Crusader Insurance Sues Cut-Rate Competitors

In an action that may affect the price and availability of insurance for small businesses, a Woodland Hills-based insurer filed suit against four out-of-state competitors and their California brokers, accusing them of illegally selling cut-rate coverage in California.

Crusader Insurance Co. submitted its case to Los Angeles Superior Court late last week, seeking $20 million in damages to compensate for business that it contends was unfairly funneled to the four larger carriers--all unlicensed in California--by brokers who ignored state law restricting such sales.

“We’ve been complaining about this for years,” Roger H. Platten, Crusader’s general counsel, said Monday.

Crusader, which writes property and liability coverage for self-service laundries, gas stations, liquor stores and other small businesses, claims that brokers are exploiting a loophole in California law that allows them to sell insurance from unlicensed carriers if the same coverage is unavailable from licensed carriers.

The brokers are required by law to demonstrate a good faith effort to locate California-licensed companies, but Platten said such efforts are often a sham.

The state Insurance Department has started an investigation based on Crusader’s complaints, said Patricia Staggs, chief of the department’s compliance bureau.

The out-of-state carriers can sell at lower prices because they do not have to pay into the California guarantee fund, which protects policyholders from insurance failures, and they do not bear the costs of state regulatory inspections or other fees, Platten said.

Insurance companies named as defendants are the Illinois Insurance Exchange of Chicago, Scottsdale Insurance Co. and Western Heritage Insurance Co., both of Scottsdale, Ariz., and Admiral Insurance Co. of Cherry Hill, N.J. The suit also names three brokers: Canyon Pacific Wholesaler Services of Corona, RIC Insurance General Agency of Anaheim and Trans Cal Associates of Sacramento.

“We haven’t seen the lawsuit, but it’s our position that we’re selling legally,” said Jack King, legal counsel for Scottsdale.

Spokespersons for other defendants couldn’t be reached or declined comment.