An investigation and complaints fail to prevent contract renewals
POSTED: 1:30 a.m. HST, Dec 12, 2010
LAST UPDATED: 3:25 p.m. HST, Dec 12, 2010
A towing company under criminal investigation by the state's insurance fraud unit has continued to get an exclusive, monthly city contract covering Oahu's busiest tow region despite a seven-year tenure marked by scores of consumer complaints, city fines, damage payments and, more recently, accusations of questionable business practices.
Some auto insurers say the questionable practices have led to inflated tow bills for motorists.
The city repeatedly has renewed Stoneridge Recoveries' contract for police-initiated tows in the downtown-to-Makapuu area even though the company lacks a storage lot in that zone, resulting in higher prices for many motorists because of greater tow distances to its Mapunapuna yard.
The renewals also have come despite insurer complaints that Stoneridge policies made the release of impounded cars more difficult than usual, potentially adding to storage costs for consumers.
Since Stoneridge was awarded the "emergency" agreement in 2003, many motorists whose cars were towed because of parking violations, accidents or other situations in which police were involved have complained about poor handling of their vehicles. Dozens filed damage claims.
Stoneridge and its insurance company have paid an undisclosed amount to resolve roughly 225 cases, including about 15 that went to court, according to judiciary records and company data. In a few cases, default judgments imposed by the court weren't paid until after the Star-Advertiser recently inquired about them.
The situation surrounding Stoneridge's contract became so bad in 2005 and 2006 that Boisse Correa, then the police chief, urged Mayor Mufi Hannemann to terminate the agreement, a recommendation that the city's own purchasing administrator at the time supported.
Correa cited the history of complaints against Stoneridge, numerous lawsuits, breach-of-contract issues and frequent reports by consumers of stereo components, engine parts and other personal property disappearing from their vehicles while at a Stoneridge lot.
"This pattern of unprofessional conduct, accusations, questionable business practices and proposals by Stoneridge jeopardizes the integrity of the city and county of Honolulu," Correa wrote.
Not even the police chief's urgings prompted the city to end the contract, which Stoneridge has held since February 2003, with the exception of about two months in 2004.
Stoneridge's attorney, Mark Kawata, defended the job his client has done.
"For seven and a half years, Stoneridge has taken on the tough job of towing vehicles at the request of Honolulu police officers, mostly under unpleasant circumstances for the vehicles' owners or operators," Kawata said. "The majority of cases resulted from tow-away zone violations and auto accidents. While the job is guaranteed not to win the company many friends and has given rise to vocal detractors, the company's record shows a small number of consumer complaints in relation to the massive number of tows, 100,000 over the term of its tenure."
Despite the controversy that has engulfed the contract from the beginning, the city said it was prevented from re-bidding it because of a Stoneridge legal challenge that took seven years to resolve. The city finally prevailed in May when the Hawaii Supreme Court declined to hear the company's appeal, effectively ending the litigation.
Seven months later, however, Stoneridge still is the city's exclusive vendor for the roughly 10,000 police-initiated tows that occur on average in the downtown-to-Makapuu region each year. The next busiest region, stretching from downtown to Aiea and covered by Ace Towing, averages about 4,700 tows a year.
The monthly contract renewals came despite concerns from auto insurance carriers, towing competitors and others about Stoneridge business practices, which recently led to the fraud investigation.
With the assistance of the National Insurance Crime Bureau, a nonprofit company that looks into fraud concerns on behalf of insurers, the state began a criminal fraud investigation focusing on Stoneridge pricing practices, according to people familiar with the probe. They told the newspaper that the bureau reviewed roughly 500 Stoneridge accident tows from 2009 and early 2010 and found that so-called difficult hookup fees were charged in all but one instance.
By contrast, Oahu Auto Service, the contractor that previously had the exclusive contract for the downtown-to-Makapuu zone, charged difficult hookup fees for no more than 20 percent to 25 percent of its accident tows, according to owner Brian Kunishige.
Under city towing contracts, tow operators are allotted 15 minutes to do hookups once the trucks are in place. In difficult cases that take more time, such as when a car plunges down a steep embankment, operators are allowed to charge a fee for each additional 15-minute increment. The fee is $14 for each increment during the day and $21 for each one at night.
Officials from several Stoneridge competitors said most hookups generally can be handled within the first 15 minutes, and a difficult hookup rate that approaches 100 percent would raise red flags. One insurance carrier checked 17 recent Stoneridge cases with difficult hookup fees and found what the insurer said appeared to be inflated charges on each one.
The insurance carrier compared hookup times on the Stoneridge invoices with records kept by the Honolulu Police Department and found in each instance the company charged for time that went beyond what HPD recorded, according to insurance officials who asked that their company not be identified because of concerns of retaliation against customers. Police typically note on their records what time an accident scene is cleared.
The apparent overcharges in the 17 cases from June and July totaled $1,133, or about $66 per invoice, the insurer said.
Another Stoneridge invoice from a different insurance company showed a difficult hookup fee of more than $250. Based on that fee, Stoneridge took nearly five hours in July to hook up a Ford pickup that had crashed into a concrete median, careened across the street and ended up in a residential driveway.
Stoneridge attorney Kawata said the firm is doing its own investigation into the difficult hookup issue. He declined to comment on specific examples. He also said the company is cooperating with the state's probe, noting that Stoneridge has provided investigators with all the documents they have requested to date.
The state acknowledged an investigation was under way but declined to discuss it.
NICB and most insurers contacted by the Star-Advertiser declined comment, though one e-mailed a general statement. "State Farm is vitally concerned with paying the fair amount owed on claims," wrote company spokeswoman Carolyn Fujioka. "At the same time, we recognize that inflated or fraudulent charges unnecessarily add to the cost of insurance." Fujioka said her company, along with other insurers, is cooperating with the state and National Insurance Crime Bureau investigation.
Police records show that the city received 228 Stoneridge complaints -- half were sustained -- since 2002, far more than any other vendor covering the island's other exclusive tow zones. But Stoneridge, which had a second zone until recently, handles far more tows than any other vendor, according to city figures.
The company with the next highest complaint totals -- 29 since 2003, with 13 sustained -- was Kuni's Automotive & Towing, the data show. Kuni's averaged about 1,000 contract tows a year.
The HPD records also do not reflect the total number of motorists' complaints because they do not include allegations of theft from, or damage to, towed vehicles.
Still, police spokeswoman Michelle Yu said the number of Stoneridge complaints seems to have decreased in recent years. The most common type is failure to respond to a tow call in the required time. Stoneridge's sustained complaints averaged about 11 a year since 2002.
"While it is true that the city would prefer that its contractors have no complaints, the number of complaints, especially in relation to the number of tows, did not result in a determination by the city to pursue an award to another vendor prior to disposition of the protests," city spokeswoman Louise Kim McCoy said in a statement.
Although it's difficult to compare complaint records among the Oahu carriers because of various differences, Stoneridge clearly stands out. By one measure, it averaged about 13 times more complaints a year than Ace Towing, the city vendor with the next busiest zone, while having only slightly more than double the average annual tow volume, according to city data.
City Councilwoman Ann Kobayashi, whose district falls within Stoneridge's exclusive tow zone, said she asked the Hannemann administration multiple times about what it was doing to address the contract problem. She said she never received a satisfactory answer and hopes the newly installed administration of Mayor Peter Carlisle will make changes.
"Why do we keep signing a contract with a company with this kind of record?" Kobayashi said.
Under Hawaii procurement law, the city said, it had no choice but to continue awarding the contract to Stoneridge until the litigation was resolved. But now that it's finished, changes are possible.
"The city intends to solicit new bids for towing contracts that protect the public, are fair to the towing companies and are in the best interests of the city," McCoy wrote. "To that end, it has been reviewing the existing contract language to address the multiple issues and challenges in procuring and administering the towing contracts."
One of the challenges is finding a vendor with a suitable storage lot within the downtown-to-Makapuu zone. When the city received three bids in 2002 for a five-year contract for that area, all were rejected, including Stoneridge's, because the bidders did not have a lot in the region. Kunishige's company now has one, though Stoneridge's attorney questions whether it is sufficient.
Stoneridge eventually got the contract on an "emergency" basis, with the city intending to seek new bids for a multi-year agreement using revised specifications. But Stoneridge's legal protest derailed those plans.
Kawata, Stoneridge's attorney, said the city has never presented demands to his client regarding contract deficiencies and has not had grounds to terminate the contract. "They didn't have a good enough case to cancel it," he said. "They never did."
Noting some positive developments, he said the two sides are close to resolving a dispute over how much Stoneridge owes in unpaid obligations. The city says Stoneridge owes roughly $360,000, including outstanding premiums for the second zone (which it no longer has), fines for contract violations and litigation costs. At the same time, it is contesting the amount Stoneridge claims the city owes the company for unpaid tows. Kawata declined to provide numbers.
Insurers, also detecting positive signs, say they are having fewer problems getting cars released from Stoneridge. In September the company returned to a policy of accepting checks from insurers to accommodate the industry, Kawata said.
"The situation for the past few years has, from the company's standpoint, been stable and good," he said.
Still, more must be done for consumers, critics say. They fault the city for providing insufficient oversight and say motorists are suffering because of it.
"The public is paying more because of the city's ineptness in managing the contract," said Barney Robinson, who operates a gasoline and towing business.