Texas insurance agency accused of plan involving thousands of forged signatures, fake policies
Sanford & Tatum, one of the oldest insurance agencies in Texas, has been sued for allegedly participating in an elaborate fraud scheme.
One of the oldest insurance agencies in Texas has been named in a federal lawsuit brought by an AIG company, alleging that the agency was part of an elaborate fraud scheme involving forged signatures and fake policies for thousands of apartment residents in the state. The agency, Sanford & Tatum Insurance Agency, filed a crossclaim in Kentucky claiming that they were also victims of the scheme.
The suit, Lexington Ins. Co., v. Ambassador Grp., No. 3:20-CV-00330-DJH-LLK, 2020 U.S. Dist. LEXIS 253438 (W.D. Ky. 2020), was initially brought in 2020 by Lexington Insurance Co., an AIG subsidiary. State National Insurance Co., and State National Specialty Insurance based in Texas joined later in 2020. The carriers argued that Brandon White, of Kentucky, and his Ambassador Captive Solutions, were involved in at least seven schemes that sold millions of dollars worth of fake policies to youth baseball teams and leagues, to surrogate mothers, to a waste-removal company, and construction companies. The schemes involved using offshore captive insurance cells to give legitimacy to bogus liability, homeowners, workers compensation, health and accident policies. The suit asks the court to bar White and his firms from using the carriers’ names and to turn over profits from the schemes, along with treble damages.
In furtherance of the schemes, Ambassador and White forged or caused to be forged signatures of State National executives, at times using signatures of individuals never employed with State National. The defendants also forged emails and invoices purportedly issued by the insurer.
According to the lawsuits, it all began in 2018 when White approached a Lexington and AIG executive with a plan for an insurance broker to sell accident, liability, and health policies to youth sports leagues. The claims would be covered by a Cayman-based captive cell, acting as a reinsurer similar to the structure of a captive agency.
The cells were not captives in the traditional sense, and weren’t a part of a non-insurance business. Instead, they were part of an umbrella insurance company called Performance Insurance Co. SPC, a segregated portfolio corporation of which White was the acting president. Ambassador Captive Solutions would serve as an intermediary, assisting brokers and dealing with carriers.
The scheme necessitated Lexington Insurance Co’s participation because captives are not listed commercial insurers, which often have higher surplus requirements. According to the lawsuit, a licensed commercial insurer would have to issue the policies. The captives would then have to pay a fee to Lexington and reimburse the company for losses from any claims.
While this seems like an unusual agreement, it is not far-fetched. Captives of a variety of types are considered legitimate solutions for hard-to-insure organizations looking to save money on risk management, as long as the proper safeguards are in place.
The crossclaim complaint filed by Sanford & Tatum states that Sanford began a victim and has further been victimized by being sued for conduct that it had no knowledge of, did not condone, and would not have condoned had it known of such conduct.
Editor’s Note: Captive insurance is confusing and convoluted. Not many people in the insurance industry are aware of the ins and outs of captive insurance. While this is true, the need and popularity of captive insurance is growing. At this point, the regulation of captives falls to understaffed regulatory agencies that may not have staff who understand the minutia of captives, and rely heavily on captive managers’ word regarding the process. For example, the fraud discussed in the case above was not discovered by regulators, instead it was discovered by AIG.