Preserving a copy of computer hard drives will ensure that records needed for a forensic audit of the insurer are not lost, regulators say.

01:00 AM EST on Wednesday, March 15, 2006

BY LYNN ARDITI
Journal Staff Writer

PROVIDENCE -- State regulators have asked a Kent County Superior Court judge to order Beacon Mutual Insurance Co. to turn over to the court for safe-keeping a copy of 22 computer hard drives of Beacon employees and top managers.

The state, which is conducting a forensic audit of Rhode Island's dominant workers' compensation insurer, requested that a copy of the hard drives be placed in the court's "evidentiary vault to preclude any future allegations of alterations," according to a motion filed by the state Department of Business Regulation with the court late Monday.

"I'm concerned about the preservation of the hard drives," the department's executive counsel, Richard W. Berstein, said yesterday.

If care is not taken to preserve a copy, Berstein said, the records being sought by state regulators could accidentally be overwritten and destroyed.

The state's request is being reviewed by Beacon's lawyers, said Bill Fischer, a public relations specialist hired to represent Beacon.

A hearing on the matter is scheduled for March 31.

The state's concerns about preserving insurance company documents comes as regulators perform a "market-conduct examination" of Beacon. The state recently hired a team of forensic auditors from a Boston firm to investigate allegations of favoritism in pricing to certain Beacon policyholders, including Beacon's former longtime board chairman.

Last Thursday, Kent County Superior Court Judge Melanie Wilk Thunberg denied state regulators permission to copy Beacon's computer hard drives, saying they contained "privileged" and "confidential information with respect to corporate matters as well as Beacon's employees."

Thunberg also ordered the state to return to Beacon a tape of company e-mails that the state's auditors had obtained from a Beacon employee and had placed, unexamined, in a vault at a forensic lab in Boston.

The state has since returned the tape of the e-mails, said Berstein.

In response to regulators' concerns about preserving the insurer's e-mails, Thunberg also ordered that a copy of the e-mail tape be placed in the court's evidence vault.

The state now wants the court to take the same precautionary measure to ensure preservation of Beacon's computer hard drives while the state considers its legal recourse.

The tape at issue contains copies of the hard drives of 22 computers used by Beacon employees and top managers, including Beacon's president and chief executive officer, Joseph A. Solomon.

Auditors from two separate firms -- one hired by the state and the other by Beacon -- are proceeding with separate probes at the company's headquarters in Warwick.

The state has hired Deloitte Finance Advisory Services, of Boston. Beacon hired a consulting firm of former New York City Mayor Rudolph W. Giuliani. The Giuliani firm's review is being overseen by former Gov. Lincoln Almond.

Asked whether Beacon will provide its own auditors from the Giuliani firm access to its computer hard drives or company e-mails, Beacon's Fischer replied, "The rules are the same for everybody. They're all going to get the same information."

The state's director of business regulation, A. Michael Marques, said that state regulators are legally entitled to any documents that the Giuliani firm uses to produce its audit report on Beacon.

"Anything that is provided to Beacon," Marques said, "must be provided to us."

larditi@projo.com / (401) 277-7335