Ohio Insurance Director Sues Credit General Auditor

Lee Covington, Ohio Director of Insurance and liquidator of property and casualty insurer Credit General Insurance Company, sued Chicago-based Grant Thornton LLP, Credit General’s auditor.

The suit alleges that Grant Thornton breached its duties of care, causing injuries to Credit General policyholders and creditors. Because of this breach of duties, Credit General’s true financial condition was not reported to the Ohio Department of Insurance(ODI). Had this been the case, according to the suit, the insurance department would then have been able to assume control of the company, minimize the damage to policyholders, and possibly even prevent the company’s demise.

The suit alleges specifically that Grant Thornton failed to report several important issues:

— Credit General had substantial unpaid losses stemming from self-insured reserves under workers’ compensation policies not secured by admissible assets — Credit General was claiming credit for millions of dollars of reinsurance from reinsurers not legally licensed in Ohio

— Credit General inaccurately reported premiums and related expenses applicable to un-expired portions of workers’ compensation policies — Credit General had failed to submit management, cost sharing, and consolidated tax sharing agreements required by Ohio law

— Certain retroactive reinsurance agreements

— Credit General president Robert Lucia was diverting millions of dollars of premium revenues into private accounts for improper use

Covington’s lawsuit is the latest development in the legal storm cloud surrounding Credit General. Problems began in early 2000, when ODI began investigating the insurer based on evidence of possible criminal conduct by company officers. The investigation led the department to take over control of the company later that year. A further evidence was discovered, the department blocked Credit General from writing any new business. Covington then obtained a court order placing the company into rehabilitation, but efforts to rebuild were unsuccessful. Covington was granted another court order in early 2001 that placed Credit General into liquidation. A federal criminal investigation of the company is ongoing.

Topics Lawsuits Ohio