FBI Halts Huge Insurance Scam; Californians Bilked

In what authorities called one of the most significant insurance fraud cases in U.S. history, the FBI on Friday arrested an Atlanta couple accused of operating an international insurance scam that bilked 5,500 consumers--the majority of them Californians--out of more than $50 million.

Such scams have flourished in California and other places where high insurance rates and the limited availability of coverage have driven consumers toward the shadowy, loosely regulated offshore market.

Victims in Friday’s case included merchants whose small businesses were destroyed in last spring’s riots, motorists injured in auto accidents whose coverage proved to be worthless and consumers with health risks who were denied coverage by conventional insurers, the FBI said.

Alan Teale, 61, and his wife, Charlotte C. Rentz, 52, were arrested after a federal grand jury in Mobile, Ala., named them in a 41-count indictment that was unsealed Friday.

Complaints about insurance companies not licensed in California--many operating under lax foreign supervision--have exploded over the last three or four years. An avalanche of unpaid claims after the riots, estimated by Insurance Commissioner John Garamendi to exceed $43 million, underscored the problem.

One Teale company, Northern Commercial Fire & General Insurance Co., was identified by the California Insurance Department as having written extensive business coverage in the riot-torn areas.

The indictment describes a complex scheme that stretched from the United States to the Caribbean to Belgium and Ireland, involving money laundering and phony transactions meant to disguise Teale’s involvement.

The premise, according to the FBI, was “to receive millions of dollars in premiums while failing to pay claims.”

Teale and Rentz, aided by at least two subordinates not named in the indictment, are alleged to have used 24 insurance companies and a number of related servicing firms, agencies and brokerages to support their “bust-out” scheme.

“When certain consumers would make a claim on their insurance policy,” the indictment states, “the company, to avoid paying, would blame the policyholders themselves, the claims adjusters, the insurance agents and the attorneys involved for their failure to pay.”

The indictment charges that the Teale enterprise used foreign corporations and foreign bank accounts to avoid U.S. licensing and auditing procedures.

Under California law, offshore insurers are free to sell policies here with fairly limited scrutiny, although the laws have been stiffened recently. Garamendi has said that such firms sometimes do not come to the attention of regulators until the damage has been done.

The commissioner has the authority to order California brokers not to do business with suspect insurers. Such orders have been successfully challenged in court, however, and there are other means of circumventing them.

In the case of Friday’s indictment, the grand jury alleged: “Once the defendants’ companies were shut down by state insurance regulators, the defendants and their co-conspirators would start new companies under different names and would continue to operate.”

Teale, a British citizen who operates out of a suburban Atlanta office park, has long been under investigation by federal and state authorities. In the mid-1980s, he ran a company called Victoria Insurance Co. that collapsed with more than $20 million in claims unpaid.

A federal investigator involved in the current case described the network allegedly run by Teale as “the Super Bowl” of insurance fraud.

Teale became so well known to insurance regulators that he attempted to disguise his involvement in companies that he controlled, the indictment says.

Besides Northern Commercial, at least seven of the Teale companies cited in the indictment have operated in California, according to state records: American Trust Insurance Co., Atlantic & Pacific International Assurance Co., Old American Insurance Co., Trelawney Insurance Co. Ltd., United States & Continental Reinsurance Co., Wilmington Marine & General and Wilmington National Assurance Co.

United States & Continental wrote more than $54 million worth of insurance in 1990 and 1991 before the state Insurance Department ordered brokers to stop selling its policies. Northern Commercial wrote more than $23 million over the same period before it, too, was blacklisted.

Before unsealing the indictment, federal agents used a search warrant to seize records from Teale’s office.