Texas Insurer Alleges Vendetta by Florida Regulator McCarty

By | January 10, 2011

A Texas insurance company and its owner are suing Florida Insurance Commissioner Kevin McCarty, accusing him of being vindictive and defamatory in his efforts to ban the company from writing workers’ compensation insurance in his state.

Charles David Wood and his Dallas National Insurance Co. claim they qualify to write insurance in Florida but have been unfairly held to a higher standard than other carriers granted licenses and been denied entry by McCarty and his Office of Insurance Regulation (OIR) because of a McCarty vendetta against Wood.

The complaint maintains that McCarty is pursuing a vendetta because of a 2001 attempt by Wood to do business with another insurer, Bankers Insurance, a firm with which McCarty had a legal dispute 15 years ago when he was working at OIR but before he was named commissioner.

Bankers Insurance hired a private investigator to illegally tap McCarty’s phone and spy on his personal life, including what bars he went to and who came and went at his residence. The insurer had been hoping to uncover embarrassing information to pressure McCarty because it believed he was raising unfair questions that jeopardized the firm’s $16 million contract with the state’s high risk insurance pool for homeowners.

McCarty, claiming that the insurer’s surveillance activities and subsequent airing of the matter affected his relationships at work and his own mental and physical health, brought a tort action against Bankers Insurance. He settled the action against the insurer in June 2000 for $2.6 million. Bankers also had to pay a $1 million fine and remove its chairman, Robert Menke, for three years.

The suit filed last Friday in U.S. District Court for Northern Florida accuses McCarty of abusing his regulatory authority to pursue a deep grudge against Wood because of a deal he struck with Bankers Insurance in 2001. Wood had agreed to loan Bankers Insurance $5 million as part of a deal to get workers’ compensation for one of the staffing firms he owns, AMS Leasing.

Bankers Insurance breached that agreement and Wood never got his workers’ compensation contract but the complaint alleges that as a result of the attempt McCarty became “deeply embittered against Wood, and fanatically determined that Wood would never engage in business of insurance in Florida.”

Wood accuses McCarty of “trumping up” charges that he is “incompetent” and “untrustworthy” — along with a charge that his proposal for a Florida license amounts to an illegal fronting operation — as pretexts for twice rejecting his application to write insurance, once in 2006 and again in 2008.

According to the complaint, McCarty and OIR have questioned if the workers’ compensation deal proposed by Dallas National in Florida is an inappropriate “fronting” operation involving transfer of substantial risk from another Wood-owned company, Companion Property & Casualty. Despite a ruling by an administrative law judge that the arrangement is not fronting, McCarty has continued to argue that it might be, according to the complaint.

The complaint also accuses McCarty of trying to force Companion Property & Casualty to “falsely confess” that the deal is an unlawful fronting operation.

Dallas National went to court to appeal McCarty’s denial of its bid to write in Florida. Oral arguments in that case have been scheduled for Tuesday, Jan. 11. Wood filed his latest suit on Friday, Jan. 7, just days before that proceeding is to begin. He is seeking declaratory relief, attorneys’ fees and damages. The suit targts McCarty individually as well as in his capacity as state insurance commissioner.

The OIR issued a statement on Wood’s complaint against McCarty.

“Although the timing of Mr. Wood’s lawsuit is interesting, the Office is confident the trial court will ultimately determine the allegations in this lawsuit are frivolous and without merit,” the statement said.

McCarty became Florida’s first appointed insurance commissioner in 2003. He began his career in public service in 1988 on workers’ compensation issues with the Florida Department of Labor and Employment Security

Wood owns 100 percent of DNIC Insurance Holdings. Inc, which owns Dallas National Insurance Co., a stock company headquartered in Dallas.

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