WASHINGTON INSURANCE COMMISSIONER SEEKS LEGAL REDRESS FOR FAILED INSURER

Washington Insurance Commissioner Mike Kreidler has filed a lawsuit seeking damages from three out-of-state companies and their principals, alleging that they defrauded Cascade National Insurance Co. and precipitated the Bellevue insurance company’s financial failure.

Kreidler assumed control of Cascade National in 2004, when the company was placed in receivership by Thurston County Superior Court after finding that the company did not meet statutory financial requirements. The Office of the Insurance Commissioner subsequently initiated liquidation proceedings last fall after determining that the company’s deteriorating financial condition precluded its rehabilitation and that there was no viable potential for its sale.

Cascade National is a Bellevue, Wash.-based insurer that for years focused principally on property and casualty (auto and commercial trucking) coverage in Washington, Oregon, Alaska, California, Mississippi and Louisiana. It provided coverage for approximately 4,600 auto and commercial trucking policyholders in 2004. Its demise followed within a year after it began providing workers’ compensation coverages to more than 10,000 workers in California.

Kreidler filed the lawsuit in King County Superior Court in his capacity as the company’s liquidator. The lawsuit alleges that Cascade was victimized in a deceptive purchase scheme involving several companies and their principals operating in Texas, California, Kentucky and Florida.

Although the amount of damages will be proven at trial, the lawsuit seeks in excess of $10 million that arose from the deceptive practices, breaches and wrongful acts.

Specifically named as defendants are:

• Midwest Merger Management LLC, of Kentucky
• American Staff Resources of California Inc.
• Certified Services Inc.

Also named and identified as principals in the defendant companies are:

• Danny L. Pixler, his wife, Roxann Pixler, of Florida
• Anthony Huff, his wife, Sheri Huff, of Kentucky

The lawsuit also includes 10 unidentified “John Doe” corporations and individuals believed to be affiliated, managed, owned or controlled in whole or in part by one or more of the named defendants in connection with the fraudulent activities.

The lawsuit states that Cascade National had experienced financial difficulties in 2003 and was looking for a purchaser or an investor when the defendants emerged as potential buyers, and began negotiations with the former owners.

The defendants were seeking a workers’ compensation insurer licensed in California to provide coverage for workers in their professional employer organizations, according to the lawsuit. An agreement was reached, including a partial purchase of Cascade National and an obligation for Cascade to provide workers’ compensation insurance to the defendants’ designated clients and employees.

In mid-2004, within months of the transaction with the defendants, Cascade National’s financial troubles markedly worsened when the defendants failed to comply with the contract payment terms and failed to fund reserves while Cascade National’s obligation to provide workers’ compensation coverage under the policies continued, the commissioner’s office said. Cascade’s demands for compliance and payment went unanswered. When the company was unable to meet statutory requirements for security reserves and other reserves, the company was seized on Nov. 30, 2004, and subsequently placed in liquidation.

Cascade National now is in liquidation, and payment for the bulk of the insurance claims has fallen to the respective guaranty associations in the states where the policyholders reside. Any damages collected by Kreidler’s lawsuit against the defendants would go toward offsetting the guaranty funds’ obligations.