Investors are suing one of the 12 failed home insurers in Louisiana. See why. [The Advocate, Baton Rouge, La.]

Apr. 29—As claims poured in from Hurricane Ida, executives of Lighthouse Insurance Co. scrambled to land an infusion of cash from investors, both to assuage concerns from regulators and in hopes of keeping the firm afloat.

Now, the people who poured more than $60 million into the company just before it went belly-up are suing the firm and its executives, alleging a complex web of fraud involving a family trust, affiliated companies and a Florida bank.

The allegations, made in a lawsuit filed by New York-based hedge-fund managers who claim Lighthouse bilked them, shed new light on the questionable business practices of one of the 12 insurers in Louisiana that failed after Ida.

The Times-Picayune — The Advocate detailed Lighthouse's poor financial condition in a series of stories that found most of the companies that failed had also sent hundreds of millions of dollars to less-regulated affiliates, even as the main companies grew quickly and took on extreme levels of risk that put them in a precarious position. The failures have forced tens of thousands of Louisianans to try to get their claims paid by the state-backed guaranty association, which is funded by taxpayers. Many of their policyholders landed on the rolls of Louisiana Citizens, the state insurer of last resort, forcing them to pay higher premiums.

Fortinbras, the New York investment adviser for HT Investments, and Silver Rock, a Cayman Islands partnership, filed the lawsuit in Florida court last week, naming as defendants former Lighthouse CEO Patrick White; his father, Lawrence White; and their family trust.

The suit centers on the several months leading up to Lighthouse's collapse in 2022. In the summer of 2021, the lawsuit said, a contractor reported that a check from Lighthouse bounced, and the Louisiana Department of Insurance put the company into a confidential state-supervised supervision proceeding.

To satisfy regulators, Lighthouse, working closely with a reinsurance broker called TigerRisk, approached the investors about injecting capital into the firm to put it on a more solid footing.

But the investors allege that Lighthouse, and TigerRisk, which is not named as a defendant, misled them by not disclosing the scrutiny by regulators, and by misrepresenting the amount of claims it expected to pay out to victims of Hurricane Ida, which hit in August. The deal with the investors closed in December, at which point the firm was already at "imminent risk of liquidation due to financial distress," the lawsuit says. The state put the firm in receivership in April and eventually liquidated it.

"Patrick White and his agents painted a false picture that prevented plaintiffs from adequately assessing their risk," the suit said. "In truth, Patrick White and his agents knew or had reason to believe that the losses suffered by the (companies) from Hurricane Ida claims had already exceeded, and would far exceed, the $265 million projected losses" that the plaintiffs were warned of.

The investors have already sued One Florida Bank, which has ties to the White family and Lighthouse, alleging the executives used the capital infusion to repay debts to the bank even as the insurer was going under.

Former Lighthouse CEO Patrick White declined to comment. In an earlier statement to the Insurance Journal about the dispute with One Florida Bank, he said "many carriers, the state itself, and the industry as a whole, had the early estimates wrong."

"Fortinbras was aware that the hurricane had occurred and even hired experts of their own to review the numbers throughout the due diligence process," White said. "The outcome is unfortunate for all."

Lighthouse was one of many smaller, regional insurers that wrote policies in south Louisiana and other hurricane-prone places and that grew rapidly in the years after Hurricane Katrina. Jim Donelon, Louisiana's former insurance commissioner, wooed such small firms with state grants and encouraged policyholders to do business with them. Donelon himself took out a policy with one of the new arrivals.

The raft of failures in 2022 and 2023 raised questions about whether Louisiana had allowed the companies to grow too quickly without proper oversight. The Times-Picayune analysis found 11 of the companies used a model where it farmed out all the work, and a significant share of the premium dollars, to less-regulated affiliates, making it difficult to know if the companies were spending wisely.

The state Department of Insurance has since beefed up its review of companies' reinsurance and concentration of policies in risky areas. And a bill that would bolster reporting requirements for less-regulated affiliates is making its way through the Legislature.

The LDI is suing one of the failed companies, Americas Insurance Company, alleging it misled regulators about its debt load. Another, Southern Fidelity, is under fire from Florida regulators for using company cash to buy a sprawling hunting lodge that its executive used as a personal residence.

The investors suing Lighthouse allege the company's executives misled them to raise capital to avoid a collapse that could endanger the White family's assets. And they say Lighthouse told them the company's losses from Ida were significantly lower than they actually were.

And the suit claims Lawrence White, a former owner of the parent company, deleted key documents, and that the White family used investors' money to make improper transfers to an affiliated reinsurer.

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