BATON ROUGE -- The Property Insurance Association of Louisiana, the agency that runs the state's homeowners and business insurance program of last resort and the state-run high-risk auto insurance pool, has been subpoenaed to turn records over to a federal grand jury in the wake of a scathing audit that outlined allegations of misspending and questionable expenses, the agency's attorney confirmed Tuesday.  
 
A.J. Herbert III, the chief attorney for the association, said federal investigators have subpoenaed documents, but he did not say what kind of records were sought.

U.S. Attorney Jim Letten, who oversees federal prosecutions and criminal investigations in the New Orleans area, would neither confirm nor deny an investigation is under way.

On Oct. 10, Terry Lisotta, the former chief executive officer of the Louisiana Citizens Property Insurance Corp. and the association, was subpoenaed to bring documents to a federal grand jury. The appearance by Lisotta came a week after Legislative Auditor Steve Theriot's office released a report saying that more than $1 million in expenses were improper or served no public purpose.

Auditors looked at 10 percent of Lisotta's expenses and discovered trips to Bermuda, fishing and hunting outings, expensive meals and cigars and Zephyrs baseball tickets had been billed to Citizens.

Theriot has said his office is continuing its audit of Citizens, the association and the Louisiana Automobile Insurance Program. The Property Insurance Association of Louisiana ran the other organizations.

The audit was sent to lawmakers and federal and state prosecutors for possible action.

The association's subpoenaed documents came to lights after its board went into executive session to discuss legal matters. When it resumed its public meeting, the board voted to hire as "special counsel" the law firm of former Assistant U.S. Attorney Bob Habans to handle the issues related to the federal subpoenas.

The lone vote against hiring the special counsel came from Warren Byrd, Insurance Commissioner Jim Donelon's general counsel. He did not give a reason for voting against the hiring.

Habans will "represent PIAL in response to requests for documents from the federal government," Herbert said after the meeting Tuesday. Asked if that means the agency has received a federal grand jury subpoena, Herbert said yes.

Herbert said Habans will be retained for as long as he is needed in matters relating to the production of documents sought by federal prosecutors or a federal grand jury.

Meanwhile, the Legislative Audit Advisory Council, the panel that oversees and enforces audits, has asked Lisotta and several others to tell what they know about the spending practices at a meeting set for today at 9 a.m. in Baton Rouge.

Lisotta attorney David Courcelle said last month that his client will attend the meeting but will not testify, invoking his 5th Amendment right against implicating himself.

Association Executive Director Joseph Deutsch said all of the "house accounts," the blank-check charge accounts that Lisotta and others used at tony New Orleans-area restaurants, were closed in the past few weeks.

"These were house accounts with open lines of credit," he told the board. "We have now closed them. We have sent them (the restaurants) a note saying they are canceled and no one can use them. . . . This makes sure it doesn't happen."

With the accounts still open, he said, someone could show up and say they represented the association and have a meal on the group. Deutsch said the accounts that were closed were at eateries including Mr. B's Bistro, the Bon Temps Cafe, Dickie Brennan's Steakhouse, Drago's, the Pelican Club, Bacco, the Palace Cafe and Commander's Palace.

Deutsch also said that because there were allegations from auditors and others that some documents may be missing and possibly lost at the Citizens-Property Insurance Association of Louisiana office on Metairie Road before auditors combed through expense reports, he has turned over all shredding operations to Citizens officials.

"Every time it (allegations of illegal destruction of documents) comes up in a meeting, we get killed on it," he said. "Now it will be Citizens doing it."

Herbert said there is no way legally or physically for the association to end its management relationship with Citizens in a month, as the Citizens board demanded in October.

He said a major way to resolve the issues is to have a judge determine whether the Property Insurance Association of Louisiana is a public or private entity. If it is a private entity, as Herbert claims, then many of the findings in the audit could be chalked up to acceptable business practices of a private company.

He has filed a lawsuit asking a Baton Rouge state court judge to rule whether the association, founded as a private fire-rating agency in 1888, has morphed into a public entity over time because it administered the car and property insurance pools.

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