A Peabody, Mass.-based insurance agency has been ordered by a Massachusetts judge to pay more than $5 million in restitution to its small business customers after they were overcharged for insurance products.
The final judgment, entered by Suffolk Superior Judge Robert Ullman on January 18, 2019, requires the Kilgore Insurance Agency, agent Andrew W. Crowther Jr. and agency owners Cyrus Kilgore and Jeffrey Kilgore, to pay nearly $5.2 million in restitution for overcharged clients – primarily small business owners – after insurance premiums were padded with hidden agency fees. Nearly 100 clients were negatively impacted by the scheme.
“Kilgore Insurance and its owners orchestrated a scheme to charge consumers millions in undisclosed, excessive and illegal agency fees,” Massachusetts Attorney General Maura Healey said in a press release issued by her office. “We are pleased that with this action, overcharged consumers will receive restitution.”
This most recent action comes after a partial judgment was issued by Superior Court Justice Carol Ball in December 2013, finding no evidence that the Kilgore defendants were aware of Crowther’s active concealment of agency fees and were not directly liable. According to their attorney, the Kilgores and their agency had no knowledge of the overcharges made by the agent Crowther.
The final judgment follows a 22-day trial and a subsequent appeal. The defendants sought further review by the Supreme Judicial Court, but their request was denied.
According to the trial court’s findings, the average hidden agency fee charged to customers was $5,471, or 47 percent of the insurance policy premium, with some fees reaching as high as 462 percent of the premium. Standard compensation for insurance agents selling these policies is around 10 percent.
The initial complaint filed December 22, 2009, by then-Massachusetts Attorney General Martha Coakley, provided four examples of clients impacted by this scheme in which deceptive practices were used over a period of at least ten years.
American Flagging & Signal Control Inc. (AFTC) is a family-owned business that engages in full service traffic control – providing flagmen – including work for both private and governmental Massachusetts entities. It is owned and run by Joseph Dunlap, his sister Kathleen MacPhee, and their mother, Mary Dunlap.
Over a period of nine years, the initial complaint alleges AFTC was charged undisclosed and illegal agency fees totaling $81,475 – fees which represent 79% of the actual policy premiums.
AFTC’s other company, Reliable, was also allegedly charged illegal and undisclosed agency fees during the same period. From the 2000-2001 policy year until the 2006-2007 policy year (during which Reliable was sold), it was charged undisclosed agency fees totaling nearly $260,000.
Following the general liability and umbrella liability insurance policy placements for AFTC and Reliable, at different times, the bound actual insurance policies were not forwarded to the insured party and instead the relevant insurance policy was forwarded but with a declarations page that was altered to reflect its inflated premium, according to the complaint.
In at least one policy year (2007-2008 general liability policy), AFTC was purportedly charged an additional premium for terrorism coverage, despite the fact that AFTC declined to purchase this coverage. For that general liability policy, a TRIA form was provided to the surplus lines broker indicating that AFTC elected to purchase terrorism coverage and including the forged signature of Dunlap. This additional terrorism coverage, charged to AFTC without the owners’ knowledge, cost $979.20, the complaint stated.
Another client was faced with a similar experience, according to the complaint. Alliance Detective & Security Services Inc. is a Massachusetts family-owned business that provides guard patrol, alarm response and dispatch, as well as uniform security guard services to its clients. Alliance is owned and run by Marianne Jenkins, along with other members of her family.
Over a period of seven years, the complaint alleged Alliance was charged undisclosed and illegal agency fees totaling $242,421 – fees which represent 35% of the actual policy premiums.
In many cases following the insurance policy placements for Alliance, the various insurance policies were allegedly forwarded with the declarations and ratings pages altered to reflect the inflated premium.
As a third example, Security III Inc.- a small security business with approximately nine employees that provides unarmed patrols to small neighborhood associations in Boston’s South End – was a victim to the scheme, the complaint said. Security III is owned by Thomas Roche, who purchased the company from the prior owner in 2004 after working as a security guard there for 10 years.
Over a period of six years, Security III was purportedly charged undisclosed and illegal agency fees totaling $46,161 – fees which represent 91% of the actual policy premiums.
In at least two policy years (2006-2007 and 2007-2008), the complaint alleged Security III was also charged the additional premium for terrorism coverage, despite the fact that Security III always declined to purchase this coverage. For these general liability policies, TRIA forms were provided to the surplus lines broker indicating that Security III elected to purchase terrorism coverage, which included the forged signature of Roche. This additional terrorism coverage, charged to Security III without Roche’s knowledge, cost $1,066 in 2006 and $1,120.08 in 2007, for a total of $2,186.08 in additional undisclosed charges, the complaint said.
Finally, New World Security Associates Inc. – a local business based in Roxbury, Mass. – was cited in the complaint as a fourth example of a victim to this scheme. New World was the largest women/minority-owned security firm in Massachusetts prior to its sale in October 2005. Local business women Cassie Farmer and Roberta Adams founded the company in 1990.
Over a period of two years, New World was allegedly charged undisclosed and illegal agency fees totaling $128,700 – fees which represent 54% of the 31 actual policy premiums.
On both of the commercial automobile policies for New World, a commission was paid by the insurance carrier, meaning the defendants were compensated twice on the same placements, the complaint stated.
These examples concerning AFTC, Alliance, Security III and New World, represent four of approximately one hundred Kilgore Insurance clients to which undisclosed and illegal agency fees were repeatedly charged and rolled into the purported premium over numerous years, the initial complaint stated.
Other clients were subjected to the same scheme, by which true premium figures were hidden from clients and agency fees were tacked on. These deceptions included a misleading invoicing system that set forth a purportedly inflated premium including an agency fee, the forgery of clients’ signatures on various insurance documents, alteration and/or failure to disclose parts of premium finance agreements, material alterations of actual policy documents and the failure to provide actual policies to clients in order to hide the true premium amount, according to the press release.
The investigation into this matter found that extra fees were hidden from clients in a variety of ways, including by whiting out the actual premium figure on insurance policies and typing in an inflated figure that included the undisclosed agency fee. The last page of premium finance agreements was also withheld from clients, where the true premium, as set by the insurer, is typically disclosed, the press release stated.
This matter was handled by Assistant Attorney General M. Claire Masinton, with assistance from Insurance and Financial Services Deputy Director Arwen Thoman, Legal Analyst Jasmine Jean-Louis, and Analyst Erica Harmon, all of the Attorney General’s Insurance and Financial Services Division.
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