CIBA, Great Lakes Sued Over Alleged Property Insurance ‘Ponzi Scheme’ [UPDATE: DISMISSED]
by Erin Gilmore
Last Updated on August 2, 2018
Sage Apts, Llc v. Commercial Industrial Building Owner's Alliance, Inc. et al.
Filed: April 4, 2018 ◆§ 3:18cv2045
Commercial Industrial Building Owner’s Alliance, Inc. (CIBA) and Great Lakes Insurance SE have been named in a proposed class action centered around an allegedly unlawful insurance scheme executed by the defendants in California.
California
[Update: This lawsuit was voluntarily dismissed by the plaintiff in mid-July. The defendants have maintained that the lawsuit was without merit. The dismissal order can be read here.]
Commercial Industrial Building Owner’s Alliance, Inc. (CIBA) and Great Lakes Insurance SE have been named in a proposed class action centered around an allegedly unlawful insurance scheme executed by the defendants in California. According to the complaint, CIBA and a group of insurance carriers, including Great Lakes, have partnered together to offer insurance policies covering industrial/commercial properties, such as warehouses, office buildings, and shopping centers, as well as residential properties including apartment complexes, homeowners associations, and condominiums.
The complaint explains that under a group insurance policy such as the defendants’ plan, insurance carriers band together to share liability for covering “catastrophic losses”– a risk each carrier would be unwilling to cover alone. CIBA purportedly acts as a Risk Purchasing Group (RPG) responsible for buying and selling commercial liability insurance. The problem, the suit poses, is that CIBA performs “all the functions that are reserved solely for licensed insurance carriers” without carrying a license, allowing it to effectively evade the strict regulations imposed on insurance companies.
The complaint then delves into an explanation of the defendants’ alleged Ponzi scheme, arguing that CIBA misinformed consumers about the coverage they were purchasing and the legality of the group insurance plan. The case claims that although the policy purports to split coverage of up to $1 billion of damage between insurance carriers, the defendants fail to disclose to insureds that CIBA is responsible for paying the first $1 million – referred to as the Self Insured Retention (SIR). Therefore, the lawsuit alleges, CIBA secretly acts as an insurance carrier despite being unlicensed and unregulated.
The case also alleges the defendants fail to disclose to plan members the “true risk” of purchasing insurance under their policy – that “a single catastrophic occurrence could deplete the entire shared limit of available coverage.” The suit claims the defendants’ plan covers over $50 billion-worth of property but promises shared coverage of only $1 billion “per occurrence for all insureds,” putting each plan member at risk of having to pay for their own damages despite having surrendered thousands in insurance premiums.
Update: A CIBA representative has asked that we update our post with the following statement from Michael Kennick, counsel to CIBA, included in full below:
“The allegations against CIBA in a federal lawsuit filed last week by a former customer of the CIBA program, Sage Apartments, LLC, are completely without merit. The lawsuit is being spearheaded by an attorney who has been making similar allegations against CIBA for many years without success. Most recently, in October 2017, the DeKalb County Superior Court for the State of Georgia ruled that allegations similar to these had no support in fact or law. The court summarily dismissed with prejudice all claims against CIBA (and its carriers) stating that the allegations were void of any legal merit.
For more than 15 years, CIBA has been providing its customers with superior coverage at a competitive price. CIBA takes all necessary steps to comply with applicable insurance rules and regulations. Moreover, the CIBA business structure is reviewed by various insurance experts, including a former Department of Insurance Director, who have consistently concluded that CIBA complies with applicable insurance regulations and standards.
The lawsuit falsely states that exhaustion of the $1 billion limit of coverage can occur by a single natural disaster thereby exposing CIBA and its member for all amounts above that limit. As a fact, the CIBA program provides a dedicated limit of coverage above $1 billion that is not subject to a group aggregate and applies up to the limits stated on the Declaration Page of a member’s policy, up to $150 million for each insured.
The lawsuit also misrepresents that CIBA operates as an insurance company by using an 'SIR'. CIBA does not insure its members and all coverage provided under the CIBA program is fully underwritten by qualified insurance providers.
CIBA looks forward to the opportunity to expose the frivolous nature of these allegations by Sage and 'others similarly situated' and to continue to provide superior coverage to its members at a competitive price.”
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