Insurer Barred in Wyoming : Trust fund: The insurance commissioner says that an account to protect policyholders was not properly established.

An insurer managed by a Van Nuys company has been barred from doing business in Wyoming by the state’s insurance commissioner.

Commissioner Kenneth Erickson barred Unified Assurance & Casualty Ltd., an insurer of high-risk properties, which is chartered in the British West Indies but managed in the United States by InterOcean Risk Systems Inc. in Van Nuys. Unified also operates in California.

Erickson ruled last month that Unified was ineligible to operate in Wyoming after finding that the company had not properly established a $500,000 trust fund that is required to protect policyholders, had not set up the fund with a “recognized financial institution” and had not provided the state with audited financial statements. The trust fund would be used to pay policyholders’ claims in the event the insurer defaulted.

Executives of InterOcean disputed the commissioner’s decision. They said Unified had twice established trust funds whose assets were worth more than $500,000. An administrative judge who heard the case “acknowledged that we complied with the spirit of the law, if not the letter of the law,” said Richard Brush, InterOcean Risk’s vice president.

Unified specializes in surplus lines insurance, covering high-risk property that traditional insurers avoid. Expensive cars would typically be insured by a surplus lines carrier, for instance. Unified focuses on insuring commercial trucks and aircraft, said InterOcean President Michael Eisenstadt.

California’s Insurance Department does not require a similar trust fund for surplus lines carriers. However, the agency does require that insurance brokers in California who arrange surplus lines coverage for their customers be appropriately licensed.

The Unified/InterOcean venture has been operating for about six months and has written insurance that currently generates annual premiums of about $1.5 million, Eisenstadt said. He said the Wyoming matter had “absolutely no” effect on the companies’ remaining operations.

Unified began operating in Wyoming last December when Venture Underwriters, an insurance broker in Cheyenne, asked Unified to assume business that had been handled by an insurer that “went broke” named Oxford Indemnity Insurance, Eisenstadt said.

In order to meet Wyoming’s requirements for surplus lines insurers, Unified set up a trust fund composed of land parcels whose combined value exceeded $500,000, Eisenstadt and Brush said.

But the state’s insurance department contended that the land parcels--located in several states including New Mexico, Minnesota and North Dakota--were worth less than $10,000, said John McBride, a department attorney. “We found the land was either non-existent, had title problems or was in the middle of a black spruce swamp,” he said.

Brush disagreed, saying that a few days after Unified was barred, Unified and InterOcean sold some of the land for $375,000.

In any case, Unified and Inter- Ocean set up a second trust fund composed of certificates of deposit, promissory notes held by the companies and equity in other land holdings, Brush said. But commissioner Erickson ruled that the trust was not with a “recognized financial institution” and was not “effective for the protection” of policyholders.

McBride said the notes and some of the other assets were not readily convertible to cash, and were therefore counter to the trust’s purpose of providing policyholders with a ready source of cash should the insurer default.