Louisiana Regulator Says Unlicensed Surety Insurer Underwrote State, Local Public Works Projects

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December 23, 2009 Wednesday 04:36 PM EST

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Louisiana Regulator Says Unlicensed Surety Insurer Underwrote State, Local Public Works Projects

Sean P Carr

BATON ROUGE, La.

A Louisiana company wrote surety bonds for state and local public works projects in the state without being licensed as an insurance company, according to a lawsuit filed by the Louisiana Department of Insurance.

Insurance Commissioner Jim Donelon announced the lawsuit against Infinity Surety of Louisiana Inc., Infinity Surety Agency LLC and principal George D. Black -- collectively doing business as Infinity Surety -- filed Dec. 17 in the 19th Judicial District Court, East Baton Rouge Parish. Judge Janice Clark ordered Infinity Surety to stop conducting insurance business and to turn over all records to insurance regulators, plus a $1 million bond. The judge authorized the department to seize all property, bank accounts, funds and records on behalf of those persons injured or affected as a result of Infinity Surety's fraudulent actions, according to the department.

The lawsuit claims Infinity Surety operated as a surety insurance company without the required insurance certificates and licenses to be either an insurance company or producer. A certificate of authority is required to write bid bonds, payment bonds and performance bonds for public works projects in Louisiana, according to the department.

Donelon, in a press conference, said his office acted to protect the state and its citizens from possible uninsured construction and public works projects -- and the risk of significant financial losses. He said the state has also lost an undetermined amount of income from insurance premium taxes, as the insurance was allegedly not genuine. Texas regulators shut down a similarly named company with the same principals in the past year, he said.

"The more you allow something like this to operate, the more victims are ... affected by the purchase of insurance that is not, in fact, insurance," Donelon said.

An investigation is ongoing. Regulators have not yet determined just how many projects Infinity Surety provided false underwriting for, or how many bidders were denied contracts because they used Infinity Surety, Donelon said. The state has issued subpoenas to help gather that information.

Infinity Surety operated in Louisiana for at least the past year and possibly for several years dating to massive rebuilding in the wake of Hurricane Katrina, Donelon said. No public works project had failed because of insurance backing in so long, appropriate checks on certifications were often not made, he said.

"People became complacent and that is what's behind the shenanigans like we see here," the commissioner said in an interview.

Donelon said the court agreed that Infinity Surety does not meet the requirements for writing surety bonds for public works projects in Louisiana, as it is not listed with the U.S. Department of the Treasury Financial Management Service as an approved bonding company. It is also not domiciled in Louisiana with at least an A- rating in the A.M. Best Key Rating Guide, which is also a requirement to conduct this type of surety business in the state, according to the department. 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.

The state's lawsuit identifies tens of millions of dollars in affected projects. One company, EnviroTech Services LLC, lost a $34 million bid for work on an expansion of Monroe Regional Airport because its bid bond, written by Infinity Surety, was not accepted.

"State and local governmental agencies that accepted surety bonds from Infinity Surety face serious risk of loss," the insurance department said. The department alleges the conduct by Infinity Surety is "fraudulent, illegal, hazardous, creates an immediate danger to public safety, and is causing or can be expected to cause public injury that is incapable of being repaired or rectified."

A hearing is scheduled for Jan. 4 in the 19th Judicial District Court.

Infinity Surety could not be reached for comment.

(By Sean P. Carr, Washington Correspondent: sean.carr@ambest.com)

December 24, 2009

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