Last year, Southeastern U.S. Insurance Company (SEUS) boasted it was the eighth largest workers’ compensation insurer in the state. It underwrote policies for small companies like Leon Jones Feed and Grain Inc. in Cumming and municipalities like the City of Dublin.

In all, 53 cities and more than 200 companies turned to SEUS for workers’ compensation coverage, insuring about 5,000 people. The company offered lower rates — in some cases, much lower — than other workers' comp. providers. That prompted many municipalities to drop existing coverage to sign on with SEUS.

“Everything seemed fine,” says Cole Tidwell, an independent insurance agent in the Macon area that underwrote policies with SEUS. Tidwell steered the city of St. Marys towards SEUS and says he had no idea the company was facing financial hardship.

“We had good claim service,” Tidwell adds.

But while many clients were happy with SEUS workers' comp. rates, state regulators began a review of the companies financials, after CEO Clark Fain received a loan from his company for more than $10 million, state officials tell GPB.

That money went towards various land improvement projects in South Georgia, according to a Department of Insurance spokesman. That loan triggered a probe into the company’s finances, as it needed approval by Insurance Commissioner John Oxendine.

“Whenever you have a transaction that’s such a large portion of the assets, it’s going to raise a question,” Oxendine tells GPB. “We then found out this land deal was actually perfected without our consent. It was required to be approved. They went ahead and did it without our approval. We instantly raised our concerns. We later forced the company to reverse the land deal, and that started bringing up the appropriateness of some of their other business transactions,” Oxendine says.

Shortly after SEUS made the $10 million loan, records show the company lost $3 million.

“This is a very uncommon case,” says Oxendine. “The extent of the questionable accounting activities, the possible dishonesty of the accounting processes… we became very suspicious of the voracity of some of the statements being made to us. They were overstating their assets and understating their liabilities,” Oxendine says.

As the probe continued, insurance regulators put SEUS into an Administrative Supervision Order, where the company could be closely monitored as the finances were examined. Meanwhile, according to several insurance agents, Fain began lobbying clients to stay on with SEUS. In an email from September of this year obtained by GPB, Fain wrote:

“On Friday, September 11, 2009 SEUS entered into an Administrative Supervision Order by Consent with the Georgia Department of Insurance (DOI).  The Consent gives the DOI oversight authority of SEUS operations.  It is important to note that SEUS is not in Rehabilitation or Liquidation at this time.  The DOI is currently evaluating SEUS' financial condition as we attempt to secure additional capital.  We are working in full cooperation with the DOI.

“SEUS continues in full operation meaning that all policies remain in force and all claim payments are being made as scheduled…

“We appreciate your patience and loyalty during this difficult time.  We will continue to update you as more information becomes available.“Please call me directly at 404- [cell phone] and I will endeavor to answer all questions.”

Shortly after that email was distributed, agents like Tidwell began looking for other companies to underwrite workers’ comp. policies.

“It completely blindsided me. Eventually, I decided to start marketing, to come up with a back up option to protect my clients,” says Tidwell, who represents several Georgia water authorities.

Records show the city of St. Marys paid $183,758 for workers' comp. coverage through SEUS. The cash strapped city of Chickamauga paid $19,111, while the city of Dublin paid $214,623.

Small businesses, such as baby furniture shops and local barbecue joints paid up to $40,000. Yet, because of how SEUS is structured, and a host of other issues, it’s unclear who might be covered by the company as it goes through liquidation.

Employees and employers pay into an insolvency pool, in case an insurer goes belly-up. Yet, Oxendine says right now, it’s unclear whether injured workers will be paid by that insolvency fund.

“We are going to leave no stone unturned to find legitimate assets to pay as many of these claims as possible, even if it means looking at personal assets of certain individuals who may have performed misdeeds,” Oxendine told GPB.

Multiple calls to Clark Fain’s cell phone and work went unreturned. Fain appears to be a politically well connected businessman, who has been involved in about two dozen start-up companies since 1973, according to records maintained by the Georgia Secretary of State. Those companies did a variety of tasks, from selling furniture to processing pecans.

Fain, according to an interview he gave the Moultrie Observer last year, roomed with Georgia Republican U.S. Senator Saxby Chambliss while the two were at the University of Georgia. Financial records show Fain has contributed more than $10,000 to political candidates.

Secretary of State records show Fain held all the stock to SEUS, along with several affiliated companies. Fain heads a lease labor company, where employers can essentially rent workers for long periods of time. In turn, Fain’s company offers low workers’ comp. rates. According to those records, Fain also owns other companies SEUS paid millions of dollars to for insurance adjustments and other bill services. Several workers’ comp. experts told GPB these arrangements were not unusual.

“It’s a pretty normal business arrangement,” says John Sweet, an Atlanta based workers’ comp. attorney. What is unusual, Sweet says, is the loan deal Fain struck with SEUS.

“Workers’ comp. is market sensitive. Money, liquid money, is needed to pay claimants, and you can’t do that with farmland… it suggests the money was never there,” says Sweet.

All of SEUS’s customers will lose their coverage on November 26 due to the liquidation. For Tidwell, who recommended SEUS to his municipal customers in place of more conventional insurers, the news of Fain’s loan is “disturbing.”

“A company that wasn’t in a position to give a $10 million loan did,” Tidwell says.

(h/t to Michael Whiteley of workercompcentral.com)

Tags: Macon, US Senator Saxby Chambliss, Dublin, Insurance Commissioner John Oxendine, Clark Fain, workers' comp, workers' compensation, SEUS, Cumming, Cole Tidwell, St. Marys, Georgia Department of Insurance, Southeastern U.S. Insurance Company