CIBA, Great Lakes Sued Over Alleged Property Insurance ‘Ponzi Scheme’ [UPDATE: DISMISSED]

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[Update: This lawsuit was voluntarily dismissed by the plaintiff in mid-July. The defendants have maintained that the lawsuit was without merit. The dismissal order can be read here.]

Commercial Industrial Building Owner’s Alliance, Inc. (CIBA) and Great Lakes Insurance SE have been named in a proposed class action centered around an allegedly unlawful insurance scheme executed by the defendants in California. According to the complaint, CIBA and a group of insurance carriers, including Great Lakes, have partnered together to offer insurance policies covering industrial/commercial properties, such as warehouses, office buildings, and shopping centers, as well as residential properties including apartment complexes, homeowners associations, and condominiums.

The complaint explains that under a group insurance policy such as the defendants’ plan, insurance carriers band together to share liability for covering “catastrophic losses”– a risk each carrier would be unwilling to cover alone. CIBA purportedly acts as a Risk Purchasing Group (RPG) responsible for buying and selling commercial liability insurance. The problem, the suit poses, is that CIBA performs “all the functions that are reserved solely for licensed insurance carriers” without carrying a license, allowing it to effectively evade the strict regulations imposed on insurance companies.

The complaint then delves into an explanation of the defendants’ alleged Ponzi scheme, arguing that CIBA misinformed consumers about the coverage they were purchasing and the legality of the group insurance plan. The case claims that although the policy purports to split coverage of up to $1 billion of damage between insurance carriers, the defendants fail to disclose to insureds that CIBA is responsible for paying the first $1 million – referred to as the Self Insured Retention (SIR). Therefore, the lawsuit alleges, CIBA secretly acts as an insurance carrier despite being unlicensed and unregulated.

The case also alleges the defendants fail to disclose to plan members the “true risk” of purchasing insurance under their policy – that “a single catastrophic occurrence could deplete the entire shared limit of available coverage.” The suit claims the defendants’ plan covers over $50 billion-worth of property but promises shared coverage of only $1 billion “per occurrence for all insureds,” putting each plan member at risk of having to pay for their own damages despite having surrendered thousands in insurance premiums.

Update: A CIBA representative has asked that we update our post with the following statement from Michael Kennick, counsel to CIBA, included in full below: