[Vision2020] UI Notifies Insurance Carrier

[Ron Force]

>From today's Idaho Statesman


Article published May 19, 2004

U of I says Hoover, Wallace contributed to financial losses
The university and foundation ask to recoup millions based on claims of
"employee dishonesty" surrounding University Place

Robert Hoover, former University of Idaho president, and former financial
Vice President Jerry Wallace contributed to U of I's financial losses in
University Place, according to a letter that is part of a claim U of I filed
with state insurance officials.

The university's foundation filed a letter with the same agency, saying it
lost money because Wallace didn't "faithfully perform his duties as
prescribed by law."

The letters, obtained by The Idaho Statesman under the Idaho Public Records
Act, accompanied insurance claims both institutions filed in March with the
state's Office of Risk Management. U of I and its foundation are seeking
compensation from a state insurance policy that provides up to $10 million
in coverage.
University Place, a satellite campus in downtown Boise, is the subject of
on-going state and federal investigations. No charges have been filed.

The Idaho Statesman asked the Office of Risk Management for all documents
associated with the claims from the university and its foundation. The Idaho
attorney general's office refused the request for the claims — citing
exemptions to the state's open records law — but did release the
accompanying letters.
Neither Hoover nor Wallace returned phone calls Tuesday. It's not clear
whether either filed a response to the claims or the letters. Hoover is now
president of Albertson College of Idaho in Caldwell. Wallace's contract with
U of I was not renewed for 2004.

University Place, once envisioned as a three-building higher-ed complex at
Broadway Avenue and Front Street, fell apart over questions of financial
management. The collapse cost Hoover his job in 2003 and left the foundation
$25 million in debt.

In its March 22 letter, the university said "this claim is based in part on
conduct of former University of Idaho President Robert Hoover and former
University of Idaho Financial Vice President Jerry Wallace. ... The actions
of these individuals and others caused the University of Idaho to sustain
monetary losses and obtained financial benefits for others."
The letter doesn't specify how much the U of I seeks from the state's
insurance policy that covers claims of employee dishonesty or "failure to
perform duties faithfully." The state's insurance has two separate limits:
$5 million for failure to perform, and $10 million for employee dishonesty.

"The University of Idaho believes its losses far exceed the policy limits
and therefore it requests the entirety of the policy," wrote Bruce A. Rubin,
an attorney with the Miller/Nash law firm in Portland representing the
University of Idaho.
Sharyl Kammerzell, U of I associate university counsel, wouldn't discuss the
letter Tuesday. "The letter is going to have to stand on its own," she said.

Attorneys at Miller/Nash also declined to comment.

In a separate letter dated March 1, a Seattle firm representing the U of I
Foundation said the foundation "sustained a loss of money arising from the
actions of former University of Idaho employee Jerry Wallace. Those losses
were caused by acts constituting a failure of Mr. Wallace to faithfully
perform his duties as prescribed by law. ... The University of Idaho
Foundation believes its losses may exceed $12 million."
Foundation officials and their attorneys with Skellenger Bender in Seattle
declined comment.

Neither letter explains how Hoover or Wallace contributed to losses that the
university and its foundation claim.
But when Hoover resigned, he took responsibility for the project's failure.

"The university is facing significant financial challenges, which are made
worse by difficulties surrounding the financing of the University Place
project in Boise," Hoover said in April 2003. "I take full responsibility
for what has happened. It is clear that I did not pursue my oversight of
this project aggressively enough."

In its letters, the U of I and its foundation cited the Prince Report, a
600-page analysis of University Place that said university officials may
have violated the law by misusing public money. The report, done by special
deputy attorney general Larry Prince at the request of the State Board of
Education, did not specify which university officials may have broken the
law.
The Prince Report said Wallace spent $8 million from an account he set up
for the U of I Foundation. He used the money as a line of credit without
State Board approval, amounting to unauthorized spending on a capital
project, the report said.

"Its use by the UI violated State Board policies and possibly state law,"
the report said.
The December 2003 Prince Report also said Hoover didn't tell the State Board
of Education that U of I lent its own money to the foundation for the
University Place project.

Events around University Place remain the subject of several investigations.
A federal investigation into the project was transferred from Idaho's U.S.
attorney to the Oregon office to avoid a possible conflict of interest. U.S.
Assistant Attorney Allan Garten, chief of the Oregon office's white-collar
crime division, said he expects to include Internal Revenue Service Criminal
Investigation Division, the U.S. Postal Inspection Service and the FBI.

Idaho Attorney General Lawrence Wasden also is investigating possible
violations of state law.
And the Idaho State Bar is investigating whether attorneys who represented
parties involved with the project had conflicts that violated the
Professional Code of Ethics.
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What the letters say

Here are excepts from the two letters from the University of Idaho and the
University of Idaho Foundation regarding losses each says it incurred as
part of the University Place project in Boise.
University of Idaho
"This letter is to notify you that the University of Idaho ... has sustained
a loss of money as a result of the conduct of one or more employees as
described in the Dec. 5, 2003, University Place Management Review.
"...this claim is based in part on conduct of former University of Idaho
president Robert Hoover and former University of Idaho Financial Vice
President Jerry Wallace. As detailed in the Prince Report, the actions of
these individuals and others caused University of Idaho to sustain monetary
losses and obtained financial benefits for others. Losses were also caused
by acts constituting failures by employees to faithfully perform duties as
prescribed by law. Such failures directly and immediately resulted in
monetary losses to the University of Idaho.
"The University of Idaho believes its losses far exceed the policy limits,
and therefore it requests the entirety of the policy."
— Miller/Nash Attorneys at Law, Portland

University of Idaho Foundation
"This letter is to notify you that the University of Idaho Foundation Inc.
... has sustained a loss of money arising from the actions of former
University of Idaho employee Jerry Wallace. These losses were caused by acts
constituting a failure by Mr. Wallace to faithfully perform his duties as
prescribed by law.
"The University of Idaho Foundation believes its losses may exceed $12
million."
— Law firm of Skellenger Bender, Seattle
Questions and answers about insurance claims process for the University of
Idaho and its foundation

What is the Office of Risk Management? Idaho's Office of Risk Management
oversees insurance coverage and claims for such areas as:
• Property damages: Recovering losses the state incurs if, for instance, a
state building burns down.
• Liability: Paying out claims if, for instance, a piece of a state building
falls and injures a resident.
• Other: Providing coverage for claims such as employee dishonesty, forgery,
theft or wire fraud.

Why did the University of Idaho and its foundation file claims of "employee
dishonesty" and "failure to perform duties faithfully" with the Office of
Risk Management? Kit Coffin, risk manager for the office, said she could not
discuss specific claims. All state agencies are covered under a policy that
protects them from loss through employee dishonesty and failure to perform.
Each agency is charged a premium.

What are the limits to the coverage? The limit for employee dishonesty is
$10 million. The limit for failure to perform is $5 million. But even if a
state agency can prove it was a victim of both employee dishonesty and a
failure to perform faithfully, it is not entitled to $15 million. The
maximum payment is $10 million.

Does the state pay anything out of its own pocket? Yes. The state covers all
of its liability claims to a maximum of $500,000, which is the cap set by
Idaho law. For employee dishonesty and failure to perform, the state pays
$100,000 out of its own pocket. Above that, its insurance coverage kicks in.

What has to be done before the state pays off any claim? It takes a lot.
"People making the claim are going to have to prove what they lost, that
they had it to begin with, and prove how they lost it," Coffin said.

Isn't a claim in the millions high for Idaho? Again, Coffin would not speak
about specific claims. She said she is unaware of any recent payment of a
claim that has gone much beyond $100,000 under the policy that protects in
cases of dishonesty, forgers and other similar losses. "It's a very serious
amount of money," she said.

What would happen to Idaho's coverage if it had to pay a claim in the
millions? It's hard to know for sure. But Robert Hartwig, chief economist
for the Insurance Information Institute with offices in Washington, D.C.,
and New York, said, "You would likely see premiums rise." Or, he said,
before agreeing to cover the state, an insurance company might require the
state to pay more before the coverage kicks in.
Bill Roberts
Rocky Barker
The Idaho Statesman | Edition Date: 05-19-2004