CDI Sinks Plans for Unlicensed Marine Agencies

Four entities and three individuals have run aground of the law when it comes to selling marine policies in the State of California.

The California Department of Insurance (CDI) issued a Cease and Desist Order on March 30 against International Marine Underwriters Limited (IMU), International Wet Marine Underwriters (IWMU), Marine Specialty Management, Commercial Water Sports Operator’s Association, Craig Reynolds, Charles O’Hara and Bruce Woods.

CDI’s Criminal Investigations Branch reported that Marine Specialty Management, and O’Hara and Woods, who served as unlicensed employees, did business with California parasailing and boat rental business owners, selling liability and marine insurance policies. However, they were unlicensed as agents or brokers.

CDI Deputy Commissioner Scott Edelen said that this type of illegal activity is not as common as other types of fraud.

“We see a lot more of this illegal activity in the auto business,” Edelen said.

While IMU and IWMU underwrote the policies, CDI investigators discovered that neither of the insurers held a Certificate of Authority from the CDI, which is needed to transact insurance business in the Golden State. In a further strike, both companies failed to appear on the List of Eligible Surplus Line Insurers.

Reynolds and O’Hara reportedly spent the mid-1990s establishing IMU and IWMU, domiciled in St. Vincent in the West Indies. The duo allegedly went on to form Marine Specialty Management in Lake Havasu City, Ariz., which served as a managing general agent for both Reynolds and O’Hara.

In the C&D Order, investigators maintain that IMU and IWMU, while under the ownership, control and management of Reynolds and O’Hara at their Lake Havasu office, sold insurance in California dating back to 1996, while not having a Certificate of Authority from the Commissioner.

Michael Rosenfield, a lawyer with Los Angeles-based law firm Barger & Wolen LLP, indicated that some individuals may attempt to form an association group so they will not be required to obtain a license to sell insurance in the state. “I see all sorts of methods people try and use ” Rosenfield said. “Really, getting a license is pretty simple.”

To complicate matters for insureds who purchased policies from those named in the C&D Order, Edelen noted that the policies sold were far below market value. Woods, who is also the president of the Commercial Water Sports Operator’s Association, marketed and sold the insurance benefits to its members. Marine Specialty Management proceeded to give the public insurance premium figures that were generally 40 to 60 percent down from the standard market rate. The majority of policies sold in California were $1-million liability policies.

Edelen noted that the Insurance Commissioner may, pursuant to Insurance Code Section 12921.8 (a), impose a fine of up to $5,000 for each day the C&D Order is violated. The order allows for the parties named to respond within seven days after they receive the order if they desire a hearing.

In addition, Edelen hopes this serves as a deterrent to other unlicensed operators who may think they can sell policies illegally. “I think people in the business appreciate the efforts of our investigators, and they know we care about licensees who act appropriately and play by the rules,” he added.

Topics California Agencies Excess Surplus