Ohio Director of Insurance Lee Covington, acting in his capacity as liquidator of property and casualty insurer Credit General Insurance Company, sued Chicago-based Grant Thornton LLP, certified public accounts and auditor for Credit General.
The suit, filed in Franklin County Common Pleas Court, claims that as a proximate result of Grant Thornton’s breaches of duties of care, Credit General and its policyholders and creditors suffered injuries entitling Covington, in his capacity as liquidator, to recover significant and substantial damages from the company.
As auditor for Credit General, Grant Thornton was required to know the financial condition of the company and to be aware of the provisions of the insurance code and the rules and regulation of the Ohio Department of Insurance that relate to accounting and financial matters. The company also was required to express its opinion on the financial statements of Credit General in the terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the Department of Insurance.
According to the complaint, if Grant Thornton had properly performed its duties of care, Credit General’s true financial condition would have been reported to the Department of Insurance in a timely manner, resulting in assumption of control of Credit General by the Department in time to minimize the damage to policyholders and possibly rescue the company from its ultimate demise. Because of Grant Thornton’s breach of duties, Credit General, its policyholders and creditors suffered harm.
Specifically, the complaint alleges that Grant Thornton breached its duties of care by:
Failing to detect and/or report that Credit General had substantial unpaid losses in the form of self-insured reserves existing under certain worker’s compensation policies that were not secured by admissible assets.
Failing to detect and/or report that Credit General was claiming credit for million of dollars of reinsurance that did not meet the legal requirements for reinsurance issued by reinsurers not licensed in the State of Ohio.
Failing to detect and/or report that Credit General had not accurately reported the premiums and related expenses applicable to the unexpired portion of large deductible workers’ compensation policies.
Failing to detect and/or report that Credit General failed to submit its management, cost sharing and consolidated tax sharing agreements as required by Ohio law.
Failing to detect and/or report certain retroactive reinsurance agreements.
Failing to detect and/or report that Robert Lucia, president of Credit General, was diverting millions of dollars in premiums owed and paid to Credit General into private accounts he controlled and used to pay claims off the books of Credit General and for certain personal expenses.
After concluding an exam of Credit General in late 1999, the department launched an itensified investigation of the company in early 2000. After analysis of the information gathered during the intensified exam, which indicated possible criminal conduct by certain company officials, Credit General was placed under Department supervision on June 5, 2000.
Having uncovered the company’s severely deteriorated financial condition, evidence that the company had filed false financial reports, and indications of possible criminal diversion of funds, the Department of Insurance ordered Credit General to stop writing new business in September 2000.
Covington obtained a court order in November 2000 placing Credit General into rehabilitation, during which time the company was operated by a rehabilitator retained by the Department.
In January 2001, Covington obtained a court order placing the Beachwood Company, which was once licensed to conduct business in 48 states, into liquidation.
Also in January, the Department forwarded information collected during its examination of Credit General to federal law enforcement authorities who continue to conduct a criminal investigation into the company’s practices.
Topics Lawsuits Ohio Reinsurance
Was this article valuable?
Here are more articles you may enjoy.
The Top 15 U.S. Metros with High Exposure to Wildfire Risk 
Berkshire’s Jain on Cyber: ‘The Mindset Should Be You’re Not Making Money’ 
Three Insurers Reject Chevron’s $57 Million Claim for Iran Oil Seizure 
Worsening Weather Igniting $25 Billion Weather Derivatives Market 
