What you don’t see behind the scenes at your favorite neighborhood bar could serve up big problems: a critical insurer that helps keep bars in business has gone under, and it puts bar owners in a precarious position. Troubleshooter George Colli shows us why.
Alcohol and entertainment can be a risky combination.
Restaurant and bar owners can lose their business by over-serving just one person.
It’s why they pay tens of thousands of dollars every year in liquor liability insurance premiums to protect themselves.
But what happens if that insurance policy protecting you, your business and your employees all of a sudden isn’t there?
It’s a reality many establishments here in Connecticut now face: Hundreds of bars and restaurants in the state are scrambling to find coverage after one of the largest entertainment insurers in the country went belly up.
Indemnity Insurance Corporation, a Delaware-based risk retention group, was forced to close in April as a result of a seizure and liquidation ordered by Delaware’s Insurance Commissioner.
It comes after an investigation found that Indemnity's former president and owner, Jeffrey Cohen, had committed fraud – not once, but several times over.
Investigators allege that the company forged documents for a $35-million policy to The Light Group, LLC – one of the largest adult entertainment groups in Las Vegas. They also allege that Indemnity Insurance Corporation forged $47 million line of credit.
At the time of the liquidation order, at least 68 Connecticut bars or restaurants with policies held by Indemnity Insurance Corporation had pending liquor liability cases. There were at least 120 in New York.
“Anything that’s pending going back years is not going be covered,” said Centerbook-based attorney Jan Trendowski, who exclusively represented Indemnity’s insured clients in Connecticut and New York. “Anything they haven’t paid, they’re not going to pay.”
Trendowski himself is still owed tens of thousands of dollars in legal fees. He was forced to notify all of his clients to let them know he can no longer represent them because he isn’t getting paid.
One of those phone calls was placed to Rich Conine, who owns and operates Stonebridge Restaurant in Milford. He has a pending case for an incident at another bar he owned, Daniel Street in Milford.
“On this day, we don’t know if we have insurance yet," he said. "I’m assuming we’re going to get it but I don’t know what our premiums are going to be.”
Restaurant and bar owners are getting sticker shock over new liability insurance. Any with pending cases are seeing 50-100 percent increases in premiums.
Trendowski fears it could lead to a rise in drink and food prices and a decrease in service.
However, businesses are not the only ones greatly impacted by Indemnity’s liquidation. In every one of those 68 pending liability cases in Connecticut, there is at least one claimant who may never see a dime if he or she is awarded any judgment.
Monte Friere is one such victim. Friere was stabbed in the neck while watching a Red Sox-Yankee game at Chowder Pot in Branford in October 2010.
The attacker was sent to prison and Friere sued the restaurant for negligence. A jury awarded him $4.3 million.
The case is currently under appeal but a judgment awarding money to Friere leaves the owner of the Chowder Pot only two options: stay open and pay out of his own pocket or close down.
Timothy Pothian, Friere’s attorney, says the situation is unfair to everybody involved.
He notes that the state of Connecticut has an insurance guaranty fund to protect businesses when insurance companies fail.
The problem is that Indemnity Insurance Corporation was not an insurance company. It was a risk retention group, and state statute excludes Indemnity policy holders from paying into the guaranty fund.
Pothian believes Attorney General George Jepsen should look into what he considers a “legislative oversight.”
“The Attorney General should take a hard look at this,” said Pothian. “Step up to the plate.”
Jepsen told the Troubleshooters he is aware of the situation with Indemnity Insurance, but there’s not much he can do.
“It is not clear, at this time, that there is a legal avenue for the state to assist business owners affected by the liquidation. We would strongly advise affected businesses to consult with their private attorneys to discuss their legal options," Jepsen said in a statement.
Sen. Richard Blumenthal says he is also looking into what can be done on the federal level to help Connecticut consumers and businesses.
No charges have been filed against Indemnity's former president, Jeffrey Cohen, but Pothian would like to see the U.S. Attorney’s Office in Connecticut to take a closer look.
Cohen, who lives in Maryland, was defiant that the allegations against him are exaggerated. He says the entire Insurance Commission investigation is a vendetta against him.
He estimates more than 1,000 businesses, from large clubs to small “mom and pop pizza joints” could go “belly up in the next year" because of “what the state of Delaware has done to [his] company.”
He believes there were $38 million in assets when the company was forced into liquidation, and asserts that the money should go to pay claims, not the state of Delaware.
Cohen has a federal lawsuit pending against the contractor hired to conduct the investigation into indemnity.
“They make me sound worse than [Bernie] Madoff,” Cohen said in a phone conversation. “I haven’t been charged. Show me the proof I’ve done these things they say I’ve done.”
Businesses have until January 2015 to file any claims with the Delaware Chancery Court.