Florida Orders Unlicensed Surety Company to Stop Doing Business

Florida insurance regulators have issued a final cease and desist order against an unlicensed surety bond company that allegedly sold more than $100 million in worthless construction bonds backed only by a single-family Texas home worth $130,700.

Florida Insurance Commissioner Kevin McCarty issued the final order against Infinity Surety of Saginaw, Texas, and its president, George D. Black Sr., for allegedly selling unauthorized surety insurance in Florida. Florida investigators said Infinity sold more than $2 million worth of surety bonds to Florida contractors for business transactions with cities, counties and municipalities across the state. Public entities often require contractors to have surety insurance, which is a bond that guarantees the contracted work, often construction projects, will be completed.

In March, a federal grand jury in Houston indicted Black on mail fraud arising from an alleged scheme to sell more than $100 million worth of worthless construction bonds for projects across the United States, Jose Angel Moreno, U.S. district attorney for the Southern District of Texas, said in a statement. Black was arrested March 29, and released on bond on March 31, according to the justice department.

The six-count criminal indictment alleges Black was not licensed or registered to sell the bonds, which were used to back various multimillion dollar construction projects. The bonds were backed by a single-family home in Tarrant County, Texas, which was valued at $130,700 in 2008, according to the justice department.

Black allegedly sold the bonds from his website and collected fees from a mailbox. The bonds were sold to school districts and defense businesses who worked for the military, the justice department said. The complaint alleges that a number of the bonds backed construction projects stemming from Hurricane Katrina. Black allegedly received about $2.8 million in fees for the bonds, which were issued to 150 different companies, the justice department said.

Texas regulators ordered Black to stop selling the bonds in July 2009, but notwithstanding the injunction, Infinity Surety sold at least $25 million worth of bonds in a year. The company has allegedly been selling the bonds since 2006, the justice department said.

Following Black's arrest, Florida issued an initial cease and desist order against Black in April.

In January, Louisiana Insurance Commissioner Jim Donelon asked state agencies and local governments throughout the state to check the legitimacy of any bid bonds or performance bonds as he continued to investigate Infinity Surety (BestWire, Jan. 5, 2010).

In December, Donelon filed a lawsuit against Infinity Surety of Louisiana Inc., Infinity Surety Agency LLC and Black -- collectively doing business as Infinity Surety -- claiming the enterprise operated as a surety insurance company without the required insurance certificates and licenses to be either an insurance company or producer, (BestWire, Dec. 23, 2009).

Infinity Surety representatives used an unofficial form downloaded from an architects' trade association to misrepresent the company as a surety insurer. The "fill-in-the-blanks" form resembled a certificate of insurance form but would not have stood up to diligent scrutiny, Donelon said.

Infinity Surety advertised that its surety bonds are backed by United States commercial and residential real estate with "authority" to issue surety bonds between $1 million and $50 million (BestWire, Dec. 23, 2009).

The top five surety writers by 2009 direct premiums written in Florida were: Travelers Group, with a 18.74% market share; Liberty Mutual Insurance Cos., with 13.38%; Zurich Financial Services NA Group, with 11.02%; CNA Insurance Cos., with 7.33%; and IFIC Group, with 4.40%, according to BestLink, which provides online access to A.M. Best's Global Insurance & Banking Database.

The top five surety writers in Texas by 2009 direct premiums written were: Travelers Group, with a 16.18% market share; Liberty Mutual, with 14.31%; Chubb Group of Insurance Cos., with 9.62%; CNA Insurance, with 8.77%; and Zurich Financial, with 8.32%, according to BestLink.

The top five surety writers in Louisiana by 2009 direct premiums written were: Travelers Group, with a 23.87% market share; Liberty Mutual, with 10.46%; Hartford Insurance Group, with 9.09%; CNA Insurance, with 7.97%; and Zurich Financial, with 6.29%, according to BestLink.

(By Meg Green, senior associate editor, BestWeek: [email protected])