With battle lines drawn, and many hundreds of millions of dollars hanging in the balance, more than 13,000 Georgia home builders are picking sides between their state building association and insurance company in a battle for control of Atlanta-based Builders Insurance Group.
The Home Builders Association of Georgia (HBAG) launched a proxy fight on May 22 to wrest control of Builders Insurance – a mutual insurance company that provides general liability and workers' compensation insurance - from its current leadership. The association expects this month to bring forward enough signed proxies to take control of the insurance company, vote out its board of directors, and appoint a new board, says HBAG executive vice president Ed Phillips. Though a 60-day window for presenting the proxies has passed, HBAG can have the proxies re-signed and counted as the statute of limitations for presenting proxies is unclear.
Builders Insurance responded to the takeover attempt by sending out its own proxies, asking its members to reject HBAG's request. The company claims the association's original move was in retaliation to Builders Insurance earlier this year ending its exclusive agreement with the association. The agreement required membership in HBAG in order to obtain insurance through the company. The insurance company now offers an alternative low-cost membership in the Contractors Benefit Association (CBA), which is based in St. Louis. The price difference, according to Builders Insurance, amounts to as much as $600 a year in dues.
Neither side will say how many signed proxies it has collected, though both say their support is considerable. The next step would be for both sides to present their proxies and have an independent arbiter count and verify the proxies to see which group will be granted control.
The problem, according to HBAG, is that the Builders Insurance board of directors has been discreetly lining its own pockets. Builders Insurance was launched in 1992 by a small group of home builders who were members of HBAG. They feared they would have trouble getting workers' compensation and other insurance after a large insurance company left Atlanta, and so put up their own money to start the company, working for free until 1997. And that's the last part of the story the two sides agree on.
What Builders Insurance policyholders and the home builders association did not realize (until a July 2007 expose in the Atlanta Journal-Constitution highlighted the situation) is that the Builders Insurance board of directors began compensating itself in 1997. Part of the compensation involved a flat fee, and part was tied to how well the company performed.
As a mutual insurance company, Builders is owned by its policyholders and is not required to disclose director compensation the way a public company would have to report to the Securities and Exchange Commission. Instead, Builders reports only to the Georgia Department of Insurance.
The company performed well (it returned over $42 million in dividends to its policyholders since its inception), and each of the six founding directors pulled down between $1.1 million and $1.4 million from 1997 to 2007, according to the Atlanta Journal-Constitution estimate that dug into Builders Insurance documents. HBAG's Phillips was so alarmed by the Journal-Constitution story, he hired an attorney to investigate. The attorney's research of Georgia Department of Insurance documents verified the newspaper's story.
"Nobody had a problem with people spending time, and being remunerated for their time, but it was two or three steps beyond that," Phillips says.
Builders Insurance CEO Patrick Mitchell, himself a member of the board, does not deny that the directors were well-compensated and acknowledges that because the directors did not have to disclose their earnings the way a public company would, they did not. The board, however, did disclose its 2007 compensation as part of the proxy materials it sent to policyholders after HBAG's takeover bid. But Builders Insurance changed the way directors were paid in 2007, moving only to a flat fee. The result is the board's 2007 compensation is about half of what it was in 2006, Mitchell says.
The change in compensation is too little, too late for HBAG, Phillips says. But HBAG can not entirely answer the question of why now. Why did it take them a year from learning about how much Builders Insurance directors were paying themselves before launching the takeover bid? HBAG's Phillips says the group tried to negotiate with Builders Insurance in the interim, but got nowhere.
The details may be in the fine print. As part of what HBAG is asking its membership for (after voting out the current board of directors and installing its six hand-picked choices in their place) is to amend Builders Insurance’s charter to require the HBAG president be elected each year as a director on the Builders Insurance board, and that Builders Insurance no longer offer insurance to anyone other than an HBAG member – dropping CBA as an alternative.
"Regardless of what you may or may not think about director compensation as it occurred in prior years, do you really consider that you want to hand over the keys to a half-billion dollar financial institution to people who have no discernable experience running a company with the stated purpose of running it for the benefit of an association?" asks Mitchell.
Some day this month, says Phillips, HBAG will answer that question, presenting enough proxies (or "consents," as Phillips refers to them) to take control of Builders Insurance. Each side may present a signed proxy from the same person, and the one with the more recent date (assuming both were signed within 60 days of the count), takes precedence.
"Some type of press release will go out announcing that we're marching in with boxes of consents and invite everybody to come to the party," Phillips says. "Stay tuned."
Learn more about markets featured in this article: Atlanta, GA.