For more than a year, the taxpayer-funded insurance pool protecting nearly 170 political subdivisions in Nebraska has been at the center of a power struggle between dueling boards of directors.
Last week, a Lancaster County District Court judge ousted all nine people from the original board who had acted in recent years to change how members were chosen and to turn the League Association of Risk Management into a private entity.
In an Aug. 15 order, Judge Jodi Nelson ruled the board members violated the interlocal agreement that the pool, referred to as LARM, had with its member cities and towns and boards for natural resources, sanitation improvement and economic development districts.
Writing that those members were “unlawfully holding and exercising office," Nelson sided with Lynn Rex, executive director of the League of Nebraska Municipalities, as well as the cities of North Platte, Hickman and Ansley, who filed the lawsuit last year.
“Each of the (purported board members) is hereby immediately ousted, removed, and excluded from office on the Board of Directors of the League Association of Risk Management, and has no actual or apparent authority over the same,” Nelson wrote.
The nine individuals named in the lawsuit were each tapped to initially fill vacancies on the board but remained after their terms expired. According to court records, none could show having ever been elected or reappointed.
Ousted were Chairman Gerald Solko, a former St. Paul councilman; Vice Chairman Lane Danielzuk, the city administrator for Gering; and Kimberly Neiman, the one-time village clerk for Pilger, who were all appointed in April 2013 for terms set to expire Dec. 31, 2015.
Also set to leave the board at the end of 2015 was Shannon Stuchlik, a former member of the Northeast Nebraska Economic Development District from Pierce, who was appointed in December 2013.
David Hunter, the general manager of the Auburn Board of Public Works, and Andrew Ward, a councilman in Valentine, were appointed in February 2014 to serve until Dec. 31, 2016.
Beth Bonderson, the village clerk for Hoskins, and Tomas "KC" Ortiz, the mayor of Syracuse, were appointed to the board in February 2015. Ortiz resigned his spot in December 2017 and was replaced by Waverly Mayor Michael Werner, who in turn resigned in August 2018.
Finally, Vince Knight was appointed to the board in May 2015, more than two years before he would be eligible to become a director upon joining the board of Stanton County Sanitation Improvement District 1, records show.
In finding each member in violation of the interlocal agreement governing LARM, Nelson effectively terminated one of the two boards who have made claim to governing the risk-sharing pool operating in Nebraska since 1989.
Rex said LARM's members, those entities contributing to the pool, and the League were pleased with the order, but declined to comment further.
Hunter, reached by phone, said the ousted board members have not decided whether they will appeal.
“Nobody has circled the wagons yet,” Hunter said. Other board members did not immediately return phone calls or emails seeking comment.
Dave Domina, an Omaha attorney representing the now-memberless board, said if an appeal is filed, it would not be about keeping those members, but instead about establishing a procedure for voting in a new board.
"Whether or not that is necessary remains under consideration," he wrote in an email.
Despite Nelson's ruling, the civil war between the two factions of the risk pool, as detailed in publicly available records, meeting minutes, legislative hearings and court filings, appears far from over.
A long simmer
Rex, who serves as a nonvoting board member, and the cities of North Platte, Hickman and Ansley filed a yet-to-be-ruled-on second lawsuit to invalidate changes the board made to the pool's bylaws before it was dissolved.
Those changes, enacted at a March 2018 meeting, reaffirmed Solko and Danielzuk as officers even though both continued serving beyond the end of their terms.
The board also amended bylaws to remove the League of Nebraska Municipalities from any position of authority over the pool, and to eliminate the organization's annual meeting in favor of a voting protocol that called for mail-in ballots and no last-minute nominations.
Domina, who helped develop the protocol, said it aimed to address a long-simmering problem the now-ousted board members had with LARM, which is controlled by the League of Nebraska Municipalities.
“Historically, I understand that this problem started because proxy voting was being used and elections were being controlled by a handful of proxies given to one person who cast the votes to elect the board,” Domina said.
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Members alleged those proxy votes were cast to elect board members favored by Rex, he added.
LARM members, who asked not to be identified while litigation continues, said the allegation that proxy votes were cast for candidates favored by Rex was not true.
Into a boil
The chaffing in how LARM chooses board members dates back years and involves several attempts to amend the organization's bylaws and interlocal agreement.
When first formed by the League of Nebraska Municipalities in the late 1980s in response to an insurance crisis experienced by towns and cities across the state, the interlocal agreement stipulated 2% of the premiums collected would be paid to the League for administrative and managerial services.
But as the pool's membership grew, and the public entity became more independent, the board sought to break its relationship with the League.
Board members, including several of those ousted by Nelson last week, voted in December 2013 to amend LARM's bylaws and eliminate the election that took place at an annual meeting.
The board later cast votes to stop paying the League its 2% in premiums and to seek repayment of previous annual fees, even though the payment is outlined in the interlocal agreement.
Directors also approved a plan to file with the Nebraska Secretary of State to become a private nonprofit corporation.
Turning the pool into a nonprofit concerned many LARM members, though, who feared losing an exemption allowing smaller towns to collect revenue above their property tax levy lid to pay insurance premiums.
In Clay Center, for example, ending the exemption would have meant pulling $30,000 a year from the town's general fund, requiring city services to be scaled back.
LARM never completed the necessary paperwork to become an entity separate from the League.
Meetings by both the board and LARM's membership in early 2018 set the stage for what has become a war of factions within the pool.
At LARM's annual meeting in March, members elected a new 15-member board that has claimed oversight of the organization. That board, which refers to itself as the "Duly Elected Board," passed numerous resolutions calling on members whose terms had expired to resign.
In response, LARM filed its own lawsuit to oust the newly elected board. That suit remains open in Lancaster County District Court.
Mike Nolan, LARM's executive director since 2008, declined to comment.
For the ousted board, a flubbed public meeting in February drew charges that the body had violated the Nebraska Open Meetings Act. The group held another meeting a month later to approve its voting protocol and other bylaw changes.
While each vote was approved unanimously, the Nebraska Department of Insurance said the actions threatened the pool's status under state law.
"After review, the Department has determined that the Director must disapprove of the changes proposed in these bylaws," wrote Krystle Ledvina Garcia, the department's legal counsel, who added the bylaw changes violated sections of LARM's interlocal agreement.
But Bruce Ramge, Nebraska's director of insurance, told the Legislature's Banking, Commerce and Insurance Committee earlier this year the insurance department had no authority to regulate the pool.
A bill (LB573) by Lincoln Sen. Matt Hansen that would have blocked pool funds from being eligible to be paid to third parties such as the League, and that would have given authority to manage elections to the pool's board of directors to the Secretary of State, were the wrong changes to make, Ramge told the committee.
Instead, lawmakers should give the state authority to regulate risk-management pools such as LARM, which he said had been mired in in-fighting for more than two years.
"The department has determined that if the pool were a traditional insurer, the pool's activities would constitute unfair insurance trade practices toward its members," he said.