Cohen denied misappropriating money. He said he actually spent about $100,000 at adult entertainment venues — for legitimate marketing purposes.

"We're the largest insurer of adult clubs in the country," he said. Every year at an industry expo, "we have a big party at a club where we invite all our clients."

Cohen has pending appeals in both the Delaware and Maryland cases.

Though the company's physical headquarters are in Baltimore County, Cohen said he domiciled it in Delaware for regulatory purposes in 2010 after the state recruited him.

Earlier that year, Indemnity's then-regulators in Washington concluded in an examination that the company had violated D.C. law in ways that included failing to maintain adequate records, setting up insufficient underwriting and claims systems, and having no reinsurance coverage on some policies.

The D.C. insurance agency did not return a call seeking comment. Cohen characterized the issues as minor, saying the regulators neither fined his company nor adjusted its balance sheet.

Cohen, who worked at a nightclub before starting Indemnity 13 years ago, said the company had about 10,000 policyholders before the seizure.

Cohen said he was planning to take the company public when it was instead taken over by regulators. In a filing in Delaware last month, he accused the state of making insolvency claims come true by running the company in a way that "has been nothing short of negligent," including assigning employees no work and letting calls go unreturned.

Delaware's insurance department declined to comment Monday on most of Cohen's allegations. But W. Harding Drane Jr., a deputy attorney general for that state, said in an email that it's "simply not correct" to say the company was healthy before the seizure.

"At the time this action was taken, the Department … had serious concerns that the company was financially impaired or insolvent," he said in the email. "Subsequent investigation during the seizure confirmed the Department's concerns and uncovered additional fraudulent conduct."

Delaware said in court documents that it determined the company had a policyholder deficit of $9 million before the seizure, despite claiming surpluses. Cohen maintains that the company had a policyholder surplus of over $24 million at the time.

Indemnity's credit rating was downgraded in September, one of three insurers in the bar niche that took rating hits last year.

It's a challenging market, said Robert M. Parker, corporate vice president of product development at Kaufman Financial Group, whose subsidiaries include a wholesale insurance broker. The downgrades squeezed businesses' insurance options because most brokers won't place clients with companies that don't have an excellent or superior rating, he said.

Sandra Haley, senior vice president of underwriting and marketing at Hospitality Insurance Group, a Massachusetts firm that offers liability insurance for bars and taverns, said she has no idea what's true about the Indemnity case. But the company stood out in the field as "definitely underpriced," she said.

"We could not get close to what they were charging customers," Haley said, "nor did we want to."