partners.

Records show that Kuhn has voted at least three times since 1986 to approve payments of city insurance premiums totaling $7,475 to Alandale. He abstained from voting on 13 other payments to his company.

Kuhn, who in statements of economic interests has disclosed that he owns a share of Alandale worth more than $100,000, vigorously denied any impropriety. He said he could not specify how much his firm has earned in commissions from city business but said he himself has not profited.

Traughber, who said he has handled the city account since 1972, said the commission is usually about 15%. Using that figure, Alandale’s commissions from city accounts would have totaled more than $18,000 since July, 1986.

In most cases, state Government Code Section 1090 prohibits officials from being “financially interested in any contract made by them in their official capacity, or by any body or board of which they are members.”

State Deputy Atty. Gen. Ted Prim said there are some exceptions to the law in cases where a contract predates an official’s election.

Kuhn, in office four years, said the city has a longstanding relationship with Alandale, dating to 1968. He became a co-owner of the firm in 1972.

Prim refused to discuss the matter further or to explain how it might relate to the Glendora situation.

The district attorney’s office is reviewing the city’s dealings with Alandale as well as the city’s methods of obtaining insurance in general, Deputy Dist. Atty. Thomas Wenke said.

“We are looking to see if there’s a conflict of interest in the city’s insurance practices,” Wenke said. “We want to make sure their procedure for acquiring insurance is in accordance with what the (Municipal) Code requires.” He declined to provide further details.

The review was sparked by complaints from a Glendora resident, said investigator Rick Daum of the district attorney’s office.

The state Fair Political Practices Commission has received at least one letter about the insurance matter and has undertaken a review, commission spokeswoman Jeanette Turville said.

Schroeder, who became finance director last summer after serving as acting director since 1988, said he inherited the Alandale account and simply continued it. He said the mayor has never influenced his selection of an insurance brokerage firm for the city. “It was my choice,” Schroeder said.

Kuhn said that he tries to abstain from voting on all insurance matters and that he has conscientiously tried to disqualify himself from any votes concerning payments to his company. He noted that long “warrant registers” listing bills paid by the city are routinely submitted to the City Council for review and approval.

“If I see our name on it, I abstain,” Kuhn said, but added that he might have overlooked a few. “Sometimes there are 150 or 100” names on the list, he said.

Kuhn said Alandale’s commissions on city business were used for office overhead or to pay the agent who secured the policies. The city’s current policy through Alandale, which covers the city’s summer youth sports program, does not generate any commission, Kuhn said. Traughber, however, said the policy carries a 15% commission.

Kuhn said City Atty. Cheryl Kane told him that there was no conflict of interest in Alandale’s doing business with the city “as long as there was no direct income to me.”

Kane refused comment. “I don’t discuss my advice to my clients,” she said. “That’s privileged communication.”

Meanwhile, one council member has raised questions about the propriety of transferring accounts from Alandale to Glendale Insurance Agency Inc., which is co-owned by Traughber, Kuhn’s business partner in Alandale.

Councilman David Bodley said he fears that Glendale might have received the city business “because they’re friends of Kuhn, and here he is sitting on the council.”

Bodley and council members Larry Glenn, Marshall Mouw and Molly MacLeod said they will seek more information about the insurance decisions.

Traughber said he and Kuhn decided during the 1988-89 fiscal year to shift city business to Traughber’s firm to “get it (the city’s account) completely out of conflict of interest.” The Parks and Recreation policy was overlooked because it is relatively small, Traughber said.

Kuhn denied that he took part in the decision to transfer the policies to Glendale and said he has not sought to influence any of the city’s insurance decisions.

Since the shift in 1988, records show, the city has paid at least $123,816 for insurance policies purchased through Glendale Insurance Agency, which is based in Glendale. Traughber said he owns a third of the firm. Kuhn has no financial interest in the Glendale agency.

Since 1988, Kuhn has voted to approve five payments to Glendale Insurance, city records show. He has abstained in three payments to the agency.

The mayor said his votes on payments to the Glendale agency are irrelevant because he does not hold an interest in that firm. “If no money changes hands, what difference does it make?” Kuhn said.

Under the Government Code, an official may not take part in decisions in which he has a “financial interest.” The state Code of Regulations says that “financial interest” includes businesses deemed “otherwise related to” an official’s own firm. Factors determining whether a business is “otherwise related” include sharing management and control, resources or employees.

Secretary of State records list Traughber and Dan Johnson of La Canada Flintridge as officers of both the Alandale and Glendale agencies. State Department of Insurance records list Traughber and Johnson as licensed agents of both firms.

Kuhn, who said he owns more than two-thirds of Alandale, said he bought out Johnson’s interest in Alandale last spring and plans to buy Traughber’s 27% share as well. The mayor said he alone controls Alandale.

Johnson emphasized that the mayor holds no financial interest in Glendale. “Bob Kuhn in no way, shape or form derives any remuneration from the fact that Glendale underwrites the insurance for Glendora,” Johnson said.

The bulk of the city’s insurance, $229,502 in premiums for liability coverage in 1989-90, is handled by the Independent Cities Risk Management Authority, a 26-city insurance pool, Schroeder said. Kuhn, who was instrumental in setting up the pool in 1986, said he helped the city obtain lower rates by transferring most of its coverage from Alandale to the pool.

Schroeder said he expects the pool, as it grows, to handle more of the city’s insurance needs. Meanwhile, he defended using Alandale and Glendale as brokers for smaller policies. “Once a broker gets to know you and your needs, sometimes there’s no reason to go out for a bid,” Schroeder said. “Cleve (Traughber) has done it for a long time, and the rates seem to be right in there.”

Schroeder said Kane told him that insurance placement does not fall within the provisions of the city’s purchasing procedures. The procedures, spelled out in Glendora’s Municipal Code, require the city to solicit bids for professional services and for formal contracts exceeding $15,000.

Kane again refused comment.

City officials said Alandale has brokered a number of different policies for the city, including insurance covering worker’s compensation and city cars and equipment.

Kuhn also defended the city’s brokerage decisions.

“Why would they change agents when they’ve had an agent working on it for years?” Kuhn said, referring to Traughber. “Cleve--he understands the business, the needs of the city, that the infrastructure is how old it is.”

Lee Lewis, technical director of the 11,000-member Independent Insurance Agents & Brokers of California, said most cities do not use brokers. Of those that do, the usual pattern is to put the contracts out to bid every three years, he said. But “it is not unusual to stick with one,” he added.

That may be because there are so few insurers from which to choose, he said. Fewer than 10 companies in the state are willing to insure cities, Lewis said. “Some (cities) don’t even shop because the market is so low.”

During budget discussions that begin next week , Bodley said, he plans to suggest that the city begin putting its insurance business out to bid.