Agents ‘Putting Back the Pieces’ After Brooke

Brooke Group Declares Bankruptcy, Faces More Lawsuits

Technically, Brooke Franchise owes me $7 million, but who knows if I will ever see it,” says Roger Cunningham, former Brooke franchisee and agent/owner of RKC Financial in the Dallas/Fort Worth Texas, area. Cunning-ham, like of many Brooke franchise owners, are now involved in lawsuits with Kansas-based Brooke Corp., Brooke Capital and Aleritas Capital Corp., members of a financial services lending and franchising enterprise that Robert Orr founded in 1986.

Brooke filed for Chapter 11 bankruptcy Oct. 25. Where once there were almost 800 franchise locations around the country, some sources say only 250 remain. Many former franchisees have hired lawyers, because the contracts written between Brooke and the agent/owners specified that only allows binding arbitration in any lawsuit. It could be many years before any arbitration settlements are forthcoming, Cunningham said.

All franchisees at this time have received a written notice saying that the contract with Brooke is now null and void — but financial worries still abound.

Cunningham talks about picking up the “pieces of his life,” and getting his appointments back in place with carriers, and moving on with his agency, but it’s not an easy task.

Many agent/owners say they have lost their life savings. Most claim that Brooke took the premiums paid by clients and then cut commission checks that were not accurate or in some cases just denied that the commissions were owed at all. Brooke would put the commissions in question into what was called an “Orphan Fund” — then the monies owed would often never surface. Because most of the agent owners were small to mid-sized agencies, losing commissions, paying rent and other office related fees and struggling to pay back a $165,000 entrance fee to become part of Brooke put most into insurmountable, heavy debt.

Set Up to Fail

“We were set up to fail,” said Harvey Cohen of San Antonio-based Cohen Insurance Inc. Cohen was an experienced agent, having been with Allstate and USAA before deciding to go out on his own. He was confident about Brooke when he joined and brought his two daughters into the business.

But Cohen said after the initial “wining and dining” to get you to join the franchise, reality set in quickly.

“Within the first few months I noticed I was missing somewhere between $5,300 and $5,800 per month in commissions,” Cohen said. “When I questioned the discrepancy and suggested stealing was going on, Brooke’s regional vice president said that I must be wrong. He himself was such a believer that he had five agencies. Pretty soon I began to doubt myself and my own bookkeeping.”

Cohen added that his daughter, after learning about how he was faltering on the brink of bankruptcy under the Brooke umbrella, tried to commit suicide.

“This horrible situation of mine was just one of several that definitely contributed to her illness,” Cohen said. He added she is fine now, but that he knew of other agents whose marriages were destroyed and others considered whether or not to file bankruptcy.

Cohen also has a lawsuit pending and he said that with a Chapter 11 bankruptcy, funds that are still in place could eventually be used to pay former Brooke franchisees the settlements given out during arbitration — but like Cunningham, he guessed that could be years down the road.

Potential Buyers Back Out

The picture seemed brighter for a while. Brooke Corp. and Brooke Capital Corp. filed for bankruptcy to prepare for a possible sale to two Kansas businessmen, who later withdrew their interest in purchasing the corporation. Lysle Davidson, an insurance agent from Johnson City, Kan., and Terry Nelson, vice chairman of First State Bank in Norton, withdrew the offer to acquire Brooke’s insurance network saying there weren’t enough agencies left.

In addition to individual insurance agent franchise lawsuits, Brooke faces suits from the Bank of New York Mellon and Citizens Bank and Trust Co. of Chillicothe, Mo.

The truth is agents had been calling media outlets, including Insurance Journal, for several years with horror stories about their Brooke affiliations. For many agents, the smoke signals had been loud and clear and someone dropped the ball. Insurance regulators said that the SEC had jurisdiction, not state insurance regulators, because it was a franchise business. However, Kansas Insurance Commissioner and NAIC President Sandy Praeger issued a statement in September saying Brooke was being monitored, though pointing out that the insurance department had limited jurisdiction.

“Those Brooke lawsuits deal with contractual issues that are not part of the insurance department’s regulatory authority,” Commissioner Praeger said, “but we continue to monitor any potential problems that could concern Kansas consumers and policyholders.” Later, Kansas regulators said consumers would be covered if they could prove or the agency could show premiums had been paid.

Still, some agents say insurance regulators should have done more.

Former agency owner in Louisiana, Rhonda Lobell, said the Louisiana Depart-ment of Insurance hired an outside auditor in 2007 to look at the books after she and others complained that Brooke was stealing. The auditor’s official report said he could not find evidence of any wrong doing.

The Louisiana DOI only talked to one side, Lobell said. She and others contend that there were two sets of books and that the department failed to dig deeper.

Insurance Journal contacted the Louisiana DOI, which provided the market conduct study in full, but a spokesperson said they were unaware of any accusation that two sets of books existed.

“Seven out of the eight Brooke franchises in Louisiana have gone under,” Lobelle said. “What does that tell you?”

Recently the Missouri Department of Insurance, Financial Institutions and Professional Regulation, as well as the Kansas Insurance Department, said they plan to send market conduct investigators to look at all Brooke’s paperwork. The departments are working with Albert Reiderer, the special master appointed to represent Brooke.

But for the agency owners, the struggle to survive is still a reality.

Plano, Texas, former Brooke agent/owner Todd Herron said he is trying to put his life back together.

“I considered myself a pretty smart person when I bought into Brooke,” he said. “But with all the trouble going on with this franchise, I kept asking myself, how they were pulling this off? How the feds and state regulators weren’t catching what was going on? What had I missed? Maybe I wasn’t so smart after all.”

Herron is working with insurance carriers to re-establish his links and plans to keep his agency, but said that many agents he has spoken to won’t have the resources to keep their shops open.

“Former franchisees are still in debt to local banks with loans they took out to join Brooke,” Herron said. “All are waiting to hear what will happen now that Brooke has filed bankruptcy.”

Topics Lawsuits Agencies Louisiana Kansas