There, an instructor gave Gallagher's class a writing assignment: Assess your mistakes and map out your career goals. Gallagher's vision for his own future? He wrote that he hoped to get married, raise a family, get involved in children's issues and run for the U.S. Senate.
Gallagher returned to Tallahassee in December 1996 and hung up his framed Harvard certificate. The term paper was tucked away, but Gallagher has connected the dots of his ambitions with precision and speed.
Get married and raise a family? Two months after returning to Tallahassee, he began dating Laura Lee Wilson, 21 years his junior and a lawyer for the Florida Cable Television Association. He'd met her when she briefed him on telecommunications issues during his 1994 campaign for governor. They were engaged by October 1997, married in January, and she was pregnant with their son by early 1998.
Children's issues? Also in early 1998, Gallagher announced he would run for education commissioner, a post he won and held until January 2001.
The only unrequited goal for Gallagher remains the U.S. Senate, and he clearly hasn't lost sight of the prize: Internal Republican Party politics derailed his move to run for the U.S. Senate in 2000, but Gallagher has remained both visible and powerful by winning back his old seat as insurance commissioner.
And he's not just biding his time in office. Gallagher, 57, wants voters to elect him the state's first chief financial officer, an office being created by changes in the state's constitution that mandate the merger of the Department of Insurance and the Office of the Treasury with the Department of Banking and Finance beginning in 2003.
As CFO, Gallagher would enjoy an enhanced role in the Cabinet, which is shrinking from six to three members as part of the constitutional changes. There, Gallagher would have a pivotal vote on environmental issues and matters involving the state's mammoth pension fund, becoming the state official with the most authority and stature aside from the governor.
Even more important to his ambitions: If the Legislature structures the office the way Gallagher wishes -- and if he wins the election for the job in November -- he will control a regulatory behemoth overseeing a spectrum of financial businesses ranging from state banks and credit unions to mortgage brokers and insurance firms. (He would also oversee the training of firefighters, the regulation of explosives, the chartering of state banks and financial institutions and would issue every state payroll check and monitor every agency budget.)
As CFO, Gallagher would also sit atop a fund-raising base that any politician would covet -- the final stepping stone, his many supporters believe, in his quest for the U.S. Senate, or the governor's office.
Gallagher needs that strong base. His intelligence and administrative skills have won him friends across the political spectrum: Linda Shelley, former chief of staff for Democrat Insurance Commissioner and now U.S. Sen. Bill Nelson, says, "People feel very strongly about Tom Gallagher. Either you really like him or you don't. I like Tom."
But Gallagher's associations and ambitions also have generated criticism from some that he's more interested in power and helping his friends than in good public policy.
Comptroller Robert Milligan, for example, is so disturbed at the way Gallagher wants to organize the CFO's office that he may challenge Gallagher for the job unless Gallagher agrees to changes that Milligan believes will minimize its political influence. Meanwhile, some industry executives are concerned about Gallagher's plan to merge the windstorm and property and casualty pools and about other moves he's making to extend his control over the various state-run risk pools ("Tom Gallagher's World," page 44).
And while Gallagher is a proven money-raiser for the GOP, some in the party resent his philosophical and financial independence from the right-leaning orthodoxy of Florida's GOP leadership.
"Tom Gallagher does his own thing," says Ron Book, a Tallahassee lobbyist and Miami consultant who has known Gallagher since Gallagher's days as a state legislator. "His political base is out of the party mainstream. His (political donations) are not part of the mainstream."
Gallagher, the oldest of eight children from a middle-class Irish Catholic family in Wilmington, Del., has been an achiever all his life. As a teen-ager, he awakened himself at 3:30 a.m. to get to the local YMCA because that was the only time available for him to practice swimming. He attended an all-boys Catholic high school, where he held a state high school swimming record in the breaststroke and won a partial swimming scholarship from the University of Miami. Gallagher earned a degree in business administration in 1965 and was then drafted into the service, where he served in the U.S. Army's Presidential Honor Guard for two years.
In 1972, when he was 28, he stunned his friends and decided to run -- as a Republican in the middle of the Watergate era -- for the Florida Legislature from Coconut Grove, an artsy, offbeat Miami neighborhood that had never elected a Republican. He put family members to work, developed an organization and walked the neighborhoods, capitalizing on his looks and smooth personal style.
Gallagher lost that race but won easily two years later, holding the seat for 12 years and earning a reputation as a moderate Republican, a go-to guy as one of the few GOP legislators on the House Budget Committee. Divorced from his first wife in 1980, Gallagher earned a party-boy image, sporting his gold Mercedes convertible around Tallahassee and hosting after-hours soirees during legislative sessions.
In the 1980s, Gallagher ran for governor twice, picking Betty Easley, a respected House veteran, as his running mate for the 1986 campaign. They finished third in the primary, but Gallagher endorsed Bob Martinez, the victor, who appointed Gallagher to head the Department of Professional Regulation. Less than a year later, he won the insurance commissioner's race and was re-elected in 1990.
Gallagher faced his greatest leadership test in 1992 after Hurricane Andrew and the near-collapse of the state's insurance market. He won accolades for acting decisively -- demanding that top executives of the nation's biggest insurance companies travel to Miami to tour the destruction with him and extracting assurances that they'd pay claims quickly. He urged lawmakers to create a catastrophe fund to help cover claims and passed a moratorium on the number of Florida policies insurers could dump.
On other issues, he has earned a reputation as a steady environmentalist in the Cabinet and as one of the creators of the Healthy Kids Corp., a program that provides health insurance for more than 150,000 schoolchildren.
Gallagher's family attributes his political drive to his father's activism -- a residential real estate agent, his father ran unsuccessfully for mayor of Wilmington -- and a sheer supply of energy and drive. "My mother always said Tom has never needed more than 15 minutes of sleep," says Tami Samper, 36, Gallagher's youngest sister. "When he's not doing something, he's still busy."
The mid-1990s saw Gallagher's political star nosedive, however, after he lost to Jeb Bush in the 1994 Republican primary for governor. In what became the state's biggest campaign finance scandal, the FBI investigated Riscorp, a Sarasota-based workers' compensation company, for making illegal campaign contributions to 80 Florida candidates. Riscorp President William Griffin was convicted and served five months in federal prison.
The candidates included Bill Nelson, Gallagher's successor as insurance commissioner and now a U.S. senator, and Gallagher, who received more money than anyone else. Gallagher says he did nothing wrong; in fact, none of the 80 candidates who received contributions from Riscorp was charged with wrongdoing. Today, as a member of the Cabinet and clemency board, Gallagher says he's open to restoring Griffin's civil rights. "I don't have any problem with him getting it. He's a first-time offender, and the process is you get automatic clemency, and I wouldn't stop it," Gallagher says. "He's a nice guy."
Another association impacted Gallagher as well. In 1995, he went to work for his longtime fund-raiser and business colleague, Jim Bax.
That stint ended abruptly when state law enforcement officials raided the Clearwater offices of Bax's testing services company, National Assessment Institute. The Florida Department of Law Enforcement had been investigating Bax as chairman of the state-run property insurance pool when investigators turned their attention to his company. They suspected Bax of intentionally overbilling the state for testing services.
Investigators hauled away boxes of documents, and the company was dismantled. No charges were filed. The state never recovered the $155,000 investigators said the company owed the state.
Gallagher, who resigned from Bax's firm after the investigation, has been explaining it ever since. Supporters say he did nothing wrong; adversaries think he got lucky. Ralph Haben, a former Democrat House Speaker and one of Gallagher's closest friends, says Gallagher is loyal to a fault: "Tom will sometimes help his friends and not know that his friends may not be at the same level of integrity he is." Haben says he and other friends, including many former legislators, warned Gallagher to be careful. "Perception is the problem," Haben says.
For his part, Gallagher says he has been investigated more than anyone in state government and has never been charged with a crime. All his experience -- from Hurricane Andrew through Bax -- has taught him to be a better administrator, he says. "This time around, I have the ability to foresee problems, anticipate things that could end up being problems and make it easier to take care of them," he says.
The biggest bump for Gallagher on his return to prominence came when Gov. Bush and Republican Party Chairman Al Cardenas derailed his plans to seek Connie Mack's Senate seat when Mack retired in 2000. In a meeting described as "heated and harsh," Bush and Cardenas told Gallagher they did not think he could win the party's primary against conservative U.S. Rep. Bill McCollum and said they wanted him to run for insurance commissioner again to avoid a bitter intraparty battle.
Gallagher finally agreed, with the understanding that the party would back him for the CFO job. Gallagher knew the job would be powerful, precedent-setting and a fund-raising monolith. The job will "go down in the history books," he says.
Ultimately, how much authority the CFO office commands over the financial services and insurance industries -- and how much fund-raising strength Gallagher gains -- will depend on how the Legislature structures the CFO office. Gallagher is willing to have key appointees with regulatory authority face full Cabinet approval but wants the CFO, presumably himself, to have final authority for regulatory decisions.
The Legislature is divided over how to structure the office. The Florida Senate, led by Senate President John McKay and former Insurance Committee Chairman Sen. Jack Latvala, is siding with Gallagher. Latvala says Gallagher has "matured greatly as an elected official" and believes a strong CFO is important to balance the power on the Cabinet next year, when the governor's strength will increase because he will have authority to choose the education commissioner and the secretary of state. "Tom is not afraid to take on the governor when he thinks he's wrong, and stand toe-to-toe,'' Latvala says.
The House and Bush have aligned with Milligan, who has been on an eight-year crusade to remove politics from the Office of Banking and Finance. Republican House Speaker Tom Feeney endorses Milligan's approach. "It's a little frightening to have anybody with that much political influence in one job," Feeney says.
Milligan believes the CFO should directly oversee only the nuts and bolts of the state's finances, managing and auditing the state's various accounts, issuing paychecks and the like. Milligan would place regulatory oversight over banking, insurance and securities in the hands of a Department of Financial Services; the governor and Cabinet would choose and supervise its executive director.
Milligan believes Gallagher's structure puts too much regulatory control in the hands of one official. "If everything is under the CFO, I just believe there is an opportunity for influence that does not work in the interest of the industries that are regulated or the consumers served by those that are regulated," Milligan says. "It is not good public policy."
Gallagher argues that if the Legislature can't come up with a bill to establish the CFO structure by the 2003 deadline, the courts will decide and, by default, give his office the controlling authority. That prospect so disturbs Milligan that he is threatening to run against Gallagher. "If the Legislature does not take responsibility and if it is thrown to the courts, I will give very serious consideration to running for CFO to ultimately get it fixed."
Gallagher is formidable in election fights. Republican Party polls show him with more name recognition than any Republican in Florida with the exception of Bush and Lt. Gov. Frank Brogan. Gallagher performed better in Florida during the last election than did President George W. Bush.
If Gallagher gets his way on the CFO issue and wins the November election for the job, he will be well-positioned to await the next available Senate race, which could come in 2004 if Sen. Bob Graham decides not to seek re-election, or the governor's race in 2006.
Laura Gallagher, who came across her husband-to-be's Kennedy school paper while cleaning his house when the two were dating, says the similarity between Gallagher's plan for himself and events is "really kind of eerie. But if you know Tom Gallagher, you know it's in his blood. This is his calling."
Insurance: Tom Gallagher's World
Over the past 30 years, the Florida Legislature, responding to insurance crises, has created half a dozen special "insurance risk pools." These organizations -- part insurance company, part state agency -- sell coverage to Floridians who can't find various kinds of insurance in the open market. Like insurance companies, they're regulated by the Department of Insurance. Like state agencies, they're subject to open records laws and must bid out contracts according to state guidelines. Some pools are governed by boards of directors made up almost entirely of insurance industry representatives. In other cases, the state's insurance commissioner chooses some or most of the board members.
A great deal of politics swirls around those boards and the services they purchase: Each year, risk pools spend millions on outside lawyers, accountants, consultants and claims processors. The auto JUA alone last fiscal year paid nearly $300,000 in legal fees, for example. Even the Florida Comprehensive Health Association, a small pool, paid $100,000 in outside legal fees last year.
The state's insurance commissioner doesn't directly control the insurance pools but can influence them through board appointments and the power of the office. Industry representatives serving on the boards hesitate to go against the Department of Insurance's wishes. One experienced insurance executive describes the commissioner's power this way: "Here's a guy who has the power to audit you, control the products you sell and set the price you sell them. That's a big stick."
Like previous insurance commissioners, Tom Gallagher has taken pains to appoint allies in key positions on the various boards to influence the operations of the risk pools -- and extend his political influence. Some examples:
Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA)
Purpose: Prompted by Gallagher and created by the Legislature after Hurricane Andrew in 1992, the residential JUA insures some 96,000 property owners from hurricane damage.
Issues: Continuing to depopulate the JUA, which at one time had nearly 1 million insured.
Commissioner's initiatives: The residential JUA is the pool most aligned with Gallagher, who appoints eight of the 13 board members. The chairman is Tom Petway, a Jacksonville insurance executive and major campaign contributor to Republicans. William O'Neil, Gallagher's former general counsel at the department and a close adviser, serves as vice chair. Last year, a company founded by John Kummer, a former deputy insurance commissioner under Gallagher, emerged suddenly to land a big contract to computerize the JUA ("Insurance, Behind the Scenes").
Florida Automobile Joint Underwriting Association (FAJUA)
Purpose: Formed in 1973, the auto JUA was the nation's first joint underwriting association; it provides insurance to high-risk drivers who can't find coverage.
Issues: Some insurers in the high-risk market are failing, and the auto JUA's rolls are now expanding.
Commissioner's initiatives: Board members tied to Gallagher, who appointed five of the 11 on the board, have moved to review the JUA's vendor contracts, including a contract for legal services with Katz, Kutter, Haigler, Alderman, Bryant & Yon ("Insurance, Behind the Scenes," page 45). Gallagher also enlisted Ted Blanche, an ally and a prominent reinsurance broker with business ties to Florida's insurance pools, to lend some industry heft to Gallagher's effort to keep a small group of struggling south Florida auto insurers afloat.
The plan calls for tapping the auto JUA's $80 million in surplus to bail out the companies. Some of the heads of these Miami-based companies -- Jose "Pepe" Alvarez and John Ricciardelli -- have been longtime supporters of Gallagher since his days representing Miami in the Legislature. Industry representatives on the JUA board question whether the JUA should be propping up companies if they can't survive in the market. Gallagher's staff counters that intervention is needed to keep the crisis from worsening. The board is expected to vote on the matter in April.
Florida Windstorm Underwriting Association (FWUA)
Purpose: Created in the late 1970s, this Jacksonville-based pool provides coverage for wind damage to homeowners in coastal areas. The pool now insures 425,000 policyholders.
Issues: Governance. FWUA is one of the most independent of Florida's risk pools and is controlled by an insurance industry-dominated board.
Commissioner's initiatives: Gallagher, who has only one appointment to the board, tapped Miami lawyer and lobbyist Michael Svaldi, who during Gallagher's first term had received the coveted contract to liquidate the 11 insurance companies that failed after Hurricane Andrew.
Gallagher is now trying to merge the windstorm pool and the residential JUA into a new insurance pool called the Citizens Property Insurance Corp., over which the insurance commissioner would have greater control. Unlike all of the other insurance pools, the windstorm pool services its own claims.
Insurance industry representatives say the merger makes sense from the standpoint of operational efficiency but caution that it could backfire if Wall Street perceived political motives and downgraded the state's bond rating -- costing the state millions if it needed to borrow money to pay off claims resulting from a big hurricane. The industry is likely to push for a gradual merger rather than the one-gulp merger strategy Gallagher proposes.
Florida Comprehensive Health Association (FCHA)
Purpose: Closed to new members since 1991, Florida's health insurance insures about 650 of the sickest of the sick.
Issues: The size of the pool.
Commissioner's initiatives: Gallagher has named his deputy insurance commissioner, Kevin McCarty, as chairman of the three-member board that governs the health insurance association. Gallagher wants the Legislature to reopen the association to new members who can't get medical coverage elsewhere. Pete Dunbar, a Gallagher ally and the FCHA's legal counsel, is supporting the change.
Florida Workers' Compensation Joint Underwriting Association (FWCJUA)
Purpose: Providing workers' comp insurance.
Issues: Like the health pool, the workers' comp pool has been shrinking. Based in Sarasota, the pool collected only $5 million in premiums in 2000, down sharply from the $328 million it took in at the height of the workers' comp crisis in 1993.
Commissioner's initiatives: The insurance commissioner appoints the chairman of this pool's board, but the other 12 members are insurance industry representatives.
Neurological Injury Compensation Association (NICA)
Purpose: Formed in the 1980s, NICA pays for long-term care as a result of injuries that occur during the final stages of birth -- eliminating some potential malpractice claims. The pool is funded by assessments on practicing physicians and hospitals.
Commissioner's initiatives: Last year, the NICA board, including Gallagher's new appointees, transferred NICA's authority over $50 million in assets from the money managers hired by the association to consultants hired by Gallagher's department.
Insurance, Behind the Scenes
Like previous insurance commissioners, Tom Gallagher exercises his influence through his regulatory power and appointments to the boards of directors of the various state-run insurance pools, which generally function outside the spotlight in Tallahassee. Industry observers credit Gallagher with usually making strong policy. But they say his strong desire for control and to reward his allies frequently leaves the heavy scent of politics in its wake. Three cases in point:
Case 1: John Kummer
Since Gallagher took office as insurance commissioner in January 2001, he has moved to maximize his influence over the state-run insurance pools by appointing allies to their boards of directors. In many cases the boards have begun reviewing the contracts between the risk pools and vendors of legal and other services -- and in some instances have awarded contracts to those who helped Gallagher during his first term as insurance commissioner.
At the Florida Residential Property and Casualty Joint Underwriting Association, for example, Gallagher's friend and former employee, H. John Kummer, formed a company that came out of nowhere to win a FRPCJUA computer contract.
For more than a year, the residential JUA had been seeking someone to develop a software system that could rate and issue policies at a lower cost than it was paying its current vendor. But after Gallagher took office in January and replaced eight of the 13 board members, the board rejected three previous bidders and decided it wanted a system that would allow the FRPCJUA to service its claims in-house as well as rely on outside vendors, says James "Jay" W. Newman Jr., executive director of the FRPCJUA.
Meeting in an executive session in March at which no records were kept, three board members recommended Kummer's company, Sarasota-based Insurance Management Services Office. A week later, the full JUA board awarded IMSO a $1.5-million contract. The JUA may purchase up to an additional $500,000 in services from the company. Board member John Ricciardelli, a Miami insurance exec whose specialty auto insurance company, Underwriters Guaranty, is under state supervision, championed Kummer's bid, as did Mike Colodny, the JUA's general counsel, who has done work privately for Kummer. Five Ricciardelli-related companies have given $2,500 to Gallagher's CFO campaign.
The few JUA documents that are available indicate that Kummer promises to "tailor the system to (the JUA's) needs" and do it with fewer employees and at less cost than two of the closest competitors. Joining Kummer in the IMSO venture are Joe Cooper, who worked with Kummer at the Insurance Department during Gallagher's first term, and Bill Galloway, Gallagher's former chief of the property and casualty division. The company missed an Oct. 1 deadline for having the system operational. As of early January, it still wasn't working.
Gallagher says that the JUA's decision to give Kummer the contract was out of his control. "You're getting into things I don't manage," he says.
Gallagher may have not picked Kummer's firm, but the JUA board clearly knew Kummer as a Gallagher ally. In 1994, Jim Bax, then chairman of the JUA and Gallagher's chief fund-raiser, created a non-profit company he said would manage the JUA's policy and claim services at a discount, saving the JUA millions. Bax plucked Kummer, a talented CPA and computer whiz, from the Insurance Department and named him chief executive officer of the company, Shared Market Insurance Services Inc. of Sarasota. SMISI obtained a contract with the JUA in January 1994.
The company eventually folded a year later, after incoming Insurance Commissioner Bill Nelson, a Democrat, commissioned an audit that alleged SMISI received higher fees than other servicing carriers and spent lavishly on executive perks. The results of federal and state investigations into SMISI were never released. Kummer and three deputies sued the JUA for breach of contract. The case was settled out of court; Kummer collected nothing; the deputies divided $394,000.
Gallagher defends Kummer's competence and suggests the audit itself was politically motivated. "I don't think what was done was necessary," he says. "There was no money missing. Nothing was done wrong in accounts. They might have had a $300 coffee maker. I mean, excuse me."
Gallagher says he hasn't read the audit Nelson commissioned and doesn't give it much credence. "I don't know who hired them, but my guess is they got the results they wanted," he says.
Case 2: Katz, Kutter
Katz, Kutter, Haigler, Alderman, Bryant & Yon is a politically active law firm in Tallahassee that does business with many Florida government agencies, particularly in the insurance field. For years, the firm has been the legal counsel for the Florida Auto Joint Underwriting Association and also is the counsel for the Florida Windstorm Underwriting Association. Allan Katz, a Democrat, is a former deputy to Gallagher's predecessor, Bill Gunter, and the firm is rumored to have cooperated actively with the investigations into Bax and Griffin, the chairman of Riscorp, both Gallagher allies.
Since Gallagher took office in January, the firm has lost business with one risk pool and may lose more. In December, the firm was dumped as legal counsel for the HMO Consumer Assistance Plan, the HMO risk pool. At the windstorm pool, officials say they were keenly aware of bad blood between Gallagher and the firm. The pool has retained Katz, Kutter as its general counsel, but decided not to keep it as its lobbyist.
At the auto JUA, the board of directors decided to review all the JUA's contracts with outside vendors, a legal approach under the board's authority. It appointed a committee chaired by Pete Dunbar, a respected Tallahassee lawyer who's former chairman of the state's Ethics Commission and a former campaign manager for Gallagher, to solicit new proposals from outside vendors, including legal services. "Some of these contracts haven't been looked at in 15 years or longer," says Dunbar, a Gallagher appointee to the board. "I'm not sure that's good business practice."
By comparison, two other risk pools -- Florida Residential Property and Casualty JUA and Florida Comprehensive Health Association -- have used the same outside law firms for years. Neither of those pools has plans to review their vendor contracts.
Katz, Kutter declined to comment on its business with the risk pools.
Case 3: Dr. Scott
Earlier this year, Steven M. Scott, a physician-turned-entrepreneur and politically active Republican in Durham, N.C., was waiting anxiously for the Florida Department of Insurance to approve his purchase of an ailing Florida HMO called Foundation Health, which was owned by a Los Angeles company, Health Net Inc.
Scott was well-known to the department and to Gallagher. The department had already approved Scott's purchases of four other troubled Florida HMOs. And Scott had given generously to Gallagher's campaign for insurance commissioner last year. All told, 22 companies owned by or related to Scott each contributed the maximum allowable $1,000 to Gallagher's 2000 campaign. Scott and his lobbyist, Will McKinley, had met with Gallagher on several occasions as Scott made his other purchases.
In late June, state regulators were still reviewing the Foundation Health deal, and analysts who cover Health Net were becoming skeptical whether the transaction would win the necessary approval.
On June 30, 20 subsidiaries of Health Net -- all of which are based in other states and operate independently -- each contributed the maximum allowable of $500 each, a total of $10,000, to Gallagher's campaign for the newly created post of chief financial officer.
One month later, on July 31, regulators signed off on the sale of Foundation Health to Scott. A spokesman for the company rejects any suggestion of a quid pro quo and says the company makes a large number of political donations. The company had not given to Gallagher previously during his run for insurance commissioner and clearly went to some effort to gather checks from 20 subsidiaries to give to a politician in a state in which it would no longer be doing business.
Did the donations and politics play a role in the sale approval? Most companies that do business with the department make campaign contributions to candidates for insurance commissioner. Was the decision to allow the sale bad policy? The jury is still out on Scott's business strategy, but his five highly leveraged HMOs, with more than 700,000 policyholders, are still in business, and the state has avoided having to take policies into a guaranty fund.
Gallagher says he had nothing to do with the timing of the purchase approval. He says he didn't even know Health Net was the parent company of Foundation Health until Florida Trend mentioned it. "I don't get involved in any decisions that are made in regards to whether companies are or are not approved," Gallagher says. "That's way below my level." He also says he didn't know about the contributions from Scott's companies. "I didn't know he did that," Gallagher says. "I look through all the contributions, and that didn't come out at me."
Two weeks after Trend inquired about Health Net's contributions, Gallagher's office called to say that the commissioner was returning Health Net's money. "If it came in at some time when something was going on at the department, it would make it look bad," he says. "Perception is reality in politics."