Ripples caused by TruStar Underwriting’s receivership continue to spread out within Canada’s property and casualty industry, with sources across the industry sharing how they’ve been affected.
People familiar with the matter say finding coverage for affected clients has been a “scramble,” “chaos,” and “difficult.”
In December, managing general agent TruStar accused its former CEO Daniel Moses, two unnamed defendants and two unnamed corporations of jointly scheming to defraud the company and its clients of $6 million, according to TruStar’s statement of claim, which was obtained by Canadian Underwriter. The allegations contained in TruStar’s statement of claim have not been proven in court.
TruStar accused the former CEO of selling insurance policies to proposed policyholders but failing to place those policies with any insurance company, according to court documents reviewed by CU. Per the statement of claim, the former CEO deposited premiums into his bank account, then masked the transactions so they’d appear legitimate, and took steps to maintain uninsured clients’ belief that they had an active policy of insurance. (You can read more about our coverage of the legal action, including the allegations here.)
CU has contacted TruStar’s legal counsel at McCague Borlack LLP, who declined to comment further. CU has also contacted Moses’ counsel at Ross Nasseri LLP, who has thus far not offered a comment. The defendant did not file a statement of defence as of mid-January and, as of press time, CU could not confirm a defence has been filed since then.
The fallout
Since then, the impact on affected insurance companies for brokerages appears widespread.
At least 15 companies are named on an e-service list by TruStar’s receiver Doane Grant Thornton. Appointed in December, Grant Thornton has been made custodian of all the assets, undertakings and properties of TruStar’s business, its policyholders and claimants.
The e-service list is a regularly updated document that’s used to facilitate the service of court documents to stakeholders with a legal interest, including affected companies, Grant Thornton’s vice president Bruce Bando tells CU.
The document is iterative, Bando says. “It is updated as legal counsel requests to add their client to receive relevant court documents.”
As of press time, the e-service list, last updated on Feb. 4, includes lawyers for:
- The Sovereign General Insurance Company
- AON Reed Stenhouse Inc., NFP Canada, Lloyd’s Underwriters Canada, Cavell Risk, Inc., and Accelerant Insurance Company of Canada
- Navacord Corp.
- FIRST Insurance Funding of Canada Inc. and Imperial PFS Payments Canada, ULC
- BFL Insurance
- HUB International Insurance Brokers ULC and all Canadian affiliates
- PLATFORM Insurance Management Inc.
- Acera Brokers.
- Arthur J. Gallagher Canada Limited
- Sompo International
CU has not independently confirmed the listed companies’ legal interests. It’s possible more companies may have been affected but don’t have a legal interest and are therefore not on the list.
Sources speak out
When the legal action came to light, CU heard stories of affected brokerages trying to find coverage for their clients.
One source said their client experienced issues with claims handling and communicating with TruStar representatives long before the allegations became public. The client “actually started holding monies back because they just thought something didn’t seem right,” the source tells CU.
CU is not naming the sources because they are not authorized to speak on behalf of their organizations.
One source confirmed their client had between $10-million and $15-million worth of policies placed with TruStar. But they had sent only around $5 million of premiums, which have now been effectively lost.
The same client company injected about $5 million of its own cash to replace policies on behalf of their insureds, placed their remaining business with other markets, and terminated the ineffective TruStar policies.
The situation has spurred mistrust for some brokerages.
“If I’m a [broker] … I want to really make sure my clients are well taken care of. I want to control as much of that underwriting process as I can up to a certain point,” a source says. “If you insert an MGA into that side, you’re one removed from that underwriting process. You’re not dealing with the underwriter directly; you’re dealing with an intermediary…”
The source’s advice for avoiding financial risk when using insurance intermediaries? “Just try to have as much control over the underwriting process as possible.”
Related news: Experts on why brokers need a market approval process when dealing with MGAs
Feature image by iStock.com/Ghulam Hussain
