A Florida lawsuit introduced by non-public fairness fund Fortinbras Enterprises and three others prices that Lighthouse Property Insurance coverage Corp. executives hid the extent of underwriting losses after Hurricane Ida, even because the insurer solicited tens of millions in recent capital.
And a part of the funds’ $65 million funding was used to repay a $19 million mortgage from a Florida financial institution, however insurance coverage firm leaders did not disclose an “insider relationship” with the financial institution. The deal left the financial institution absolutely repaid however left the hedge funds holding the bag when Lighthouse turned bancrupt, the lawsuit claims.
The go well with additionally alleges that TigerRisk Companions, now a part of Howden, the worldwide insurance coverage brokerage, misled the traders in its pitch for capital and failed to elucidate the depths of the Lighthouse crimson ink. The grievance additional claims that the Louisiana Division of Insurance coverage allowed a hardly ever used “conservation continuing” that gave Lighthouse time to lift much-needed capital – however the association was not made public till later.
In a movement to dismiss the go well with, filed Oct. 13, One Florida Financial institution attorneys stated the Fortinbras go well with is misguided, largely as a result of the funding fund managers knew all alongside that the financial institution can be repaid on its $19 million mortgage.
Now, out of their cash and feeling burned, Plaintiffs set their sights on the one solvent goal.
“Plaintiffs rolled the cube: They made a dangerous wager by investing in struggling insurance coverage entities within the wake of a serious hurricane,” the motion reads. “Now, out of their cash and feeling burned, Plaintiffs set their sights on the one solvent goal—One Florida Financial institution. However the transactions weren’t fraudulent, nor had been they made to evade an impending debt or judgment.”
The lawsuit, filed in August in Orlando, if nothing else, offers a glimpse into the gears that had been turning as Lighthouse officers confronted unprecedented losses in 2021 after highly effective Hurricane Ida hit Louisiana. Lighthouse was deemed bancrupt in April 2022, simply 4 months after the $65 million take care of the hedge funds closed.
Howden officers declined to remark. Patrick White, former CEO of Lighthouse, stated that early estimates of Ida losses had been off and led many to make unhealthy selections.
“Many carriers, the state itself, and the trade as an entire, had the early estimates mistaken,” he stated in an e mail to Insurance coverage Journal. “Fortinbras was conscious that the hurricane had occurred and even employed specialists of their very own to assessment the numbers all through the due diligence course of. The end result is unlucky for all.”
The story begins in 2020. Tampa-headquartered Lighthouse, with 13,800 insurance policies in Florida and 1000’s extra in Louisiana and different states, was managing losses from three storms in Louisiana that yr. Lighthouse had reported three straight years of internet losses, together with $72 million in 2020.
But firm officers appeared to consider they might nonetheless make it work – if solely they might line up tens of millions in capital funding. On the similar time, the provider was searching for a possible purchaser, simply as one other Florida-based insurer with a big presence in Louisiana, United Property & Casualty Insurance coverage Co., had tried to do earlier than it was deemed bancrupt this yr.
It’s not clear precisely when Lighthouse, by TigerRisk, started negotiations with Fortinbras and the fairness funds. The financial institution’s movement to dismiss stated it wasn’t till September 2021. Fortinbras officers have declined to remark past what’s within the grievance.
In July 2021, the Louisiana Division of Insurance coverage had positioned Lighthouse into a short lived kind of rehabilitation, referred to as a conservation continuing. That gave firm officers a little bit extra time to search out traders and gave regulators time to establish the extent of Lighthouse’s monetary troubles.
The lawsuit prices that the association was a key a part of the deception.
“The Authentic Conservation Continuing was carried out confidentially and maintained below seal to defend it from the general public,” the complaint reads. “Patrick White knew in regards to the Authentic Conservation Continuing and hid it from Plaintiffs regardless of it being materials to the Lenders’ funding resolution … Representatives of TigerRisk knew or ought to have recognized in regards to the Authentic Conservation Continuing and likewise did not disclose it to Plaintiffs.”
A present deputy commissioner on the Louisiana Division of Insurance coverage and a former commissioner defined that Louisiana regulation requires the conservatorship to be saved confidential.
“You don’t need a run on the financial institution, so to talk,” Robert Wooley, who was Louisiana insurance coverage commissioner from 2003 to 2006, informed Insurance coverage Journal. “It might make it a self-fulfilling prophecy.”
Some states, like Florida, require extra public entry to rehabilitation orders. This was the primary time in years a Louisiana provider was lined by a conservation continuing, defined John Ford, deputy Louisiana commissioner.
For Louisiana-domiciled insurers that in the end went bancrupt lately, “there have been no points that warranted conservatorship previous to Hurricane Ida,” Ford stated in an e mail. “Their Hurricane Ida losses had been vital sufficient that it was clear the businesses weren’t salvageable.”
The Lighthouse conservatorship association got here in July 2021 – 5 weeks earlier than Hurricane Ida hit a big swath of Louisiana, inflicting greater than $31 billion in insured losses. The timing of the continuing was eye-opening to a Louisiana plaintiffs’ legal professional who has dealt with a whole lot of claims disputes towards Lighthouse.
“I had no concept that Lighthouse, and so forth. had been subjected to the conservation process even earlier than Ida struck on 8/29/21,” Guidry stated in an e mail.
For the primary few weeks after the Class 4 storm, Lighthouse officers might have believed they might climate the losses, they usually continued to try to elevate cash. However by late September 2021, bother was mounting. That month, the Demotech monetary ranking agency was planning to downgrade Lighthouse’s monetary energy ranking as projected Ida losses topped $300 million for the provider.
It’s unclear when Fortinbras, which had its personal employed actuaries, and the opposite plaintiffs realized of the Demotech downgrade. However the grievance contends that Lighthouse officers didn’t promote the unhealthy information.
“Unknown to Plaintiffs, Patrick White and Lighthouse Administration reported to LDI that, as of November 30, 2021, the Lighthouse Insurance coverage Corporations had already incurred losses of $278 million with an estimated whole lack of $316 million. Of that sum, $247 million had already been paid out to claimants as of November 30, 2021,” the lawsuit reads. Lighthouse and TigerRisk “falsely assured” Fortinbras that the full losses can be lower than $275 million and effectively throughout the provider’s reinsurance protection, hedge fund attorneys wrote within the go well with.
The plaintiffs argue that they engaged in intensive due diligence earlier than investing however weren’t supplied with key data.
The hedge funds closed the $65 million funding take care of Lighthouse on Nov. 30, 2021, the grievance exhibits. Lower than three months later, in February 2022, Patrick White disclosed to the traders that the Lighthouse corporations had been in monetary misery. In March 2022, Demotech withdrew its monetary ranking. A month later, Louisiana Commissioner James Donelon signed an order inserting Lighthouse into liquidation proceedings.
“All data was supplied to Fortinbras so they might diligently assessment the dangers and alternative and make an informed resolution on whether or not to lend or not,” White stated Monday. “We’re grateful for the religion they positioned in our enterprise mannequin, and are dissatisfied within the consequence of Hurricane Ida’s reserve improvement.”
The Lighthouse 2019 mortgage with One Florida Financial institution was not an arms-length transaction, Fortinbras prices, due to “deep connections” between the financial institution and the insurer. The connections had been so intricate that the plaintiffs included a corporation chart as an exhibit within the lawsuit, displaying a financial institution govt as having a board seat on insurance coverage holding corporations affiliated with Patrick White, and with White’s father having funding connections to the financial institution.
“By the point Lighthouse Administration transferred greater than $19,000,000 to One Florida Financial institution, Lighthouse Administration was bancrupt,” the grievance reads. “Lighthouse Administration had no means to repay the secured notes on the time of the switch and to repay the money owed as a consequence of Plaintiffs, and the Lighthouse Insurance coverage Corporations had been unable to cowl losses from Hurricane Ida.
The financial institution’s movement to dismiss downplays the connection with financial institution leaders as irrelevant.
“Plaintiffs’ claims concern the circulation of cash between Lighthouse and Plaintiffs—they don’t have anything to do with One Florida Financial institution factually or legally,” the movement reads. “On the contrary, Plaintiffs knew precisely what Lighthouse would do with the cash Plaintiffs lent—repay One Florida Financial institution—as a result of that’s what Plaintiffs required Lighthouse to do.”
It’s unclear if the hedge funds had been in a position recuperate any of the $65 million they invested in Lighthouse. The financial institution’s movement to dismiss notes that, “finally the Louisiana Division of Insurance coverage agreed to switch to HF and Silver Rock all of Lighthouse Administration’s belongings…”
Fortinbras representatives declined to touch upon that. The Louisiana Division of Insurance coverage official stated he had no data on the funds’ restoration. The appointed receiver for Lighthouse couldn’t be reached.
The Lighthouse insolvency got here on the top of the property insurance coverage disaster that had plagued Florida and Louisiana-heavy insurers lately. Whereas Lighthouse officers blamed climate losses, 9 different carriers had been deemed bancrupt in Florida within the final three years, and most of these attributed their situation largely to extreme claims litigation, largely within the Sunshine State.
“Many carriers suffered the identical destiny (as Lighthouse),” White stated. “And Louisiana continues to really feel the results of decreased capability out there. I’m hopeful that reinsurers, the first insurers which might be left, and the State can proceed effecting optimistic change to enhance the marketplace for the superb folks that decision Louisiana dwelling.”
The Fortinbras go well with is pending in Orange County Circuit Court docket in Florida and will not be resolved for years. Fortinbras, based mostly in New York, and the opposite hedge fund plaintiffs should not the biggest non-public fairness funds on the earth, however they’re well-known, in response to trade commerce information.
Prime photograph: Lyndell Scott walks previous the particles of his gutted dwelling within the aftermath of Hurricane Ida in LaPlace, Louisiana, on Sept. 10, 2021. (AP Photograph/Gerald Herbert)