Judge clears Frontier Insurance Group lawsuit to proceed

Michael Levensohn
The Times Herald-Record, Middletown, N.Y.
December 29, 2005


Dec. 29--A lawsuit alleging mismanagement, self-dealing and other offenses by 18 former Frontier Insurance Group officials has been cleared to proceed.

The suit, which was brought in December 2002 by the state superintendent of insurance, alleges that Frontier executives and directors, including former CEO Harry Rhulen, breached fiduciary duties to the company and violated insurance laws, among other things.

In a decision issued last week, the state Appellate Division, Third Department, upheld a decision by state Supreme Court Justice Nicholas Clemente. That judge had denied the officers' motions to dismiss the suit.

State lawyers are preparing to take depositions in the case, said Insurance Department spokesman Mike Barry.

Suzanne Loughlin, a defendant in the suit and the steward of Frontier Insurance Group in recent years, could not be reached for comment.

At its height, Frontier Insurance Group employed more than 1,000 people -- 700 at corporate headquarters in Rock Hill -- and had a market value of $1 billion. The company collapsed under the weight of management errors, most notably the company's failure to set aside enough money to pay future claims on its policies.

Since August 2001, the New York State Insurance Department has been running the group's largest subsidiary, Frontier Insurance Company.

Frontier Insurance Group filed in July for Chapter 11 bankruptcy protection.

As a result of the case, control of the group has been turned over to its largest creditor, Insurance Management Group.

Frontier and its former executives are embroiled in a number of lawsuits tied to the company's collapse.

The insurance superintendent's lawsuit alleges that officials failed to properly oversee business practices and investments, failed to scrutinize bonuses and participated in self-dealing and diversion of funds.

Both Frontier Insurance Group and the state insurance superintendent have sued Ernst & Young LLP, Frontier's former accounting firm, alleging that the firm was negligent in underestimating the amount of money Frontier needed to set aside in reserves to pay future claims. Those cases are pending.

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