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Business/Money

May 10, 2012

Jeffersonville disputes insurance contract

Administration: deal signed late last year by Galligan not valid

JEFFERSONVILLE — Just days before leaving office at the end of last year, former Jeffersonville Mayor Tom Galligan signed a two-year insurance contract with Preferred Health Plan.

However, members of Jeffersonville’s new administration, under Mayor Mike Moore, said they don’t plan to keep it, claiming the document is invalid.

“Indiana law does not allow for a municipality to enter into contracts that are unfunded,” city attorney Les Merkley said in a press release. “By entering into this two-year contract as it left office, the prior administration committed tax dollars beyond the existing budget. State law says such contracts are unfunded, and therefore void.”

Merkley said he’s sent Preferred Health a letter to that effect but has yet to receive a response.

The Jeffersonville City Council creates an annual budget, which provides money for insurance. However, those budgets only cover one calendar year, not two.

Does that mean every two-year contract is invalid?

“There are exceptions,” Merkley said.

Indiana statue 36-4-8-12, refers to contracts limited to the amount of appropriation but mentions exceptions such as long-term contracts for utility services or for issuing bonds.

According to Merkley, Galligan signed the deal Dec. 28, 2011, just three days before Moore took office. Further, he said, the city has been unable to find any records of Jeffersonville’s Board of Public Works and Safety ever approving the contract, which Merkley said raises more questions about its validity.

“This is another legal requirement before a contract with a municipality is valid. The mayor cannot unilaterally enter into contracts on behalf of the city without proper authorization.”

Galligan said he was given approval by the board of public works before signing it.

“Everything I did was approved,” Galligan said in a phone interview.

The former mayor said he had to sign it by the end of the year in order to make sure city employees had insurance coverage at the start of 2012.

Edward Culpepper Cooper was the city’s insurance agent of record at the time. Cooper — who insisted that this article specifically denote that he is not a lawyer and is not interpreting the contract — said he brokered the deal and he, too, remembers the board authorizing Galligan to approve it.

“I was there,” he said.

He was not sure about the date in which that permission was granted.

Merkley said it’s not mentioned in any of the meeting minutes and one meeting audio tape from December is missing.

Apart from it being invalid, Merkley calls it a bad deal for the city because of the way the out clause is worded. Apparently, the city can end the contract with 30 days notice but still has to pay Preferred Health.

“[Galligan] entered into a contract that said we can get rid of you PHP, but we still got to pay you,” he said. “It’s absurd.”

The city only found out that the contract existed a few weeks ago.

In late April, the new board of public works — which includes Moore — took a vote to switch insurance carriers, going from Preferred Health to Humana starting July 1. When Merkley called Preferred Health to inform them about the switch, he was informed of the contract.

Merkley said the switch to Humana is supposed to save the city $800,000 in the first year alone. However, that’s only an estimate, as the cost is based on how many claims are actually filed.

“This savings is significant. In this tough economy, taxpayers deserve to know that their dollars are spent wisely,” Moore said in a press release. “It’s unfortunate that had the city been with Humana this year, we would have spent far less on health insurance.”

Preferred health did not return a phone call request for comment on this story by press time.

The contract wasn’t the only one Galligan signed in the closing days of his administration. He also signed a $134,600 contract with Construction Solutions to oversee work at Vissing Park about eight days before leaving office.

Further, Galligan signed an employment contract with former Redevelopment Director T.J. Justice just before last November’s election.

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