Suit alleges huge fraud in Poe Financial case

Apr 2, 2008

Miami Herald--Apr. 02, 2008

State officials outlined an elaborate scheme of potential mismanagement and fraud among the officers and directors of the Poe Financial Group insurance companies that drained millions of dollars that could have been used to pay claims after the insurers failed.

The aim of the 94-page lawsuit is to recoup more than $100 million that could be used to pay still-outstanding claims from the 2004 and 2005 storms that eventually brought down the three Poe companies, Atlantic Preferred, Florida Preferred and Southern Family.

The state, through the Florida Insurance Guaranty Association, already has paid out $1.2 billion in Poe claims from the hurricanes. About $630 million has come from the companies, which were liquidated after they were taken over by the state in the summer of 2006.

The rest of the money has come from Florida residents in the form of surcharges applied by FIGA on all insurance policies, except medical malpractice and workers compensation. These assessments could eventually total $790 million.

FIGA estimates another $123.5 million remains in open claims.

”We will aggressively pursue any opportunity to recoup additional funds to reduce the assessments levied against Florida’s insurance consumers,” said Alex Sink, Florida’s chief financial officer. As the three insurers were sinking fast after the 2004 storms, the lawsuit spells out how company officials and affiliates carried out a variety of actions to bolster their reserves and deceive state regulators into thinking the firms were still solvent.

For instance, they changed their tax structure to hide losses, improperly took advantage of tax credits and overpaid their own management company, which essentially conducted all the operations for the three insurers.

To underpay claims and put less money aside for reserves, the Poe companies adopted a policy of paying only actual cash value on claims from the 2004 and 2005 storms. Settling replacement costs would have been more expensive for the insurers.

Poe also inappropriately paid dividends to top executives when the companies were deep in the red, the suit says. William S. Poe Sr., who founded the companies and is a well-regarded businessman in Tampa, collected nearly $20 million between 2004 and 2005. Two of Poe’s sons who were company executives collected $11.9 million. The family investment company was paid close to $10 million and family foundation received nearly $1 million.

The lawsuit, filed Friday in state circuit court in Leon County by the Department of Financial Services which is the receiver for the companies, is a civil action.

Tara Klimek, a DFS spokeswoman, said the department has provided the complaint to the Division of Insurance Fraud, which is a division of DFS, to see if there could be possible criminal charges.

When the Poe companies failed, they had more than 320,000 policyholders. Citizens Property Insurance, the state-run insurer, was forced to absorb most of the policies very quickly by adding staff and a processing center in Tampa to handle the new load.

Bruce Douglas, chairman of Citizens’ board of governors, said taking on all these policies cost Citizens about $2 million in 2006.