Tort crisis spawns carriers selling questionable coverage

About a dozen states are investigating or have shut down companies they believe are selling liability insurance without a license.

By Tanya Albert, AMNews staff. June 30, 2003.

The price the man on the phone quoted Leesburg, Fla., obstetrician-gynecologist Wendell J. Courtney, MD, for liability insurance seemed in line with what Dr. Courtney felt he should be paying: $50,000 annually.

So, even though he was a little leery, he started filling out the paperwork when he received it.

The unsolicited call had come from a one-man insurance shop in Orlando, Fla. Most insurance companies at least have a secretary answering the phones, Dr. Courtney thought. Also, the premium -- although not inexpensive -- was lower than what other companies were offering. It's not uncommon for ob-gyns to pay $100,000 for insurance in Florida.

"I had seen bogus companies before," said Dr. Courtney, who had also recently received a letter offering insurance from a company based in Bermuda, but he couldn't find a phone number for the company. So as the paperwork was being processed by the Orlando company, Dr. Courtney followed his nagging internal voice and called the Florida Dept. of Insurance. He held off from sending any money.

That was a smart move.

The company, Embassy Bonding & Surety Ltd., wasn't licensed to sell insurance in Florida, and the agents selling the insurance weren't licensed either. Also, the company didn't have sufficient reserves to pay claims and wasn't collecting enough in premiums to pay claims, the state alleges.

Attempts to reach Embassy for comment were unsuccessful.

Because the company wasn't licensed with the state, Dr. Courtney and others wouldn't be protected by a state fund if the company could not pay claims the physicians filed. A number of doctors -- including some who had sent checks -- called the insurance department. The state ultimately issued a cease and desist order against the company, one of three such orders in Florida since last fall.