Oklahoma Seeks Receivership of Imperial Casualty and Indemnity

Oklahoma insurance regulators have moved to seize a workers’ compensation insurer they say is insolvent and whose owners are being accused of deceptive financial transactions involving another recently-liquidated insurer.

The Oklahoma Insurance Department on March 18 filed a receivership request against Imperial Casualty and Indemnity Insurance Co. in the District Court of Oklahoma County. [Case No. CV-2010-2340]

In an order scheduling an April 9 hearing on the request, the court noted that “based on its own actuary’s opinion, Imperial is financially impaired and/or insolvent.” A court appointed assistant receiver has begun marshalling Imperial’s assets and the company’s bank accounts have been closed. In appointing the assistant receiver, the court said the “competence and integrity of the persons controlling Imperial’s operations are such that it would not be in the interest of policyholders or the public to permit the company to continue operations.”

Imperial sells workers’ compensation insurance to Professional Employer Organizations (PEOs). The company claims Oklahoma as its domicile; its executive offices are in Frisco, Tex. Imperial’s Web site says it currently provides coverage for more than 5,000 firms and 42,000 workers.

At issue are a number of complex financial transactions the insurance department says were “orchestrated” to deceive the state and bring about the “downfall” of Imperial’s parent company, Park Avenue Property and Casualty Insurance Co. (PAPC).

According to the OID, until January 2009, Imperial was a subsidiary of Providence Property and Casualty Insurance Co. Providence was sold on Jan. 29, 2009, to Park Avenue Insurance Co., renamed Park Avenue Property and Casualty Insurance Co. PAPC was controlled by Jerry Lancaster, Derek Lancaster, Deron Lancaster, Aaron Lancaster and Jan Schindler, and was liquidated by the OID in late November 2009.

The department alleges that Jerry Lancaster bought shares in another Oklahoma domestic insurance company, BancInsure Inc., with proceeds from the sale of Providence/PAPC. That transaction was effected through an Imperial affiliate, Eagle Insurance Agency, which is owned by Jerry Lancaster.

Lancaster subsequently arranged to have himself and an associate at Imperial, Terry McCullar, named to BancInsure’s board. Later, according to the department, Eagle Insurance Agency “began issuing workers’ compensation policies under BancInsure’s name in California,” without BancInsure’s knowledge or authorization.

According to the OID, the Providence/PAPC purchase was accomplished via “several complex agreements between Providence, Imperial and several financial institutions.” Among other things, the department says the parties had planned to use a $56 million bond portfolio as collateral for a loan to Providence’s future purchaser. Use of the bond portfolio would have required OID approval, which was neither sought nor granted, and “would have instantly made Providence insolvent,” the department alleges.

The OID also alleges that Jerry Lancaster withheld information about a federal injunction prohibiting him from participating in ERISA business due to fiduciary improprieties, in violation of Oklahoma law.

In addition, according to the department, Jerry Lancaster and Imperial’s Chief Counsel Robert Thomas participated in “a scheme to surreptitiously procure an Oklahoma producer license for Deborah Scott — Mr. Lancaster’s purported mistress — in circumvention Oklahoma law.”

Calls to Derek Lancaster, Jerry Lancaster and Robert Thomas at Imperial were not returned.

Pending the Imperial Casualty hearing, Mark D. Tharp was appointed assistant receiver and Andrew D Downing of Rhodes Hieronymus Jones & Tucker as counsel for the receiver.

The OID application and the court’s order are available at: http://www.okaro.org/Community/Company+Records/1850.aspx.

Topics Workers' Compensation Oklahoma Property Casualty Casualty