Washington Insurance Commissioner Seeks Legal Redress for Failed Insurer

Editor’s Note, March 2009: In response to a complaint that the Insurance Journal reported only one side of the preceding story, and as a means of resolving Anthony Huff’s claims against the Insurance Journal’s publisher in the lawsuit styled Huff v. Wells Publishing, Inc ., 08-CI-731 (Jeff. Cir. Ct. (Ky.)), Mr. Huff has submitted the following rebuttal statement, which reflects the position he and his-co-defendants have taken in the underlying lawsuit:

“Midwest Merger Management LLC, Danny L. Pixler and his wife and Anthony Huff and his former wife (Defendants) all deny the allegations of the Complaint. The individual Defendants and Midwest loaned funds to an investor in Cascade. They were led to believe that Cascade was on firm financial footing when they transferred $1 million to Cascade in late 2003. Over the ensuing months they paid approximately $13 million to Cascade. Unbeknownst to the Defendants, Cascade was in terrible financial shape and had agreed to Insurance Commissioner receivership the month before the first payment was made. Indeed, at the time the Midwest Defendants loaned the money to be invested in Cascade, Cascade’s real reserves were only about 60 percent of what was required by law. There is no proof, indeed no serious allegation, that in mid-2004 the Defendants ‘failed to comply with the contract payment terms.’ Rather in August of 2004 the Insurance Commissioner began making demands on Cascade and ultimately upon some of the other Defendants for exorbitant sums of money — approximately $50 million — to fund insurance operations in California. If the Defendants had known about the extent of Cascade’s financial problems and if they had known about the $50 million funding requirement, they never would have loaned money for investment in Cascade.”

Original Story, published on May 18, 2006:
Washington Insurance Commissioner Mike Kreidler has filed a lawsuit seeking damages from three out-of-state companies and their principals, alleging that they defrauded Cascade National Insurance Company and precipitated the Bellevue insurance company’s financial failure.

Kreidler assumed control of Cascade National in 2004 when the company was placed in receivership by Thurston County Superior Court after finding that the company did not meet statutory financial requirements. The Office of the Insurance Commissioner subsequently initiated liquidation proceedings last fall after determining that the company’s deteriorating financial condition precluded its rehabilitation and that there was no viable potential for its sale.

Cascade National is a domestic Washington company based in Bellevue that for years focused principally on property and casualty (auto and commercial trucking) coverage in Washington, Oregon, Alaska, California, Mississippi and Louisiana. It provided coverage for approximately 4,600 auto and commercial trucking policyholders in 2004.

Its demise followed within a year after it began providing workers’ compensation coverages to more than 10,000 workers in California.

Kreidler filed the lawsuit today in King County Superior Court in his capacity as the company’s liquidator. The lawsuit alleges that Cascade was victimized in a deceptive purchase scheme involving several companies and their principals operating in Texas, California, Kentucky and Florida.

Although the exact amount of damages will be proven at trial, the lawsuit seeks in excess of $10 million that arose from the deceptive practices, breaches and wrongful acts.

Specifically named as defendants are:
* Midwest Merger Management LLC., of Kentucky
* American Staff Resources of California Inc.
* Certified Services Inc.

Also named and identified as principals in the defendant companies are:
* Danny L. Pixler, his wife, Roxann Pixler, of Florida
* Anthony Huff, his wife, Sheri Huff, of Kentucky

The lawsuit also includes 10 unidentified “John Doe” corporations and individuals believed to be affiliated, managed, owned or controlled in whole or in part by one or more of the named defendants in connection with the fraudulent activities.

The lawsuit states that Cascade National had experienced financial difficulties in 2003 and was looking for a purchaser or an investor when the defendants emerged as potential buyers, and began negotiations with the former owners.

The defendants were seeking a workers’ compensation insurer licensed in California to provide coverage for workers in their professional employer organizations, according to the lawsuit. An agreement was reached, including a partial purchase of Cascade National and an obligation for Cascade to provide workers’ compensation insurance to the defendants’ designated clients and employees.

In mid-2004, within months of the transaction with the defendants, Cascade National’s financial troubles markedly worsened when the defendants failed to comply with the contract payment terms and failed to fund reserves while Cascade National’s obligation to provide workers’ compensation coverage under the policies continued. Cascade’s demands for compliance and payment went unanswered. When the company was unable to meet statutory requirements for security reserves and other reserves, the company was seized on Nov. 30, 2004, and subsequently placed in liquidation.

Cascade National now is in liquidation, and payment for the bulk of the insurance claims has fallen to the respective guaranty associations in the states where the policyholders reside. Any damages collected by Kreidler’s lawsuit against the defendants would go toward offsetting the guaranty funds’ obligations.

Topics Lawsuits California Carriers Workers' Compensation Washington Kentucky