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MINEOLA — It was a plan that Suffolk officials in 1991 said would save the county millions in health insurance costs for its 40,000 government employees and their dependents. Switching from the state’s insurance plan to a self-funded program was supposed to create benefits that were “responsive to the needs” of its employees. The county declared so in a legislative resolution at the time calling for the change, and it even had the numbers to prove it.

Or so officials thought.

The once-touted savings to the county of more than $50 million have transformed instead, by some reports, to a cost that has ballooned to $34 million. And as a result, the program launched 13 years ago has deteriorated into a lawsuit brought by Suffolk County and currently pending in State Supreme Court.

In Suffolk v. The Segal Co., 26822-02, the county alleges that an actuarial consulting firm, which concluded that the decision to become self-insured was fiscally sound, is liable for failing to provide accurate cost comparisons between the old insurance plan known as the New York State Empire Plan, and the new self-insured plan.

But The Segal Company, in defending the action, asserts that it had no contractual obligation to provide the cost comparison. It also argues that the county did not rely to its detriment on any of the firm’s comparisons in making a decision to move to and remain in a self-insured program.

The county’s self-insurance plan has created such a stir among Suffolk officials and the community that New York State Comptroller Alan Hevesi announced last summer that his office would conduct an audit. The announcement of the probe followed a private audit by Ernst & Young, which called for improved communications between the county, its consultants and the health claims processor. The state’s audit is ongoing.

Those audits followed hearings in 2002 conducted by the County Legislature to investigate the self-insured plan’s cost overruns.

Last month, Suffolk County Supreme Court Justice Paul J. Baisley Jr. denied the county’s motion for summary judgment on its breach of duty and negligent misrepresentation claims against the company. In the same eight-page decision, he also denied the firm’s motion to dismiss and to amend its answer to include an affirmative defense.

Segal had argued that the Suffolk County Attorney lacked the capacity to sue, an argument the judge found unavailing. The Segal Company, based in New York, is an actuarial and benefits consulting firm with clients that include public and private employers in several countries.

Although the county’s lawsuit was brought under Suffolk’s previous administration and filed by former county attorney, Robert J. Cimino, the current county attorney, Christine Malafi, said her office is equally committed to pursuing the action, if it means the county can recoup some of its losses.

The county “literally stumbled” upon the errors made by The Segal Company two years ago, Ms. Malafi said, which led to the discovery of the self-insurance plan’s losses. She added that the amount of damages at this point is uncertain, though it will be in the millions. “It will come down to a battle of experts,” she said.

The attorney representing The Segal Company, John F. Shea III, said Justice Baisley’s decision is the first significant activity in the case since it was filed in 2002. His client’s motion to dismiss was denied, but he said that much remains to be resolved regarding the information the county supplied to the company to compute its findings. He also questions the validity of press reports that have estimated costs to the county of as much as $34 million. He added that he was “pleased” with the ruling. Mr. Shea practices with Twomey, Latham, Shea & Kelley in Riverhead.

Cost Comparisons

The dispute in Suffolk Supreme Court stems from what the county alleges was a mathematical error made by Segal. The firm initially determined that from 1998 to 2002 the county saved up to $65 million by continuing with the self-insured plan. But after it became apparent that the firm allegedly double-counted the number of employees eligible for certain kinds of insurance for those years, a different picture emerged. Based on revised figures that compared the two plans, the county actually had lost as much as $9 million as a self-insured entity. Suffolk then filed suit.

The action alleges that Segal breached its duty to provide accurate cost comparisons between the two plans. It also contends that the firm negligently misrepresented the comparisons and failed to instruct its own employees on how to perform the work. In addition, Suffolk contends that the firm did not properly advise it about the costs under the state’s plan.

Arguing that it relied on the erroneous figures to its detriment, the county is seeking consequential and foreseeable damages, including the difference between the actual costs of the self-insured program and the comparable costs of the state plan. The county also wants damages for the “negative impact” on the county taxpayers and the county employees, according to Justice Baisley’s decision.

The company, in defending the summary judgment motion, maintains that the county’s argument — that it would have switched back to the Empire Plan had it known about the added expenses under the new plan — is disingenuous. The firm contends that in 1997 the county elected to remain with the self-insured plan for another three years, despite being told that it was costing the county $14 million more than the state plan would have cost.

To support that argument, Segal submitted an affidavit from its senior vice president, Lawrence Singer, who stated that cost comparison work was never contractually agreed upon. He said that only an analysis of the cost associated with the self-insured program was required and that it did the comparison only when asked to do so by a government committee created to analyze the costs. He further stated that he properly analyzed the cost of the new program based on the information provided.

Although Justice Baisley wrote that questions of fact remained regarding the agreement between the county and The Segal Company, he did note a weakness in the defendant’s case thus far.

“Significantly, the affidavit of Mr. Singer fails to mention the double-counting allegation and fails to expressly assert that Segal properly and accurately analyzed and presented the cost of the Empire Plan, not just the [self-insured plan],” he wrote.

Instead, Justice Baisley observed, the company executive stated that he was given population counts by the county and presented the information in different formats to the Suffolk County executive director of the Office of Risk Management and Benefits.

“Segal provides no other proof in opposition to explain its revised cumulative savings results and in doing so, in effect, admits the errors,” the judge wrote.

“I’m not sure whether I exactly agree with the way that’s worded,” said Mr. Shea. He argues that if his client made a mathematical mistake, it was based on incomplete or faulty information that the county supplied to the company. However, Ms. Malafi asserts that the firm “backtracked” from the reason it originally gave for the miscalculation. “In explaining the error, they initially told us that when we provided the numbers, they were just in a different format than expected. But rather than ask questions, our investigation reveals that they went ahead with those numbers,” she said.

Regarding the firm’s motion to amend its pleading to include a claim that the County Attorney’s Office lacked standing to sue, the judge found that although leave to amend should be freely given, the substance of the proposed pleading lacked merit. Specifically, the judge ruled that evidence indicated that then-Suffolk County Executive Robert Gaffney directed the county attorney at the time, Mr. Cimino, to investigate the matter and “commence all appropriate legal actions” after the alleged actuarial mistakes were discovered. Justice Baisley noted that the Suffolk County charter authorizes the county attorney to commence proceedings through either the Legislature or the county executive.

Left to be determined, Justice Baisley concluded, was whether Segal had a duty to provide the comparisons and whether the alleged mathematical errors constituted a breach of contract. Additionally, he wrote that the court needed to know whether the firm knew that the county would rely on the information as the sole or major factor in making the switch.

The Suffolk County self-insurance plan remains in effect, though lawmakers have delayed a decision on renewing the program.

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