Md. insurer, seized by regulators, could be liquidated

A Sparks-based insurance company that was seized by Delaware regulators faces possible liquidation in a wild case — one with dueling allegations of fraud, forgery and a vendetta, plus a sanction involving an Aston Martin sports car.

Delaware's Department of Insurance said Monday that Indemnity Insurance Corp. is in bad financial shape, and efforts to rehabilitate the company to avoid liquidation "have not been successful." Indemnity's founder — who contends the company is financially solid — said the regulator has indicated in court that it wants to move this week to liquidate the firm.

Indemnity is a significant player in the insurance niche for bars, taverns and nightclubs. The months-long situation has left some local businesses in the lurch.

Ron Furman, owner of Max's Taphouse in Fells Point, said the closest he could come to replacing $1 million in assault-and-battery coverage from Indemnity was a $100,000 policy. Since the seizure last year, he said, he's been left without legal help in a pending lawsuit and hasn't been able to reach anyone at Indemnity.

"It's just so frustrating," said Furman, who was happy with the insurer before the seizure. "One of the biggest things that I've lost is the peace of mind."

Antonis Karagounis, who owns a nightclub, a concert venue, and a restaurant and lounge in Washington, said he recently had to find other insurance for the two locations up for renewal. He said he paid about 50 percent more for coverage.

"They had a lot of business in D.C.," he said of Indemnity. "People have been affected, and a lot of people will get affected as this goes on."

It has dragged on for months already. Delaware regulators asked for court approval May 30 to step in, but the case initially was sealed and Indemnity was referred to by a pseudonym.

Since then, accusations in the case have piled up on both sides.

Delaware's insurance department said in court documents there that Indemnity "is in such condition as to render its further transaction of insurance presently and prospectively hazardous to its policyholders." Regulators said they became concerned about the company during a 2012 examination.

They accused Indemnity founder Jeff Cohen of "multiple acts of fraud," according to court documents, including faking paperwork to make it appear that the company had millions of dollars more than it really did, forging an endorsement from a reinsurance firm and interfering with the company's computer system after he was forced out.

Cohen, a Reisterstown resident, denied the fraud allegations and said in a short-lived Maryland lawsuit that the case is a "vindictive attempt at retribution" for supporting one of the Delaware insurance commissioner's primary opponents in 2012.

As part of the Delaware seizure case, he submitted an August report by accounting firm Grant Thornton that concluded the company was "currently profitable and providing much needed insurance coverage."

Grant Thornton said as a matter of policy that it never confirms or denies its authorship of confidential reports for clients.

Cohen said he has been blocked from effectively fighting the seizure, despite owning 99 percent of the company.

"I had three offers to sell the company," he said. "Delaware absolutely refused to entertain those."

Cohen freely admits to one allegation: When ordered to return three company-owned vehicles provided to him, he parked the 2011 Aston Martin in front of Indemnity's main entrance and another sports car in the way of one of the parking lot entrances.

"It was a stupid, childish move," he said. "That was the one thing I've done wrong in this whole thing."

The Delaware Chancery Court sanctioned him this month as a result, ordering him to pay Indemnity $33,331 because he returned a third vehicle late and the two sports cars without keys, forcing the company to tow them. Cohen said he couldn't get into the building to drop the keys off and returned them the next day.

After Delaware seized Indemnity, Maryland's insurance regulators revoked Cohen's license. In documents related to the license revocation, they allege that he misappropriated money, including spending $83,000 over a two-month period "primarily at adult entertainment venues in Las Vegas."

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."

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