New Orleans Official Involved In Two Separate Insurance Investigations

New Orleans, LA (WorkersCompensation.com) – A Louisiana businessman who sits on two different state boards is appealing a state workers’ compensation insurer’s decision to not cover his businesses based on questions about practices at his previous business.

According to documents from the Louisiana Department of Insurance, Lee Mallett has allegedly under-reported his payroll on two occasions in an effort to lower his companies’ workers’ compensation premiums.

Mallett, the owner of Progressive Buildings and Genesis Life, serves on the Louisiana State University Board of Supervisors, as well as the Louisiana License Board of Contractors. According to the documents, both Progressive and Genesis applied for and were given workers’ compensation coverage by the state-created Louisiana Workers’ Compensation Corporation, but that the coverage was cancelled within 60 days.

In a finding by James Donelon, Insurance Commissioner, the businesses coverage was cancelled after a review of the companies and their records revealed that Mallett appeared to be paying employees a low salary, but excessive mileage reimbursement. Since salary payments are used to calculate workers’ compensation premiums, and mileage expenses are not, Donelon said Mallett’s businesses were able to artificially lower their premiums.

Donelon noted that in a pre-audit of Progressive and Genesis, the agency became concerned about the companies’ payroll records, operations and classification of payroll.

“In one example of such a problem, (name redacted), a Progressive employee, was reported to have been paid wages totaling $17,750 for 2017. Progressive reported that (this same employee) was paid an additional $94,450 in mileage reimbursements for the same time period,” Donelon wrote. “The result being 84 percent of payments to (this employee) in 2017 were not considered in calculating the company’s premium. In order for the payments to have been proper, and her wages excluded from premium calculation as requested by Progressive, (this employee) would have had to drive over 176,542 miles that year which equates to an average of 3,395 miles per week.”

In essence, the employee would have had to have driven from New Orleans to Houston and back each day – a 10-hour roundtrip. Donelon estimated that the amount of driving necessary to accumulate that many miles would take approximately 55 hours per week. If the employee were driving that much, Donelon said, Mallett would have been paying the employee below minimum wage. According to the department’s calculation, the employee’s hourly wage would have been $4.

Donelon cited other examples, including employees whose mileage reimbursement were almost double their actual salary.

“All of these examples point toward the under-reporting of payroll with a resulting under-allocation of premium,” Donelon said.

LWCC based its assessment on a review of Mallett’s payroll and finances. The corporation noted that Mallett’s business, Progressive Buildings, saw revenue of $3.3 million in 2017, but only showed $119,513 in payroll for the classification of sheet metal installation. Nearly half of the company’s payroll was for clerical/office positions, documents said.

Additionally, a large percentage of the company’s payroll, $426,327.33 was classified under “Group Home,” despite the fact that Progressive does not operate a group home.

“Whatever the reason, that distribution of payroll for Progressive resulted in much lower workers’ compensation premium for Progressive than would be expected for a construction company of that size,” documents said. “And the evidence of misclassification of individual employees makes it impossible for LWCC to rely on the applications and payroll records of Progressive for premium calculation purposes.”

LWCC in its documents also alleged that some of the contractors used by Mallett’s company were not insured by workers’ compensation as required by law. Instead, according to documents from the agency, upon investigation, LWCC found that while Progressive said the companies were covered by LWCC for workers’ compensation insurance, the contact people for those companies either denied buying workers’ compensation insurance, or in one case, even being an employee of the contractor’s company.

History Repeats

Donelon said it wasn’t the first time LWCC cancelled an insurance premium for one of Mallett’s businesses.

In 2005, according to documents from LWCC, Mallett’s business, Mallett, Inc., purchased a policy for workers’ compensation from LWCC. Initially, the premium was assessed at $8,117. After an audit, however, LWCC found that the initial rate had been based on inaccurate or incomplete information and that the actual premium should have been $1,226,539.

“In the past, Mallett Inc. paid its employees “per diems” and did not report these payments to LWCC as compensation on which premium would be owed,” LWCC stated in documents. “It was only through a post-policy audit that LWCC was able to uncover all wages, which had been improperly classified as per diems, and assess an accurate premium. Now Progressive (and Genesis) is paying their employees excess mileage reimbursements which are not reflected as wages on the insurance application. The audit performed by LWCC suggests that 2017 wages were underreported to the prior carrier by more than 50 percent as Progressive paid more than half a million dollars in mileage reimbursements.

“The excess per diem paid by Mallett, Inc. in the past and the excess mileage paid by Progressive and Genesis in 2017 demonstrated that Mr. Mallett’s companies are either incapable of properly accounting for expenses claimed by its employees, to the tune of hundreds of thousands of dollars, or that its payroll records substantially understate the actual compensation paid to its employees. In either event, LWCC cannot be expected to insure companies whose financial records make it impossible to accurately calculate premium owed.”

Instead of paying the new premium, however, Mallett transferred ownership of the company to his father, who then declared bankruptcy, court documents show.

Mallett’s attorney, former Louisiana Sen. Larry Bankston filed an appeal in regards to LWCC’s decision to cancel Progressive and Genesis’ workers’ compensation insurance. According to Fox 8 News, Bankston said the decision to cancel the policies was based on punishing Mallett for his outstanding premium instead of for any substantial reason.

Donelon upheld LWCC’s cancellation of the policy saying it would be impossible for the organization to determine an adequate premium based on the incomplete and inaccurate information they were given.

A spokesman for the Louisiana Department of Insurance said in an interview with WorkersCompensation.com that the department does not comment on whether or not any fraud charges would be pending against Mallett and his companies, and that a decision to prosecute, if any such decision was made, would be determined by the Louisiana Attorney General.

A spokesman in the attorney general’s office did not immediately respond to questions regarding whether or not that office is investigating Mallett, or if any charges are pending against him. In an interview with WorkersCompensation.com, an employee in the communications office said the name did not ring a bell, but requested questions in email in order to respond accurately.

Neither Mallett nor Bankston returned requests for comment.

Share This Article: