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Posted on Sun, Aug. 07, 2005
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Campaign could lose Forrester's millions

N.J. law appears to bar his donations, which he used in part to pitch his candidacy as a counterweight to Corzine's.

By Tom Turcol and Cynthia Burton

Inquirer Staff Writers

Republican Douglas Forrester has spent millions of dollars of his own money to run for governor - and to fund other party candidates and groups - despite a state law that appears to prohibit him from making those contributions.

The law bars insurance companies and other state-regulated industries doing business in New Jersey - and individuals with majority ownership in the companies - from contributing to candidates or political organizations in the state.

Forrester holds a 51 percent ownership interest in an insurance company that sells most of its policies to governmental clients in New Jersey.

"All of the kinds of things we've done with regard to contributions have been done appropriately and have been examined by appropriate legal counsel," Forrester said in an interview Friday.

Yet the state election law could put into question the contributions that Forrester has made, including those to his own campaign, since he formed his insurance company in 2003. Under the law, designed to prevent undue influence by insurance companies, banks and other state-regulated industries, prohibited contributions might have to be returned.

The Attorney General's Office, which has strictly interpreted the law over three decades to apply to insurance companies and their subsidiaries, declined to comment.

Forrester's company, Heartland Fidelity Insurance Co., was established by him in 2003 to sell health-benefits insurance. Heartland is managed by a second Forrester company - the New Jersey-based BeneCard Services Inc. - which brokers and administers the Heartland contracts. Forrester said he has made more than $50 million from his business, and he is financing his campaign for governor almost exclusively with his own money.

Since forming Heartland, Forrester has spent $11 million to win the GOP gubernatorial nomination and has said he will also personally finance his fall campaign against Democratic U.S. Sen. Jon S. Corzine.

In addition, Forrester has contributed several hundred thousand dollars to various GOP candidates and committees in the state since forming his insurance company.

Forrester promoted his candidacy to key Republicans partly on his assertion that the party needed a wealthy, self-financed candidate such as him to compete with the wealthy Corzine, who also is financing his campaign. If it is determined that he cannot use his own money to run for governor, Forrester would be forced to raise money quickly from a state GOP whose fund-raising efforts in recent years have been anemic.

Forrester's contributions to his gubernatorial bid have been in the form of loans, which are considered contributions under state campaign-finance rules.

Forrester, after consulting with his attorneys, drew a fine line Friday between the corporate status of the two companies. He said the New Jersey campaign-finance restrictions for insurance companies do not apply to him because he licensed Heartland Fidelity in the District of Columbia.

Heartland "is a D.C. company. It is not regulated by the State of New Jersey," he said through his campaign spokeswoman, Sherry Sylvester. "The statute is not intended to reach beyond the boundaries of New Jersey."

The state law, however, covers companies that "do business" in New Jersey. Heartland's business is produced through BeneCard, a Forrester-owned company with about 100 employees, located in Lawrenceville.

An official at the New Jersey Department of Banking and Insurance said the issue is where Heartland does business, not where it is licensed and regulated.

"If Heartland is selling insurance to New Jersey entities through BeneCard, they're conducting the business of insurance in New Jersey," said Anne Marie Narcini, ombudsman and manager of consumer protection at the state department.

Forrester said in an interview last month that the vast majority of BeneCard's clients were governments and other public entities in New Jersey, and that most were insured through Heartland.

Heartland's contracts with its New Jersey clients are "agreements" between Heartland, BeneCard and the clients (or the "association"), according to contracts reviewed by The Inquirer. The contracts identify BeneCard as Heartland's managing agent.

"The sole purpose," states one of the contracts, is "to provide insurance coverage... to the group and similar groups that enter into this form of agreement with BeneCard."

A national insurance-ratings service also draws little distinction between Forrester's two companies. In a January 2005 report on Heartland, A.M. Best points to their "shared ownership" and refers to the "core relationship [Heartland] has with its affiliated organization BeneCard... . Both Heartland and BeneCard write the majority of its business within New Jersey."

State law expressly bars insurance companies and other regulated industries such as banks, utilities and casinos from making contributions to candidates or political organizations in New Jersey. The law also covers individuals with a majority ownership in those companies.

The section governing the insurance industry states: "No insurance corporation or association doing business in this state shall directly or indirectly" contribute money to candidates or political organizations. It also bars individuals "owning or holding the majority of stock in any such corporation" from making campaign contributions.

Forrester's campaign Web site alerts contributors that "certain regulated industries (casinos, financial institutions, insurance companies, utilities) are prohibited from contributing" to his campaign.

Forrester, through an attorney for his companies, Hersh Kozlov, maintained that he is exempt from the law because Heartland is licensed and regulated in Washington. He said that BeneCard brokers and negotiates the insurance contracts for clients, including those in New Jersey, and the insurance is issued in Washington through Heartland.

"If [Heartland] was regulated by the Department of Insurance in New Jersey, there would be an issue, but since it's not, there is no issue," said Kozlov, a former counsel to the state GOP.

Angelo Genova, a leading Democratic election attorney in New Jersey, said, however, that the law clearly applied to Forrester.

The law, he said, "is about doing the business of an insurance company, not whether it's registered or licensed in New Jersey... . The issue of licensure is not relevant. If they're insuring claims to be brought against BeneCard clients, they're doing business in New Jersey."

A number of opinions from the state attorney general over three decades have strictly interpreted the law to preclude not only insurance companies, banks and utilities, but also their subsidiaries or any other related entities, from making political contributions.

In an opinion this year, Attorney General Peter Harvey said the law, in effect since the 1930s, was intended to "address the evil of corporate influence over elected government officials and to insulate those officials from the sway of regulated industries and/or businesses which are the subject of extensive government regulation."

Harvey made those comments in ruling that a company called Insurance Services Office Inc., which produced data for insurance companies, could not create a political action committee to donate to political causes in New Jersey. Harvey concluded that because ISO was partly owned by insurance companies, it would still be banned from setting up the PAC.

The law "prohibits insurance companies doing business in New Jersey from directly or indirectly using their assets to support candidates for political office," Harvey wrote.

Peter Aseltine, a spokesman for the Attorney General's Office, declined to comment.

The law does not apply to insurance brokers or employees of insurance companies, who can contribute to political action committees.

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