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 probing allegations of an elaborate scam involving the sale of phony Lloyd'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 Postal Service.

According to information from those sources, the fake policies were peddled to hundreds of purchasers in California, Arizona and Nevada for more than two years until the alleged scheme was uncovered by a sharp-eyed California agent who spotted a discrepancy in the policy language.

In the interim, the brokerage and agency being examined in the case were said to have given the outward appearance of a legitimate operation, by paying and adjusting claims, issuing policy endorsements and giving every indication that their policies had Lloyd's backing.

In California, the Department of Insurance is investigating the case. Elsewhere, the matter is being looked into in New York by the Federal Bureau of Investigation and Manhattan U.S. Attorney's Office.

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

Lloyd's, which was tipped off that there was a problem in August, sent out a letter Oct. 27, to brokers and policyholders which advised "you may have purchased a restaurant liability insurance policy that has Lloyd's name on it, which may have been obtained through United Restaurant Services Corporation, Surplus Lines Inc., Ian Stewart of Heritage Agency. Based on our [inquiries] of the Lloyd's market we do not believe that Underwriters at Lloyd's have underwritten this insurance."

A month earlier, United Restaurant Services in Las Vegas wrote agents saying that Surplus Lines Inc. and Heritage Agency had told them in the past that they had placed the coverage with Lloyds syndicate. "However, URSC's recent attempts to confirm the renewal placement have been to no avail," the letter said.

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

According to one source URSC has claimed it was told the agent that they dealt with had been fired and the syndicate disbanded.

A spokesperson for the Financial Services Commission of Ontario said Ian Stewart, a Canadian, was not licensed there. But "we are aware of Mr. Stewart," the spokesperson said. He also goes by the name Ian Stewart Smith and has been the subject of enforcement orders from several regulators."

A Lloyd's spokesperson, Melanie Malluk Batley in London, told National Underwriter by e-mail that it had "reported this matter to the New York Insurance Department, as well as the California Department of Insurance. Also Lloyd's is cooperating with a pending investigation by the United State's Attorney's office in New York."

According to a source with knowledge of the investigation, the URSC's operations began to unravel when an agent in southern California who had placed business with the company picked up a different Lloyd's policy for another form of insurance. He was surprised to find that Lloyd's policy had a portion dealing with service of suit which named a firm of attorneys not listed on the URSC policy.

Bothered by that, and other discrepancies he uncovered, he wrote the Lloyd's attorneys who began an investigation. Another item that seemed questionable, the source said, was the fact that claims paid URSC were satisfied by a cashier's check rather than one written on a 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 regular inspections of accounts.

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

The restaurant association has put out an alert to members warning them about fake policies and advising them to get new coverage and to report any problems to Wayne Wertzer, a Lloyd's America 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."

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Sources: Fake Lloyds Insurance Scam Hits Three States

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