FGS Files Damage Claim Against State, 5 Agency Officials : Insurance: The Irvine-based firm, facing an attempt to cancel its license to do business in California, says a toll-free government hot line scared away many of its potential customers.

FGS Insurance Agency Inc., a controversial marketer of high-risk auto insurance policies, said Thursday that it has filed a damage claim against the state Department of Insurance, Commissioner Roxani Gillespie and four other agency officials.

The Insurance Department currently is attempting to cancel FGS’s license to market auto insurance in California, claiming that the Irvine-based company has systematically defrauded customers.

The company has denied the state’s allegations and maintains that the department is conducting a vendetta against FGS because it formerly was owned by Coastal Insurance, a high-risk auto insurance company that filed for bankruptcy and was ordered liquidated last year.

In the damage claim, FGS named senior investigator Dennis Ward, investigators Hazel McRay and Kim Harrison-Woods and Bruce Wiener, chief counsel for the department, as defendants along with Gillespie.

FGS says that it was damaged because the department established a toll-free hot line for agency clients and that callers are told that the company provides inferior service and that the state will revoke its brokerage and agency licenses.

The company said that since filing a complaint against FGS in April, the Insurance Department “has disseminated false and misleading press releases” and threatened to investigate insurers who do business with FGS.

In addition, FGS claims that department investigators have entered its premises without permission and have threatened to seek revocation of the licenses of FGS employees who request legal advice during interviews.

FGS President Alan Greenberg said that most of those activities have been halted but that FGS has lost thousands of potential customers because of the state’s actions.

The claim, submitted to the Insurance Department, is an administrative prelude to the expected filing of a $40-million civil suit by FGS against the department, said Greenberg. A damage claim must be filed and acted on by the state before a civil suit for damages can be instituted.

An earlier FGS suit asking for a court order enjoining state regulators from harassing FGS was filed Sept. 7. On Aug. 14, former FGS executives were among those named in an Insurance Department suit asking for $66 million plus punitive damages to be paid the state for alleged racketeering, fraud and gross mismanagement in the Coastal failure.

The new suit will be based on FGS’s claims that “the Insurance Department and its employees have engaged in and condoned a pattern of unlawful misconduct against FGS,” Greenberg said.

Insurance Department officials said Thursday that they had not yet seen the damage claim and would have no comment.

In April, the state filed a complaint against FGS claiming that the agency in 1989 and earlier had violated state insurance laws. Among the charges were that FGS:

* Failed to tell customers they were being placed in the state assigned-risk pool.

* Failed to tell customers who financed premiums through a plan provided by FGS that the interest rates would run from 20% to 40% while much less expensive plans were available from the state.

* Aided unlicensed insurance companies to do business in California by marketing their policies.

Hearings to revoke FGS license began in September but have been postponed until February.