Florida is suing Europe’s largest insurer for $60 million, claiming Germany’s Allianz SE looted a Miami startup carrier that sold windstorm protection for homeowners.
Magnolia Insurance Co. set up offices in 2005, assuming policies from the state-backed insurer of last resort for homeowners, Citizens Property Insurance Corp., but it went belly-up in 2010.
When an insurance company collapses in Florida, the state Department of Financial Services takes it over as a receiver to pay claims on existing policies.
With a growing concern about Citizens financial exposure, the ricochet of more than 100,000 policies coming back to Citizens is a disturbing development for state Chief Financial Officer Jeff Atwater, who supervises the department.
"The collapse of Magnolia and the deepening of the insolvency of the insurance company was the result of a scheme perpetrated by the Allianz defendants to loot the insurance company by exercising control over Magnolia business," according to the lawsuit filed March 21 in Leon Circuit Court by attorney Charles Tatelbaum, a partner at Hinshaw & Culbertson in Fort Lauderdale.
He filed the lawsuit on the state’s behalf as special counsel to the department. He and the department had no comment on the lawsuit.
Hugo Kidston, a spokesman for an Allianz subsidiary, said: "Allianz as a company has a well-earned reputation for ethical and responsible business. We were not in any position to loot, as they called it, Magnolia."
"This is a scary complaint," said attorney Sean Shaw, a partner with the Merlin Law Group in Tampa and a former insurance consumer advocate with the state department. "It says they sucked out all the capital with a loan here, an agreement for consulting there and, before you knew it the company had no money left."
Magnolia aligned itself with Allianz Risk Transfer AG for financing to get off the ground and brought it in as 50 percent partner to form a policy management subsidiary.
Allianz through loans and business fees eventually took control of Magnolia, restructuring it and rendering it powerless over its own affairs, the lawsuit claims.
The lawsuit seeks $20 million in damages, but Florida law allows treble damages, bringing the amount sought to $60 million.
The 13 counts in the complaint include fraud in the inducement, unjust enrichment, avoidance of fraudulent and voidable transfers, demand for return of insurance company property and breach of fiduciary duty.
Allianz attorney Timothy W. Volpe, a partner at Volpe, Bajalia, Wickes, Rogerson & Wachs in Jacksonville, referred a call for comment to the company spokesman.
Kidston is a spokesman for Allianz Global Corporate and Speciality, the parent of Allianz Risk Transfer. He called the charges "wholly unfounded."
"Our involvement and all the contacts we had with Magnolia was fully transparent with the Office of Insurance Regulation," he said.
Kidston said it’s unusual for a lawsuit to seek to make a lender liable. He said Allianz lost millions of dollars on the deal with Magnolia, which he said failed because of excessive claims from the policies it inherited from Citizens.
"Allianz is a big name. Perhaps it seems we have deep pockets. Perhaps we are just a target. But we have a reputation, and we don’t like these type claims," Kidston said.
A Jan. 9 letter from the state to Volpe said the closing fee on the $23.8 million loan was $1.6 million. Two other fees amounted to close to $2 million.
"These practices were intended to relieve Magnolia of its assets and divert its revenue to the affiliates" of Allianz, the letter states.
The state cited $19 million in unpaid reinsurance premiums when it petitioned for receivership.
Shaw said the lawsuit is a lesson that the state needs to be careful when relying on small carriers as release valves for Citizens.
The department’s website lists 26 Florida insurance carriers, mostly small companies, that have been put in receivership since 2005.
"It’s unusual for an insurance company to go under, but when an insurance company does go under it’s for these kind of corporate shenanigans," Shaw said.
Citizens’s predecessor was created after Hurricane Andrew in 1992 to provide property insurance for homeowners who could not buy private policies. Governor Rick Scott, who has been pressing to shrink Citizens, has complained the insurer has $500 billion in potential exposure but less than $10 billion in cash.
If excessive fees can take down a small homeowner insurance company like Magnolia, Shaw wondered what a hurricane or tropical storm can do?
"You have companies that are so thinly capitalized, they are trying to do the right thing. But as soon as one little storm hits, they are gone," he said.