Liquidation of Minnesota-Based Insurance and Trust Company Underway

Minnesota is in the process of liquidating an Austin, Minn.-based insurance and trust company that regulators say has a long history of financial problems, administrative incompetence, coercive and dishonest business practices, and record of fraudulent activity

The Minnesota Department of Commerce began liquidation of Minnesota Surety and Trust Company (MSTC) on Dec. 2.

“This was a troubled company, with a history of unsafe financial and market conduct practices,” said Commerce Commissioner Mike Rothman in the department’s announcement. “Given the company’s history, its disregard for state law, and its bad financial condition, the state had no other recourse.”

The Commerce Department noted that as of June 30, 2011, MSTC reported negative equity capital of $32,454 and negative year-to-date income of $404,873. In addition, the Commerce Department’s Enforcement Division alleged that:

• MSTC had a board of directors or principal management that is incompetent or untrustworthy.
• MSTC committed unfair methods of competition and unfair and deceptive acts or practices by engaging in fraudulent, coercive, or dishonest practices in connection with the insurance business.
• MSTC engaged in acts or practices which demonstrates that it is untrustworthy or incompetent to act under the authority granted by the Commissioner.
• MSTC made at least 4,000 false entries in books, reports, or statements with the intent to deceive any agent or examiner lawfully appointed to examine its affairs.

“Liquidating any business is a serious regulatory decision that should never be taken lightly,” Rothman said. “But this action, without question, is in Minnesota’s best interest.”

MSTC has been licensed by the state since 1965 to write property and casualty insurance policies, with fidelity and surety products as its primary lines. In recent years, the department said, MSTC has been the subject of multiple regulatory actions in Minnesota and Colorado for repeated misconduct and its precarious financial condition.

MSTC President Peter Plunkett told Insurance Journal earlier this year that the Department of Commerce allegations were unfounded. The department’s action, he said, is based solely on a market conduct examination of the company’s business in Colorado.

“It had to do with a market conduct examination. They claimed that we were altering documents prior to a market conduct examination. … Our position is that we were updating document with required statutory language,” Plunkett said. “We never redacted any documents; we never destroyed any documents; we never hid any documents; we never forged any signatures. … There were no consumers that were injured in any way shape or form.”

The Minnesota Department of Commerce reported that in May 2011, after a series of regulatory violations, MSTC was ordered by the Colorado Division of Insurance to pay a $1.2 million civil penalty and to cease and desist from doing business in the state of Colorado.

Although Plunkett told Insurance Journal that Minnesota was not claiming that the company had done anything wrong in Minnesota, the Commerce Department said MSTC’s misconduct in Minnesota dates as far back as 2008.

“What people need to know is that Minnesota’s not claiming that we’ve done anything financially incorrect,” Plunkett said. “Minnesota’s not claiming that we failed to return collateral to people or that we failed to pay our claims. They’re not claiming that we failed to return premium. They’re not making any financial claims against us whatsoever and there are no claims to be made against us.

“There are no consumers in Minnesota that are calling me complaining,” he continued. “In fact we get very consumer complaints in Minnesota.”

Minnesota regulators, however, said MSTC had experienced a “substantial deterioration of its financial condition.” The department’s announcement said that the company had agreed to a consent order to maintain its total capital and surplus at or above $1.1 million at all times but that MSTC had failed to comply with that condition.

Plunkett claimed that Minnesota’s action was only a result of the company’s license revocation in Colorado.

“Minnesota’s going to complain about us because they see that we got revoked [in Colorado]. I understand what they’re doing. They’re doing what they think they have to,” he said.

Plunkett noted that “Minnesota Surety and Trust Company has been writing bonds since 1965. … Through that whole time we’ve never defaulted on bonds or never failed to return collateral when called upon. We’ve never walked away from consumer complaints and not resolved them to the satisfaction of the consumer. To us the consumer is always right.”

Still, the Minnesota Department of Commerce found that MSTC had failed to comply with a number of provisions of the department’s orders.

Regulators said that on Nov. 10, 2011, MSTC entered into another consent order with the department, whereby MSTC’s trust charter was revoked and it was required to arrange for the transfer of all trust accounts to a qualified fiduciary acceptable to the department.

The regulatory action against MSTC has been consolidated with the company’s president, Peter Plunkett’s, regulatory action.

Effective Nov. 11, 2011, the Minnesota Department of Commerce ordered that:

• Minnesota Surety and Trust Company’s certificate of authority is revoked.
• Peter Plunkett’s resident insurance producer’s license is revoked.
• MSTC and Plunkett shall cease and desist from cease and desist from further violating state law, and shall cease and desist from doing business in the state of Minnesota.
• MSTC shall be subject to voluntary liquidation proceedings in Ramsey County District Court.
• MSTC and Plunkett shall pay a $50,000 civil penalty; however $40,000 of that civil penalty is stayed so long as MSTC and Plunkett comply with the orders of the Commerce Department.

Other states in which MSTC conducts business include Montana, North Dakota, South Dakota and Utah, Plunkett said.

Topics Legislation Minnesota Colorado