MANHATTAN (CN) - An insurance company seeks more than $30 million from the National Association of Insurance Commissioners and The National Conference of Insurance Guaranty Funds, claiming they "engaged in an effort spanning many years to defraud plaintiff from recovering approximately $14 million from the estate of an Ohio insurance company."
Petrosurance sued the two defendants under the RICO Act in Federal Court.
Petrosurance, the sole shareholder of the dissolved Oil & Gas Insurance Co., claims the defendants "were engaged in deliberate lies to deprive Petrosurance of funds" and delayed the $14 million payment by more than 10 years.
The National Association of Insurance Commissioners (NAIC), a regulatory support organization that comprises the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories, was created to establish standards and practices in the insurance industry, to help state officials regulate insurance companies and agents in their states, and to enforce state insurance laws.
The Indiana-based National Conference of Insurance Guaranty Funds (NCIGF) is a nonprofit association that provides national assistance and public policy support to property and casualty guaranty funds in the United States, which provide a safety net for policyholders in case their insurance carriers become financially troubled or insolvent.
"Defendants control state regulatory officials, including the Ohio Superintendent of Insurance (the 'Superintendent')," the complaint states. "Upon information and belief, they exercised that control by advancing various policies that had the effect of thwarting plaintiff, as the sole shareholder of an insurance company closed in 1990, from recovering the more than $14 million that remained in the estate and delaying, until 2011, plaintiff's recovery of those funds."
Petrosurance claims that "NCIGF members receive their funds by the use of 'early access payments' from the estates of insurance companies being liquidated by NAIC members. In the event the 'early access payments' are insufficient or unduly delayed, levies are imposed on ongoing insurance companies, which in turn recoup those levies by increases in insurance premiums to the general public as approved by state regulators."
Petrosurance says an Ohio judge declared The Oil & Gas Insurance Co. (OGICO) insolvent in August 1990 and ordered the Ohio Superintendent to liquidate it.
Petrosurance opposed the order, without much success. When it tried to recover the surplus funds from the company's estate, as its sole shareholder, it claims the defendants directed state regulators to postpone payment for years.
"Despite statutory requirements that the Superintendent make payments to all creditors as and when surplus funds become available, the Superintendent, in reliance of directives and positions of defendants NAIC and NCIGF, did not pay any creditors of the OGICO estate for more than ten (10) years despite the availability of funds to pay all creditors and other entities, including plaintiff Petrosurance, in full from 1998 onward," the complaint states.
"The explanation for the delay advanced by the Superintendent - a position formulated and enforced by defendants NAIC and NCIGF - was first given in 2001 when the Superintendent asserted that the United States government was late in providing formal releases allegedly required by the United States with respect to the OGICO estate and two other estates in Ohio.
"This 'explanation' was a ruse. The United States had never asserted any claim with respect to the OGICO estate, and, upon information and belief, had never requested or required a release."
After 2003 tax returns of the OGICO estate disclosed a surplus of more than $11 million, an Ohio court authorized payments to the company's policyholder claimants, general creditors and state and local governments, Petrosurance says.
It says that in 2006, the Superintendent directed it to file a proof of claim form to assert its rights to OGICO's surplus funds. But before Petrosurance could submit its claim, the Superintendent sued to prevent it from collecting the remaining $14 million.
Petrosurance says the Superintendent was backed by the defendants, who claimed that shareholders of liquidated insurers, such as Petrosurance, were not entitled to any money remaining in the company's estate after all policyholder claims and creditors had been paid.
"Defendants knew since at least March 2003 that their position was misleading and incorrect," Petrosurance claims. "Indeed, while continuing to maintain after March 2003 that entities such as Petrosurance were entitled to nothing, defendants in an amicus brief filed with the Supreme Court of the United States on or about March 3, 2003, but not discovered by Petrosurance until December 2009, made it clear that companies which are shareholders of liquidated insurers are entitled to be paid from excess funds remaining in the estate."
In August 2008 an Ohio judge barred Petrosurance from collecting the surplus money, but Ohio's 10th District Court of Appeals reversed the decision. The appellate court found that the Superintendent had improperly refused to file Petrosurance's claim and to address Petrosurance's objection in a hearing.
After the Ohio Supreme Court upheld the decision last year, Petrosurance was finally able to collect the $14 million, according to the complaint.
Petrosurance adds: "By continuing to advocate positions they knew and had conceded in the Supreme Court filing were wrong, defendants sought to deprive entities such as plaintiff Petrosurance of billions of dollars."
Petrosurance seeks more than $30 million in compensatory and punitive damages for RICO violations.
It is represented by Paul Batista.