Overland Park, Kansas-based Brooke Corp. faces a lawsuit by a bank that is seeking $13 million plus interest and costs for breach of contract. The suit was filed the last week in September 2008 in federal court in Illinois by First United Bank, an Illinois institution. The suit also names Brooke Holdings and Brooke principals Leland Orr and Robert Orr as defendents. Brooke Corp.operates an insurance agency franchise business, along with several related corporations.
The charge by First United says it made separate loans to Brooke Holdings in May, 2008, of $5 million and $7.87 million that were guaranteed by the Orrs. Brooke defaulted on the loans, the suit alleges, and says the Orrs failed to live up to their guaranties.
Brooke reported the suit on Oct. 2 in a regulatory filing with the Securities and Exchange Commission.
Earlier this year, it was reported that Brooke Corp. effectively shut down its lending operations, cut back support offered to its franchise owners. The company began reducing the size of the network and its Overland Park headquarters operations, some of its franchise agencies told Insurance Journal.
In a suit filed earlier this year the Bank of New York Mellon’s alleges Brooke companies and Robert Orr of fraudulently diverting at least $5 million. The money was originally pledged as payments on investments in loans that Aleritas made to insurance agency buyers.
In a motion filed in September, the Brooke companies and Orr said that the money was used to protect collateral behind the loans by helping struggling borrowers keep their businesses open and protect future streams of loan repayments to the investors. The motion also alleged that The Bank of New York Mellon and other lenders failed to pay $4 million of their agreed-upon share of the collateral protection plan, putting the Brooke operations in greater financial peril, according to an account in the Kansas City Star.
The Kansas Department of Insurance issued a release in late September saying it was monitoring the Brooke Corp. situation.
“Our division personnel contacted Kansas-based companies to determine if they have encountered any issues with receiving premiums from their customers,” Kansas Commissioner Sandy Praeger said in a statement. “From what we have gathered, those companies direct bill the policyholders.”
The company has recently cut its work consolidated operations in its Phillipsburg, Kan., support center and sought investment counseling, the Kansas Department of Insurance added.
“Those Brooke lawsuits deal with contractual issues that are not part of the insurance department’s regulatory authority,” Commissioner Praeger said, “but we continue to monitor any potential problems that could concern Kansas consumers and policyholders.”
The Kansas Department of Insurance media spokesperson declined further comment to Insurance Journal about the suits at this time.
No statements were issued about the lawsuits by either the Illinois or New York insurance departments or the offices of the attorneys general.
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