Carriers Battle Alleged Taxicab Market Fraud

In what looks uncomfortably like a return to the offshore scams of the late ’80s, several reports of questionable taxicab policies using the names of two well-known carriers have recently surfaced in California. The problem is such that Nationwide Mutual Insurance Company is taking legal action to stop the widespread use of a name that is deceptively similar to its own trademarked name, and Globe Indemnity Company (a subsidiary of Royal & SunAlliance) may soon follow suit.

On Dec. 1, 2000, Nationwide filed an 11-count complaint against 14 defendants seeking preliminary and permanent injunctive relief, as well as damages, for the use of the Nationwide name and marks on insurance and insurance-related products and services in violation of the Lanham Act, Federal Racketeer Influenced and Corrupt Organizations Act (RICO), and state unfair competition and dilution statutes.

Nationwide was granted a preliminary injunction by J. Spencer Letts, U.S. District Judge, in U.S. District Court, Central District on Dec. 19, 2000, restraining and enjoining the defendants from using the Nationwide name in any way.

“All we want to say is the reason this concerns Nationwide is that we are trying to protect the consumers and to protect the integrity of Nationwide, which stands for serving and supporting our customers,” said Bob Sohovich, spokesman for Nationwide in Columbus, Ohio. Sohovich indicated that the case is still evolving, but that the fraud was mainly concerned with commercial policies and fleet policies.

Attorney Paul A. Richler with Morgan, Lewis & Bockius LLP in Los Angeles is outside counsel for Nationwide. Richler sent out a mass letter to insureds following the approval of the injunction: “We are notifying you that the above-referenced policy…is not—nor was it ever—underwritten by Nationwide Mutual Insurance Company of Columbus, Ohio, or any company or entity affiliated or related in any manner with Nationwide Mutual, despite the fact that the policy and/or binder indicated that coverage was being provided by ‘Nationwide Insurance Co.’ While a St. Vincent [Caribbean] company named ‘Nationwide Insurance Corporation’ was formed in 1998, that company had—and has—no affiliation with Nationwide Mutual or any of its affiliates.”

According to the legal fact findings, the entity behind the certificates appears to be Tri-Continental Exchange Limited, a corporation organized under the laws of St. Vincent and the Grenadines which also maintains offices and/or mailing addresses in Blaine, Wash.; Las Vegas; and Henderson, Nevada. Also named as defendants are Combined Services Ltd. and Nationwide Insurance Corporation, which share the St. Vincent address.

Other defendants include American Continental Claims Services Inc., a.k.a. AMCO Claim Services, described as “a now-dissolved corporation organized under the laws of Utah, with its principal office in Palm Desert, Calif….[which] operates as an insurance adjuster and is claimed to be Tri-Continental’s ‘Claims Manager’ in the United States”; and Jennings Bryan Shannon, a.k.a Jack Shannon, of Cathedral City, Calif. Shannon is reportedly a controlling official of ACCS who is licensed by the California Department of Insurance (CDI) as an insurance adjuster but not as an agent or broker. He is also the licensing, risk and claims manager for Tri-Continental and acts as the primary U.S. contact for all of Tri-Continental’s business.

Sources in the industry are comparing the recent outbreak to the big offshore scams of the past decade. Dmitry Erenkov, owner of Dmitry Erenkov Insurance Agency in San Francisco, described these past scams as “a huge market throughout California.”

“About seven years ago, there were a number of surplus line brokers that had taxicab programs,” he explained. “Most of those companies were registered in the Cayman Islands—all those Caribbean deals where for $10 you can go and register an insurance company. They were selling insurance through brokers, through agents, and if claims weren’t big, if they didn’t run out of money, everything was great and terrific—they actually paid some claims.”

Erenkov, who insured a few cabs through these brokers at the time, considers himself lucky that he got out without a scratch. After an insured came to him with a complaint that he could not contact the company to pay his claim, Erenkov quickly realized that the offshore deal was no good. “So I re-evaluated whom I was dealing with and bailed out and got my clients out of it before anybody really had an accident that wasn’t paid for.”

However, not everyone involved was so fortunate. For unsophisticated insurance buyers such as cabbies, the low prices offered by these offshore players were very attractive. “It’s very tempting to pay $2,500-$3,000 in premium a year per cab instead of $7,000 or $8,000. Assigned risk was $11,400 per vehicle in San Francisco—it was really insane,” Erenkov said. “When you look at an admitted carrier like Clarendon who at that point was charging like $7,800 or $8,200 per cab a year; and then you look at a non-admitted, offshore carrier charging $3,295, it’s very tempting, even if you doubt that they’re going to be good claim handlers.

“So a lot of cabs went and got insurance with these people, and a lot of them got burned big-time. They were taken to court by people who they hit, and they ended up paying for lawyers and damages out of their own pockets. A lot of them had to declare bankruptcy to protect themselves from being pursued financially by other parties.”

In the wake of the debacle, the Office of Administrative Law adopted new regulations designed to establish minimum standards for the financial stability, reputation, and integrity of non-admitted insurers used by any surplus lines brokers in California. After these regulations took effect in 1993, then-Commissioner John Garamendi told the SLA Quarterly that it appeared “the proliferation of fraudulent offshore companies doing business in California has come to a screeching halt.”

However, it now seems that that “screeching halt” may have been more of a rolling stop, as demonstrated by the current situation facing Nationwide and Globe Indemnity carriers, as well as by complaints sent to the CDI.

One such complaint named a Bay Area agency that was previously a large player in the taxicab market and was allegedly using the names of Nationwide Insurance Co. or Globe Indemnity on certificates of insurance for taxicab operators.

Erenkov, who insures more than 200 cabs in San Francisco through ABI Insurance Services in Camarillo, Calif., said that the agency mentioned in the complaint used to be a major market for San Francisco taxicabs about 10 or 11 years ago. “About a quarter of all San Francisco cabs had insurance through their agency. They lost their market and [used] non-admitted carriers for a while and got burned with the big offshore scams. About one and a half years ago, my clients received flyers in the mail saying ‘remember us, we are back and we will give you a great rate’—they didn’t name the carrier, just said they had a number of California admitted carriers.”

In accordance with CDI policy, CDI spokesman Scott Edelen would not comment with regard to any action taken by the Department.

The second piece of the puzzle appears to involve the use of Globe Indemnity Company’s name. Globe Indemnity, a subsidiary of Royal & SunAlliance, is organized under the laws of Delaware and is fully admitted and licensed in every state in the U.S.

About three weeks ago, Dennis Haver, deputy general counsel for Royal & SunAlliance, received a phone call from an agency inquiring about a certificate of insurance covering some taxicabs that listed Globe Indemnity as the insurer. Haver said he was not aware that Globe was writing policies extending coverage to taxicabs—”That surprised me because that was a line of business that we had not been involved with for many years. I tracked it down and realized that it seemed that the entity actually behind the certificate of insurance that listed Globe Indemnity was in fact some outfit called Globe Indemnity & Casualty Ltd. and a group of pooled underwriters…We were becoming increasingly concerned that some group of folks were trading in a name that was very similar to ours, and perhaps giving the false impression that they were selling insurance policies on our behalf when in fact they were not.”

Together with R&SA counsel Jayne Hunter, Haver did some digging into the matter, including a discussion with counsel for Nationwide. In the process they found that “our predicament in this matter seemed pretty close to what Nationwide’s predicament is…Nationwide appears to be about a month and a half ahead of us in terms of becoming aware of this,” Haver said. “From conversations I’ve had, it’s clear that several of these people, whether they were agents or wholesalers or risk managers, thought that Globe Indemnity on the certificate referred to Globe Indemnity Company, which is a member of our group and a fully admitted carrier. They were quite unhappy to learn that who is really behind the certificate appears to be an offshore, non-admitted carrier.”

Investigation is still in the early stages, but Hunter described the parties involved as “pretty difficult to track down.” “The only thing that’s clear at this point is that there is a trademark issue, and possibly unfair competition as it relates to trademark infringement.”

Thus far, there doesn’t seem to be a set pattern to the fraud. “It’s popped up from California, New Jersey, Michigan, Tennessee, Mississippi and South Dakota—there doesn’t seem to be a regional pattern to it,” Haver said.

However, it does tend to involve some of the more tricky areas to write: taxicabs; trucking; limousine and black car services; bars, restaurants and nightclubs. “Actually, that’s what draws it to our attention—some of the coverages that are coming up, people are saying ‘that’s not something you normally write,'” Hunter said.

Globe has not yet sent out any type of blanket announcement to agents or insureds, but Haver is anxious to dispell any confusion generated by the use of the name. “If the investigation indicates that this a fairly widespread pattern, then we may want to consider some additional vehicles for notifying our constituents, our customers,” he said. “We do sell… a wide array of p/c products in the U.S., but this particular operation is not us.

“We’re in the process right now of making sure that all of our names are fully protected, and we’ll take whatever legal action we have to to assure that there are not false impressions or misrepresentations out there.”