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Thursday, November 12, 2009 - 12:12pm

Liquidated Ga. Insurer Pulled Coverage at the Expense of Badly Injured Customers

At the end of 2007, Southeastern U.S. Insurance Co. (SEUS) terminated a multimillion dollar reinsurance policy covering clients that had been seriously injured on the job.

By settling up the contract with Bermuda-based Imagine Reinsurance Holdings, SEUS received about $8 million. In return, Imagine was released from it’s liability to pay those seriously injured workers.

As a result, the families of at least six workers who received catastrophic injuries on the job are now searching for ways to pay for intense medical treatment and therapy because SEUS terminated its reinsurance, and has since been liquidated.

Catastrophic claims occur when a worker is injured on the job and will need lifelong compensation or hospital care, or both.

Among the workers with catastrophic injuries is a Hall County man who requires around the clock nursing care after a workplace accident resulted in permanent brain damage. Attorney Marvin Price, who represents the man, says his client’s family is unable to pay the $45,000 needed each month for nurses, medicine, transportation and therapy.

He frequently vomits, Price says. And because he is unable to communicate, there’s a significant danger he could choke to death on his own regurgitation.

The man was covered by workers’ comp insurance when he was hurt, and therefore any injury incurred on the job should have been covered, Price says.

"Finding out that they had reinsurance, and then they canceled it, it's criminal as far as I'm concerned. If they kept their coverage, my client would have been covered," Price says.

SEUS was a large workers’ comp company, covering more than 90 municipalities in Georgia, as well as about 200 private companies.

It's unclear why it terminated the contract with Imagine. Department of Insurance officials tell GPB SEUS took the $8 million and reinvested the money back into SEUS.

Georgia Insurance Commissioner John Oxendine says the arrangement is common and routine, but that his department is looking to make sure it was "a good, prudent business deal."

"We are in the process of reviewing every major financial transaction to make sure it was in the best interest of the company," Oxendine tells GPB.

Oxendine says the Department of Insurance is keeping its options open to civil and criminal investigations, but at this time no indication exists that any of the transactions were illegal.

At the very least, SEUS’ termination of its reinsurance policy with multiple large payouts looming indicates the company suffered from poor management, says workers’ comp attorney Sandy Epstein. The Atlanta-based lawyer says every company he has represented over the past 30 years has had reinsurance.

“I don't know how you can cash out of reinsurance coverage," says Epstein. “I don’t understand that.”

Several other workers’ comp lawyers said canceling reinsurance is uncommon, and that doing so with large, catastrophic claims is, at the very least, a very poor business decision.

While many primary insurers, like SEUS, can cover the weekly pay benefits of workers’ comp claims, they often cannot pay for extensive medical care.

Commissioner Oxendine says SEUS bought reinsurance with another company the day after canceling its policy with Imagine Reinsurance Holdings. But that company would not have been responsible for any claims that arose before its contract.

State law does not require the Department of Insurance to monitor whether insurance companies have the safety net of reinsurance.

Yet, for Price, the workers’ comp attorney, SEUS’s cancellation of its reinsurance policy should have been an automatic trigger for the Georgia Department of Insurance to investigate.

"There's no way that a legitimate insurance company would ever cancel their reinsurance, because that's their safeguard for staying in business," Price says. “Unless SEUS were in such bad shape they needed a cash infusion. Scrapping that coverage pretty much doomed SEUS to failure,” Price adds.

Oxendine’s department began investigating SEUS after the company loaned its C.E.O., Clark Fain, $10 million for a land deal. In that investigation, regulators found the company’s assets were overstated and their liabilities understated.

Such findings ultimately led to the company’s liquidation. Fain has not returned repeated requests for comment. Imagine Reinsurance Holdings stopped business in December 2008 and is in the process of closing out existing claims.

For workers still covered by SEUS, their policies will run out on November 26th, one month after a judge shut the company down.

Meanwhile, the nursing company caring for Price’s client says it will discontinue services by the end of the month because it has not been paid.