Sources: Fake Lloyds Insurance Scam Hits Three States

NU Online News Service, Nov. 19, 10:14 a.m.EST?Federal and state law enforcement agencies are probingallegations of an elaborate scam involving the sale of phonyLloyd's policies to restaurants, and bars in three western states,sources said.

Various details of the investigation were confirmed by Lloyds,restaurant and insurance trade groups and the United States PostalService.

According to information from those sources, the fake policieswere peddled to hundreds of purchasers in California, Arizona andNevada for more than two years until the alleged scheme wasuncovered by a sharp-eyed California agent who spotted adiscrepancy in the policy language.

In the interim, the brokerage and agency being examined in thecase were said to have given the outward appearance of a legitimateoperation, by paying and adjusting claims, issuing policyendorsements and giving every indication that their policies hadLloyd's backing.

In California, the Department of Insurance is investigating thecase. Elsewhere, the matter is being looked into in New York by theFederal Bureau of Investigation and Manhattan U.S. Attorney'sOffice.

Most government agencies would not comment about the case;however a spokesperson for the Postal Inspectors Office in NewYork, which is part of the probe said "the investigation is veryactive right now."

Lloyd's, which was tipped off that there was a problem inAugust, sent out a letter Oct. 27, to brokers and policyholderswhich advised "you may have purchased a restaurant liabilityinsurance policy that has Lloyd's name on it, which may have beenobtained through United Restaurant Services Corporation, SurplusLines Inc., Ian Stewart of Heritage Agency. Based on our[inquiries] of the Lloyd's market we do not believe thatUnderwriters at Lloyd's have underwritten this insurance."

A month earlier, United Restaurant Services in Las Vegas wroteagents saying that Surplus Lines Inc. and Heritage Agency had toldthem in the past that they had placed the coverage with Lloydssyndicate. "However, URSC's recent attempts to confirm the renewalplacement have been to no avail," the letter said.

URSC's California attorney Michael McDonnell did not respond toa request for comment.

According to one source URSC has claimed it was told the agentthat they dealt with had been fired and the syndicatedisbanded.

A spokesperson for the Financial Services Commission of Ontariosaid Ian Stewart, a Canadian, was not licensed there. But "we areaware of Mr. Stewart," the spokesperson said. He also goes by thename Ian Stewart Smith and has been the subject of enforcementorders from several regulators."

A Lloyd's spokesperson, Melanie Malluk Batley in London, toldNational Underwriter by e-mail that it had "reported thismatter to the New York Insurance Department, as well as theCalifornia Department of Insurance. Also Lloyd's is cooperatingwith a pending investigation by the United State's Attorney'soffice in New York."

According to a source with knowledge of the investigation, theURSC's operations began to unravel when an agent in southernCalifornia who had placed business with the company picked up adifferent Lloyd's policy for another form of insurance. He wassurprised to find that Lloyd's policy had a portion dealing withservice of suit which named a firm of attorneys not listed on theURSC policy.

Bothered by that, and other discrepancies he uncovered, he wrotethe Lloyd's attorneys who began an investigation. Another item thatseemed questionable, the source said, was the fact that claims paidURSC were satisfied by a cashier's check rather than one written ona Lloyd's account.

During the URSC Lloyd's policy operations, at least one claim of$90,000 was said to have been paid and there were regularinspections of accounts.

Shannon Seitz, a spokesperson for the California RestaurantAssociation, said she understood several hundred establishments inCalifornia Arizona and Nevada had purchased the URSC insurance. Shesaid the group did not know if any of its members had been "hit bythis, but it's an ongoing investigation." A spokesperson for theArizona Insurance Department said the department was unaware of aproblem in that state.

The restaurant association has put out an alert to memberswarning them about fake policies and advising them to get newcoverage and to report any problems to Wayne Wertzer, a Lloyd'sAmerica attorney.

Mr. Wertzer had no comment.

At Insurance Brokers and Agents of the West in Oakland, Calif.,Patty Lombard, a spokesperson for the group said the "Lloyd's"documents provided by URS were hard to tell from the real thing."The paper looked really good."