Adam Moskowitz, The Moskowitz Law Firm, Coral Gables. Photo: J. Albert Diaz/ALM.

A putative class action filed last Wednesday in federal court in San Francisco accuses California-based CIBA Insurance of operating as an illegal “ponzi scheme” in collaboration with a number of insurance company partners, including co-defendant Great Lakes Insurance SE.

According to the complaint, CIBA—which operates in 48 states—rakes in tens of millions of dollars in premiums annually while circumventing insurance laws in California and nationally.

CIBA and its insurance company partners have issued coverage for more than $50 billion in property, but only have $1 billion available in coverage per occurrence for the entire pool of insureds, the complaint said.

By working with companies that are legally registered insurers, but conceal CIBA’s role in covering the first million dollars of smaller claims, the lawsuit claims CIBA can “illegally engage in the business of insurance in California (and across the country) while avoiding compliance with statutory requirements for insurance carriers and evading scrutiny from state insurance regulators.”

A “single catastrophic occurrence could deplete the entire shared limit of available coverage, i.e., property owners could be stuck for footing the bill for repairs and replacements despite paying thousands of dollars for insurance coverage,” the complaint said.

The arrangements not only jeopardizes those carrying CIBA policies, but also impact the way claims are handled, according to the complaint. Plaintiff Sage Apts LLC, a Wyoming apartment complex, canceled the CIBA program policy it purchased through Great Lakes “due to poor claims handling” after paying “tens of thousands of dollars in premiums and property assessments for property and liability insurance.”

Great Lakes is based in Munich, Germany.

The complaint was filed in California’s Northern District by a group of lawyers including William Levin, Laurel Simes and Rachel Abrams of San Francisco’s Levin Simes; William Merlin and Michael Poli of Los Angeles’ Merlin Law Group; Adam Moskowitz, Howard Bushman and Adam Schwartzbaum of Coral Gables, Florida’s Moskowitz Law Firm; and Andrew Friedman of Phoenix, Arizona’s Bonnett, Fairbourn, Friedman & Balint.

“Our team has been investigating these Ponzi scheme claims for over a year with some of the best experts in the country,” said Moskowitz, and “will all continue to meet with consumers that have policies with CIBA, especially those in California where CIBA is based.

The complaint said CIBA has been providing commercial property insurance since 1993, but has expanded rapidly over the past 10 years.

“The reason this is scary is because they’re not being regulated as an insurance company, and the result are these precarious policies, ” said Moskowitz.

Asked how CIBA has avoided scrutiny all these years, Moskowitz said “they’ve been able to skirt the insurance regulators, so there are no regulators checking their books every month. If they were following the law someone would have picked this up.”

There was no immediate reply from a CIBA communications official on Friday, and Great Lakes could not be reached for comment.

A response statement from CIBA attorney Michael Kennick of Fullerton, Calif.’s Kennick & Associates said the complaint’s allegations are “completely without merit. The lawsuit is being spearheaded by an attorney who has been making similar allegations against CIBA for many years without success.”

Kennick said a similar suit in DeKalb County, Ga. was thrown out last year when the court “summarily dismissed with prejudice all claims against CIBA (and its carriers) stating that the allegations were void of any legal merit.”

“The lawsuit falsely states that exhaustion of the $1 billion limit of coverage can occur by a single natural disaster thereby exposing CIBA and its member for all amounts above that limit,” Kennick said. “As a fact, the CIBA program provides a dedicated limit of coverage above $1 billion that is  not subject to a group aggregate and applies up to the limits stated on the Declaration Page of a member’s policy, up to $150 million for each insured.”

CIBA’s ” business structure is reviewed by various insurance experts, including a former Department of Insurance director, who have consistently concluded that CIBA complies with applicable insurance regulations and standards,” Kennick said.

This post has been updated to include CIBA’s response.