Pa. insurance agency shut down for allegedly misappropriating premiums

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Update: Added many details about the alleged actions based on Pennsylvania Insurance Department records, 12:17 p.m. ET, Feb. 18, 2011.

A Pittsburgh-based insurance agency was shut down by Pennsylvania insurance regulators for allegedly misappropriating $1 million premiums in what appears to be a pattern over a two-year period.

The Morry Hoffman Agency Inc., which wrote commercial insurance policies for restaurants, allegedly failed to forward the premiums paid by clients to numerous insurance companies and agencies, according to the Pennsylvania Insurance Department.

Records indicate that the agency shifted policies from carrier to carrier several times, and each time it failed to remit or misappropriated thousands of dollars in premium.

The insurance licenses for the agency have been revoked because of the alleged misappropriations.

Its designated license, Marjorie Dee Rothrauff, who was listed as the agency’s vice president, had her license revoked in October 2010 in connection with the alleged misappropriations, PID records show.

The order revoking Rothrauff’s insurance license indicates that she failed to ensure that the agency did not misappropriate or fail to remit premiums, placed business without the insureds’ knowledge or consent, issued premium checks that were returned for insufficient funds and, submitted forged forms.

Rothrauff told the insurance department that the Hoffman agency operated without her oversight from May 2010 to October 2010. She consented to the revocation, records indicate.

The agency’s president, Carol Hughes, has not held an insurance license since 2004. Therefore, she is unable to legal sell insurance products, officials said.

The order revoking Rothrauff’s license provides many details about the case, from which the following summary is based.

Insurance regulators in Pennsylvania became aware of the alleged misappropriations from Mid-Continent Insurance. In May 2008, the Hoffman agency agreed to pay restitution and interest to Mid-Continent for the $838,218 in premium that it had misappropriated or failed to remit to Mid-Continent.

“Under the terms of the Mid-Continent settlement, Hoffman Agency expressly admitted liability for the unremitted premium,” according to the Rothrauff order.

Between June 2008 and December 2008, the Hoffman agency paid a total of $120,000 to Mid-Continent, but stopped paying from December 2008 through October 2010, when Rothrauff’s license was revoked, according to PID records. In October 2010, the agency still owed $718,218 to Mid-Continent under the terms of the agreement. It is unclear if the payments have or are being made.

The PID investigation also found that from 2009 through March 2010, the agency issued at least 60 premium checks, totaling more than $33,000, to Mid-Continent, which were returned for insufficient funds.

The PID said it was notified of an additional $331,525 in misappropriated or unremitted premiums due to Mid-Continent between January 2009 and May 2010, making the total owed $1,082,743.58.

In August 2009, investigators found, the Hoffman Agency entered into a broker agreement to place insurance policies with RCA Insurance Group (RCA). The agency moved some of the business it previously wrote with Mid-Continent to RCA between September 2009 and February 2010.

The agency again failed to remit or misappropriated a total of $34,660.74 in premium due for at least 18 accounts.

Between September 2008 and August 2009, the Hoffman agency also transferred at least four Mid-Continent insureds to the Tuscano Agency. For each of these four accounts, Hoffman Agency misappropriated and/or failed to timely remit their premium payments to Tuscano.

In one case, one of Hoffman agency’s accounts, Finlan’s Tavern, paid premiums to the agency for liquor liability coverage. But because the Hoffman agency failed to remit Finlan’s Tavern’s premium to Tuscano on time, a gap in coverage occurred, during which time Finlan’s suffered a claim that has been denied.

The Hoffman agency failed to remit $17,078.18 in premiums to Tuscano.

On Oct. 8, 2009, the Hoffman agency entered into an agency agreement with the Farmers Fire Insurance Co. to solicit and issue insurance coverage with Farmers Fire. Between October 2009 and June 2010, Rothrauff issued at least 13 premium checks, totaling $47,854.61, to Farmers Fire that were returned for insufficient funds. During that same time period, the Hoffman agency misappropriated of failed to remit premiums owed to Farmers Fire in the amount of $48,756.74.

On June 18, 2010, the agency submitted an Acord form to Mid-Continent for requesting non-renewal of the Edgewood Inn’s Mid-Continent policy. The form was issued on behalf of the Hoffman agency by Carol Hughes, the agency’s president. But her licensed expired in 2004.

PID investigators say the Hoffman agency and Hughes issued the Acord form, attempting to cancel the Edgewood Inn policy, without the insured’s knowledge or consent.

Then in spring 2010, the PID received information and evidence, it says, that the agency then again moved its insureds, this time to Insential, for coverage. Again, the Hoffman agency failed to fully and timely remit premium, resulting in $22,352.52 in unremitted premium to Insential.

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