Two premium finance companies, Premium Assignment Corporation (PAC), a subsidiary of SunTrust Banks, Inc. and FIRST Insurance Funding Corp. (FIRST), a subsidiary of Wintrust Financial Corporation settled with the Attorney General’s Office last week over its roles in assisting Kilgore Insurance Agency of Peabody, MA to defraud its insureds by padding premiums by millions of dollars. Kilgore had a tacit agreement with each company whereby the agency would reveal the true premium information to either PAC or FIRST, but never to the actual insured. As a result the AG says that both companies profited greatly at the expense of Kilgore Insurance customers with PAC taking in approximately $214,000 in finance charges over a five-year period and FIRST with approximately $30,000 over a three-year period.
“We allege that PAC and FIRST took advantage of unsuspecting small businesses by aiding the Kilgore Insurance Agency in its scheme to pad insurance premiums with hidden fees,” says Attorney General Martha Coakley. “We must work to ensure that the small businesses in our communities are able to thrive and grow, rather than be strangled by unnecessary concealed costs.”
Overall, the scheme which occurred over a 10-year period, resulted in Kilgore secretly charging its clients millions of extra dollars in “agency fees,” the majority of whom were small, family owned businesses. Kilgore hid these additional “agency fees” through a variety of means says the AG’s office “….including applying “white-out” to erase figures on premium finance contracts and insurance policies.”
Purportedly, Kilgore would recommend either PAC or FIRST to clients unable to pay their entire insurance premiums upfront. Kilgore would then arrange a premium finance contract for its insureds authorized by PAC and FIRST, that folded so-called ‘agency fees’ into the clients’ insurance premiums. As a result, says the AG’s office, Kilgore clients ended up paying double or triple the true cost of their insurance premiums because the fees were added in on top of the standard commissions offered to Kilgore by insurance carriers.
The settlements announced last week will require that PAC and FIRST disclose the details of all charges imposed on all of its Massachusetts premium finance contracts and to correct and rewrite their premium finance contracts to eliminate any misleading terms. In addition, the companies will be required to repay $340,000 to the AG’s office, the majority of which will be repaid to the insureds victimized in the Kilgore Premium Finance Scheme. The 2009 lawsuit that the AG’s office filed against The Kilgore Insurance Agency including its owners and agents is still pending in the Suffolk Superior Court where the Court has largely frozen the defendant’s assets. In addition, the AG says that the Court has forbidden the agency from imposing an additional “agency fees” whatsoever which includes the defendant Andrew Crowther’s new business entity, Strategic Resource Group, LLC located in Wakefield.