BOSTON (Legal Newsline) - Massachusetts Attorney General Martha Coakley announced on Monday that her office has settled with two premium finance companies that allegedly facilitated a scheme orchestrated by the Peabody-based Kilgore Insurance Agency.
FIRST Insurance Funding Corp., a subsidiary of Wintrust Financial Corporation based in Illinois, and Premium Assignment Corporation, a subsidiary of SunTrust Banks Inc., allegedly assisted Kilgore in its long-running scheme to overcharge policyholders by padding insurance premiums with hidden agency fees. FIRST and PAC provide premium loans to businesses and consumers paying for insurance.
The affected clients were allegedly serviced primarily by Kilgore agents Kathy Burke and Andrew Crowther, with assistance from Kilgore's owners, Cy Kilgore and Jeff Kilgore.
"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," Coakley said. "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."
Kilgore allegedly recommended FIRST or PAC to clients who could not fund their insurance costs upfront and then created premium finance contracts, authorized by FIRST and PAC, that purposefully hid so-called agency fees that were folded into clients' insurance premiums. The fees were allegedly added in on top of the standard commissions offered to Kilgore by insurance carriers and typically added 40 to 50 percent to clients' insurance costs. In multiple instances, Kilgore clients allegedly paid double or triple the true cost.
Monday's settlements require FIRST and PAC to disclose the details of all charges imposed on all Massachusetts premium finance contracts and re-word their contracts to eliminate any terms that are misleading. In addition, the companies will repay $340,000 to Coakley's office, the majority of which will be distributed to victims of the alleged Kilgore scheme.
FIRST and PAC allegedly profited from their partnership with Kilgore, with PAC taking in approximately $214,000 in finance charges from Kilgore clients in a five year period and FIRST garnering approximately $30,000 in a three year period.
Over a 10-year period, Kilgore allegedly charged its clients in secret. These charges were allegedly typically imposed on small, family-owned businesses and included millions of dollars in agency fees. Kilgore allegedly deceptively hid its fees through a variety of means - including applying white out to erase figures on premium finance contracts and insurance policies. Kilgore's hidden fees allegedly averaged close to 50 percent of the related premium. The industry standard compensation is approximately 10 percent of the premium and takes the form of a commission paid by the insurance carrier.
Kilgore allegedly had agreements with both companies whereby Kilgore would reveal the true premium information to FIRST or PAC, but never to clients. Coakley alleges that FIRST and PAC treated Kilgore in a manner far different from its other insurance agency partners, permitting these acts in order to facilitate Kilgore's deception.
Coakley's December 2009 lawsuit against Kilgore and its owners and agents is still pending in Suffolk Superior Court, where the court has largely frozen the defendants' assets and forbidden the defendants from imposing any agency fees whatsoever. Coakley contends that the court's order extends also to defendant Andrew Crowther's new business entity, Strategic Resource Group LLC located in Wakefield.