Review Of Litigation Filed By Department of Financial Services Involving The Poe Insurance Company

Apr 30, 2008

Colodny Fass has reviewed the lawsuit filed by the Florida Department of Financial Services (“Receiver” or “Plaintiff”) involving the Poe family of insurance companies

The Plaintiff is seeking to hold a group of closely held affiliated corporations, Poe Insurance Holdings, LLC, Poe Family Investment Company, LTD and Poe Investments, Inc. (collectively “Holding Companies”), non-profit foundations, individual shareholders, officers and directors, and certain employees within the holding company system liable for certain claims related to the insolvency of the insurers.

The insurers include Southern Family Insurance Company, Atlantic Preferred Insurance Company, and Florida Preferred Insurance Company (collectively “Insurers”). 

Among other extensive allegations, the Receiver asserts that the Defendants had knowledge of the financial instability of Poe Insurance Managers, Inc., the affiliated managing general agency (“MGA”) and Mariah Claims Services, Inc., the affiliated claims manager (“CM”), and the instability led to the insolvency of the Insurers. The MGA wholly owned an agency producer, Poe & Associates, LLC (“Agency”). The Insurers are in receivership and are subject to liquidation. The Receiver seeks to recover funds disbursed by the Insurers to the Defendants, allegedly arising from the operations of the Insurers and their affiliate entities.

The Receiver’s allegations are wide ranging and relate for the most part to the Insurers’ required annual financial reporting, the characterization of assets and liabilities of the Insurers, MGA and CM, and payments and timing of distributions made to individual shareholders and senior management of each of the entities. The Plaintiff seeks to pierce the corporate veil of the applicable entities in order to recoup these funds, alleging wrongdoing by each of the Defendants.

The basic facts alleged by the Plaintiff are as follows:

All of the entities, including the Holding Companies, the Insurers, the MGA and the CM, were part of a family owned insurance group. The Holding Companies, MGA and CM were all wholly owned subsidiaries of the parent company, Poe Financial Group, Inc. (“Parent Company”). Each of the Holding Companies in turn, wholly owned one of the Insurers.

The Receiver alleges that (i) the shareholders, officers, directors, and managers of each entity were similar or the same; (ii) all of the entities operated exclusively in the Florida insurance market out of the same physical address; (iii) all of the entities shared the same common employees; (iv) all of the entities’ books and records were maintained at the same physical address and on the same computer programs and hardcopy and/or electronic files; (v) each entity appeared to have its own bank account (however, the funds appeared to move fluidly from one account to another, making operating expenses and cash receipts for all of the companies appear to be commingled); and (vi) each entities’ expenses and cash receipts appeared to have been paid interchangeably, due to the fluidity of funds in the accounts.

Prior to the receivership, the Plaintiff alleges that the Parent Company restructured the entities, changing each entity’s tax election to consolidate the entities into a reporting group for IRS purposes. The Receiver challenges this consolidation, and alleges the Parent Company chose restructuring and tax re-elections to hide net losses after the 2004 and 2005 storm seasons. Despite net losses during the 2004 and 2005 storm seasons, it is alleged that the Parent Company and all of its related entities continued to pay large distributions to shareholders at a time when liabilities far exceeded assets. Finally, the Plaintiff alleges the MGA unlawfully retained unearned commissions, which forced the Insurers into receivership.

The Receiver further asserts that the Insurers misrepresented their respective financial condition in several Annual Statements filed with the Florida Office of Insurance Regulation (“OIR”), including either intentionally or negligently misrepresenting their liabilities and assets. The Receiver also alleges that the Insurers purposefully understated their reserves to the OIR and that the distributions paid to the shareholders during the years of understated reserves recklessly endangered the Insurers, leading to their insolvency.

The Plaintiff demands significant monetary relief from the entities as well as the individual shareholders, officers, directors and certain employees. The Plaintiff seeks the following relief: (i) payment of unearned commissions from management; (ii) avoidance of the transfers of funds to the corporate entities and to the shareholders; (iii) unspecified monetary judgments against the individuals and the entities for misrepresentations in the Insurers’  Annual Statements; (iv) the return by the Holding Companies of all funds authorized by the OIR to be held in trust by the Insurers and submission of an accounting for those funds; (v) repayment of both corporate and individual payments based upon the legal theories of unjust enrichment, constructive trust and illegal distributions; (vi) unspecified monetary damages against the officers and directors of the entities for breach of fiduciary duties and conversion, (vii) unspecified treble damages against the entities and individuals for several types of alleged fraud; and (viii) unspecified treble damages against all named Defendants for alleged civil conspiracy.

In addition to claims for unliquidated damages, the Receiver demands judgment in the total amount of approximately $33.5M from William F. Poe, Sr. and the family foundation and trust named as Defendants, and a total of approximately $46M from certain officers, directors and/or shareholders or the entities involved. The total amounts are not claimed against each Defendant, but rather certain specified sums are claimed against each Defendant.

The foregoing is a brief summary of the allegations asserted in the complaint filed by the Receiver against various Defendants arising as the result of the Poe Insurers’ liquidation. We expect the Defendants in this lawsuit to assert various defenses and, unless this matter is settled, a court will ultimately rule upon the merits of the claims asserted. This summary is not intended to be a comprehensive review or analysis of the allegations and issues raised in this lawsuit. That said, the assertions in this lawsuit raise interesting and important issues, which should be reviewed and carefully considered regarding the parameters of business operations applicable to insurers and affiliated parties.

To view the complaint, click here.

To view the Florida Department of Financial Services press release on the matter, click here.

Should you have any questions or comments, please feel free to contact this office.


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