Novato-based Fireman’s Fund Insurance Co. has agreed to pay $44 million to settle allegations that it issued fraudulent crop insurance policies, federal authorities said Monday.
The company “knowingly issued insurance policies that were ineligible under the U.S. Department of Agriculture’s federal crop insurance program and falsified documents,” said Benjamin Mizer, acting assistant attorney general.
“Federal crop insurance provides vital support for farmers suffering crop losses due to natural disasters,” Mizer said. “The Department of Justice will continue aggressively to pursue those who abuse this important program.”
Richard Manson, a spokesman for Allianz SE, Fireman’s Fund’s German parent company, said the settlement related to the company’s role as a federal crop insurer from 1999 through 2002.
“The settlement is a commercial decision,” Manson said. “While fully cooperating with the government’s investigation, Fireman’s Fund Insurance Company robustly defended its position and the settlement is not an admission by Fireman’s Fund Insurance Company of any liability.”
The Department of Justice said that over those three years Fireman’s Fund sold and serviced crop insurance policies that were reinsured by the U.S. Department of Agriculture for a portion of the risks. The government alleged the company backdated policies, forged farmers’ signatures, accepted late and altered documents, whited out dates and signatures, and signed documents after relevant deadlines.
The policies were issued by Fireman’s Fund offices in Modesto; Lambert, Miss.; Fargo, N.D.; Lubbock, Texas; Prosser, Wash.; and Overland Park, Kan.
Paul Newsome, an analyst at Sandler O’Neill and Partners in Chicago, said settlements of this kind between the government and insurance companies aren’t unusual — “although you don’t usually see fines this large.”
David Koehn of Novato, who worked for Fireman’s Fund as an underwriter for 25 years before retiring about 10 years ago, said many of the allegations sound worse than they are and likely reflect the bureaucratic process of writing insurance policies in a variety of states simultaneously.
“It sounds to me like normal business practice when you’re working with the government,” Koehn said. “You’re running a 50-state operation and in addition to that you’ve got another layer of government red tape in the middle and nobody can possibly process everything perfectly under those conditions.”
Koehn said insurance companies who work with the government under these conditions might factor fines into the cost of doing business.
“Now if you make too many deals that are worse than your major competitors, your parent company gets real (upset) and takes the game away from you and that’s what is happening to Fireman’s Fund right now,” Koehn said. “That’s why the Fireman’s Fund brand is going away.”
In September, Allianz announced that Fireman’s Fund’s commercial property and casualty business was being integrated into Allianz Global Corporate and Specialty, the global corporate insurance company of Allianz. And in December, Allianz announced it had reached an agreement to sell the last remaining part of Fireman’s Fund, its personal lines, to Zurich-based ACE Ltd. for $365 million.
As recently as 2000 the company was Marin County’s largest employer with 2,400 workers. It has about 700 now.
