Florida Sues Execs Of Insolvent Insurers

BY DANIEL HAYS
NU Online News Service

Florida is suing the officers, directors and affiliates of three former Florida homeowners insurers, charging in court papers that the defendants bankrupted the companies with a fraudulent scheme that siphoned off assets.

The legal action was announced by Florida Chief Financial Officer Alex Sink on behalf of the Department of Financial Services.

According to her statement, lawyers for DFS—the court-appointed receiver of Atlantic Preferred Insurance Company, Florida Preferred Property Insurance Company and Southern Family Insurance Company (Poe Companies)—have now determined the state has the right to recover additional money.

The DFS lawsuit, filed Friday in the Second Judicial Circuit Court in Tallahassee, seeks damages in excess of $100 million from the officers, directors and affiliates of the now-insolvent carriers.

“Florida’s insurance consumers were forced to foot the bill when the Poe Companies became insolvent so that policyholders could have their claims paid,” said CFO Sink, who oversees DFS. “We will aggressively pursue any opportunity to recoup additional funds to reduce the assessments levied against Florida’s insurance consumers.”

DFS has served as the court-appointed receiver of the Poe Companies since the Second Judicial Circuit Court ordered the carrier into liquidation on May 31, 2006.

As receiver, DFS said it took control of Poe’s operations and liquidated the companies’ assets to pay outstanding claims.

More than 320,000 Floridians held insurance policies from one of the Poe Companies when the companies were ordered to be liquidated, and most policies were automatically transferred into the state’s insurer of last resort—Citizens Property Insurance Corp.—in July 2006.

Ms. Sink’s announcement said the Florida Insurance Guarantee Association (FIGA), which was established by the Florida Legislature to handle the claims of insolvent insurers, has paid $1.2 billion in claims from the three Poe Companies as of Jan. 31.

More than 46,600 policyholder claims have been filed against the Poe Companies, and FIGA expects to pay an additional $123.5 million for claims still outstanding.

As a result of the Poe Companies’ liquidation and need to pay outstanding claims, FIGA assessments could total approximately $790 million on Floridians’ insurance policyholders, the department said.

The court complaint filed by the state charges that after the Poe Companies sustained huge losses from the 2004 and 2005 hurricane seasons, the carriers were “left as empty shells, unable to pay the record volume of claims” as a result of “intentional and fraudulent actions of the officers, directors and/or affiliates of the insurance companies...”

According to the suit, the defendants “engaged in an elaborate scheme to divert the assets of the insurance companies for the purpose of eliminating their personal financial exposure and increasing their personal wealth at the expense of the policyholders, creditors and the people of the state of Florida.”

The complaint alleged that the defendants, who included eight Poe family members, lied to regulators to keep the companies going so that fees could be collected by various affiliated companies resulting in commissions and fees for “insiders whose compensation was based in large part on collected premiums.”