Lighthouse Insurance Misled Hedge Funds Before it Collapsed in 2022, Lawsuit Claims

By | October 31, 2023

A Florida lawsuit brought by private equity fund Fortinbras Enterprises and three others charges that Lighthouse Property Insurance Corp. executives concealed the extent of underwriting losses after Hurricane Ida, even as the insurer solicited millions in fresh capital.

And part of the funds’ $65 million investment was used to pay off a $19 million loan from a Florida bank, but insurance company leaders failed to disclose an “insider relationship” with the bank. The deal left the bank fully repaid but left the hedge funds holding the bag when Lighthouse became insolvent, the lawsuit claims.

The suit also alleges that TigerRisk Partners, now part of Howden, the global insurance brokerage, misled the investors in its pitch for capital and failed to explain the depths of the Lighthouse red ink. The complaint further claims that the Louisiana Department of Insurance allowed a rarely used “conservation proceeding” that gave Lighthouse time to raise much-needed capital – but the arrangement was not made public until later.

In a motion to dismiss the suit, filed Oct. 13, One Florida Bank attorneys said the suit is misguided, largely because the investment fund managers knew all along that the bank would be repaid on its $19 million loan.


“Plaintiffs rolled the dice: They made a risky bet by investing in struggling insurance entities in the wake of a major hurricane,” the motion reads. “Now, out of their money and feeling burned, Plaintiffs set their sights on the only solvent target—One Florida Bank. But the transactions were not fraudulent, nor were they made to evade an impending debt or judgment.”

The lawsuit, filed in August in Orlando, if nothing else, gives a glimpse into the gears that were turning as Lighthouse officials faced unprecedented losses in 2021 after powerful Hurricane Ida hit Louisiana. Lighthouse was deemed insolvent in April 2022, just four months after the $65 million deal with the hedge funds closed.

Howden officials declined to comment. Patrick White, former CEO of Lighthouse, said that early estimates of Ida losses were off and led many to make bad decisions.

“Many carriers, the state itself, and the industry as a whole, had the early estimates wrong,” he said in an email to Insurance Journal. “Fortinbras was aware that the hurricane had occurred and even hired experts of their own to review the numbers throughout the due diligence process. The outcome is unfortunate for all.”

The story begins in 2020. Tampa-headquartered Lighthouse, with 13,800 policies in Florida and thousands more in Louisiana and other states, was managing losses from three storms in Louisiana that year. Lighthouse had reported three straight years of net losses, including $72 million in 2020.

Yet company officials appeared to believe they could still make it work – if only they could line up millions in capital investment. At the same time, the carrier was looking for a potential buyer, just as another Florida-based insurer with a large presence in Louisiana, United Property & Casualty Insurance Co., had tried to do before it was deemed insolvent this year.

It’s not clear exactly when Lighthouse, through TigerRisk, began negotiations with Fortinbras and the other equity funds, HT Investments, Silver Rock Tactical Allocation Fund, and Silver Rock Contingent Fund. The bank’s motion to dismiss said it wasn’t until September 2021. Fortinbras officials have declined to comment beyond what’s in the complaint.

In July 2021, the Louisiana Department of Insurance had placed Lighthouse into a temporary type of rehabilitation, known as a conservation proceeding. That gave company officials a little more time to find investors and gave regulators time to ascertain the extent of Lighthouse’s financial troubles.

The lawsuit charges that the arrangement was a key part of the deception.

“The Original Conservation Proceeding was conducted confidentially and maintained under seal to shield it from the public,” the complaint reads. “Patrick White knew about the Original Conservation Proceeding and concealed it from Plaintiffs despite it being material to the Lenders’ investment decision … Representatives of TigerRisk knew or should have known about the Original Conservation Proceeding and also failed to disclose it to Plaintiffs.”

A current deputy commissioner at the Louisiana Department of Insurance and a former commissioner explained that Louisiana law requires the conservatorship to be kept confidential.

“You don’t want a run on the bank, so to speak,” Robert Wooley, who was Louisiana insurance commissioner from 2003 to 2006, told Insurance Journal. “It would make it a self-fulfilling prophecy.”

Some states, like Florida, require more public access to rehabilitation orders. This was the first time in years a Louisiana carrier was covered by a conservation proceeding, explained John Ford, deputy Louisiana commissioner.

For Louisiana-domiciled insurers that ultimately went insolvent in recent years, “there were no issues that warranted conservatorship prior to Hurricane Ida,” Ford said in an email. “Their Hurricane Ida losses were significant enough that it was clear the companies were not salvageable.”

The Lighthouse conservatorship arrangement came in July 2021 – five weeks before Hurricane Ida hit a large swath of Louisiana, causing more than $31 billion in insured losses. The timing of the proceeding was eye-opening to a Louisiana plaintiffs’ attorney who has handled hundreds of claims disputes against Lighthouse.

“I had no idea that Lighthouse, etc. had been subjected to the conservation procedure even before Ida struck on 8/29/21,” Kirk Guidry, a Baton Rouge attorney who represents policyholders, said in an email.

For the first few weeks after the Category 4 storm, Lighthouse officials may have believed they could weather the losses, and they continued to try and raise money. But by late September 2021, trouble was mounting. That month, the Demotech financial rating firm was planning to downgrade Lighthouse’s financial strength rating as projected Ida losses topped $300 million for the carrier.

It’s unclear when the hedge funds, which had their own hired actuaries, learned of the Demotech downgrade. But the complaint contends that Lighthouse officials did not advertise the bad news.

“Unknown to Plaintiffs, Patrick White and Lighthouse Management reported to LDI that, as of November 30, 2021, the Lighthouse Insurance Companies had already incurred losses of $278 million with an estimated total loss of $316 million. Of that sum, $247 million had already been paid out to claimants as of November 30, 2021,” the lawsuit reads. Lighthouse and TigerRisk “falsely assured” Fortinbras that the total losses would be less than $275 million and well within the carrier’s reinsurance coverage, hedge fund attorneys wrote in the suit.

The plaintiffs argue that they engaged in extensive due diligence before investing but were not provided with key information.

The hedge funds closed the $65 million investment deal with Lighthouse on Nov. 30, 2021, the complaint shows. Less than three months later, in February 2022, Patrick White disclosed to the investors that the Lighthouse companies were in financial distress. In March 2022, Demotech withdrew its financial rating. A month later, Louisiana Commissioner James Donelon signed an order placing Lighthouse into liquidation proceedings.

“All information was provided to Fortinbras so they could diligently review the risks and opportunity and make an educated decision on whether to lend or not,” White said Monday. “We are grateful for the faith they placed in our business model, and are disappointed in the outcome of Hurricane Ida’s reserve development.”

More on Lighthouse: Louisiana Insurance Commissioner Places Lighthouse into Receivership

The Lighthouse 2019 loan with One Florida Bank was not an arms-length transaction, Fortinbras charges, because of “deep connections” between the bank and the insurer. The connections were so intricate that the plaintiffs included an organization chart as an exhibit in the lawsuit, showing a bank executive as having a board seat on insurance holding companies affiliated with Patrick White, and with White’s father having investment connections to the bank.

“By the time Lighthouse Management transferred more than $19,000,000 to One Florida Bank, Lighthouse Management was insolvent,” the complaint reads. “Lighthouse Management had no ability to repay the secured notes at the time of the transfer and to repay the debts due to Plaintiffs, and the Lighthouse Insurance Companies were unable to cover losses from Hurricane Ida.”

The bank’s motion to dismiss downplays the relationship with bank leaders as irrelevant.

“Plaintiffs’ claims concern the flow of money between Lighthouse and Plaintiffs—they have nothing to do with One Florida Bank factually or legally,” the motion reads. “To the contrary, Plaintiffs knew exactly what Lighthouse would do with the money Plaintiffs lent—repay One Florida Bank—because that’s what Plaintiffs required Lighthouse to do.”

It’s unclear if the hedge funds were able recover any of the $65 million they invested in Lighthouse. The bank’s motion to dismiss notes that, “eventually the Louisiana Department of Insurance agreed to transfer to HF and Silver Rock all of Lighthouse Management’s assets…”

Fortinbras representatives declined to comment on that. The Louisiana Department of Insurance official said he had no information on the funds’ recovery. The appointed receiver for Lighthouse could not be reached.

The Lighthouse insolvency came at the height of the property insurance crisis that had plagued Florida and Louisiana-heavy insurers in recent years. While Lighthouse officials blamed weather losses, nine other carriers were deemed insolvent in Florida in the last three years, and most of those attributed their condition in large part to excessive claims litigation, mostly in the Sunshine State.

“Many carriers suffered the same fate (as Lighthouse),” White said. “And Louisiana continues to feel the effects of decreased capacity in the market. I am hopeful that reinsurers, the primary insurers that are left, and the State can continue effecting positive change to improve the market for the amazing people that call Louisiana home.”

The funds’ suit is pending in Orange County Circuit Court in Florida and may not be resolved for years. Fortinbras, based in New York, and the other hedge fund plaintiffs are not the largest private equity funds in the world, but they are well known, according to industry trade news.

Top photo: Lyndell Scott walks past the debris of his gutted home in the aftermath of Hurricane Ida in LaPlace, Louisiana, on Sept. 10, 2021. (AP Photo/Gerald Herbert)

Topics Lawsuits Florida Claims Louisiana

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