Florida Will Not Appeal Decision Favoring Deloitte in Poe Financial Collapse

The Florida Department of Financial Services (DFS) will not appeal the recent jury decision that found Deloitte & Touche not liable in the insolvency of Tampa-based Poe Financial Group following the unprecedented series of hurricanes in 2004 and 2005.

In 2010, DFS sued Deloitte claiming that the accounting firm should have identified financial issues behind the collapse of the three Poe insurers — Atlantic Preferred, Southern Family and Florida Preferred — when it audited them in 2004 and that Deloitte was negligent in not warning regulators so they could have intervened sooner than they did. DFS was seeking damages for up to $850 million in claims left uncovered after the insurers were liquidated.

In total, the state guaranty fund has paid more than $1 billion in claims on behalf of the three failed Poe companies in what officials say is the largest insurer insolvency to date in Florida.

On May 8 in Leon County, Fla., after a five-week trial, a six-member jury found in favor of Deloitte. The jury said the DFS failed to prove Deloitte had been negligent.

“We are gratified that the jury confirmed this 2005 insolvency was caused by an unprecedented series of eight hurricanes in 15 months, not by an accounting issue,” said Deloitte spokesman Jonathan Gandal in a statement to Florida media outlets.

DFS told Insurance Journal it would not appeal.

“The insolvency of the Poe Insurance Companies represents the largest insurance insolvency in Florida’s history. It was the Department’s belief that Deloitte & Touche was at fault in this matter and ultimately cost Florida’s taxpayers hundreds of millions of dollars. However, the jury carefully weighed the evidence and reached an alternative conclusion. Unfortunately, it is the people of Florida who lost today,” Ashley Carr, deputy communications director for the DFS, emailed to Insurance Journal.

The Florida DFS still has a pending civil suit against the officers, directors and affiliates of the three failed insurance companies. The case was filed in March 2008 to recoup damages in excess of $100 million. The suit claims management paid themselves dividends even after the companies were in financial trouble.

Guaranty Fund

The Florida Insurance Guarantee Association (FIGA), which handles the claims of insolvent insurance companies and is funded by assessments on licensed insurers in the state, had paid $1.2 billion in claims from the three Poe Companies through Jan of 2008.

Shortly after the Poe Companies’ collapse, the state approved a special 2 percent surcharge to help cover the outstanding claims.

In March of 2006, the three Poe insurers began non-renewing and stopped writing new business in the state, with then-Poe President and CEO Jim Wurdeman saying the company was taking “necessary and appropriate action as stipulated by the Florida statutes and that are in the best interest to position the organization for the future.”

The action was not enough, prompting the state’s chief financial officer at the time, Tom Gallagher, to place the insurers into receivership soon thereafter, a move Gallagher said would protect policyholders going forward into that hurricane season.

The Second Judicial Circuit Court ordered the Poe insurers into liquidation on May 31, 2006. As receiver, DFS took control of the operations and liquidated the companies’ assets to pay outstanding claims. More than 320,000 Floridians held insurance policies from the Poe Companies when the companies were ordered to be liquidated, and most policies were automatically transferred into Citizens Property Insurance Corp. in July 2006.

At the time of its collapse, Southern Family covered nearly 43,000 homeowners and condominium and homeowners’ associations. Atlantic Preferred and Florida Preferred provided coverage to 280,000 homeowners, mostly in South Florida, according to DFS.

The Florida Office of Insurance Regulation declined a request by Insurance Journal to comment on the Deloitte ruling.

Topics Florida Carriers Claims