'We would be unlikely to use them unequivocally if they're not HUD rated. We'd have to look into it and see what the situation is.'
Elizabeth Morris, Housing Commission acting executive director
A fledgling offshore insurance company that sold the San Diego Housing Commission its $2-million liability insurance policy in December--and is preparing to bid to renew the policy--still has not won federal approval to offer such insurance, according to local and federal officials.
Yet the Caribbean-based firm, Centurion Insurance Ltd., continued to sell insurance policies to public housing authorities across the West until July of this year, despite repeated notices from the U.S. Department of Housing and Urban Development that it was not qualified to do so, HUD officials said.
In addition, Centurion apparently failed to conduct its business in California through an insurance broker certified to handle offshore companies, which is a requirement of the California Insurance Code. In papers filed with the San Diego Housing Commission, the firm claimed it had the services of such a broker, but the broker told The Times his firm was not providing that service.
Thomas Eaton, Centurion's founder and chairman of Centurion's onshore representative, Wyndham Consulting Services of Burlingame, Calif., maintains that the snafu is largely a bureaucratic one, caused by months of negotiations over HUD's demand that Centurion keep its $10 million in assets in a U.S. bank. Currently, the company's assets are kept offshore, out of the reach of U.S. courts should a housing authority attempt to seize them.
Eaton and Bill Booth, the Fresno-based broker who represented the San Diego Housing Commission when it purchased the liability policy, said that they have repeatedly assured the Housing Commission that HUD approval was imminent because federal officials told them it was.
"The assurances given to (the Housing Commission) were the same assurances given to us (by HUD)," Eaton said. "This is what we kept hearing: 'Any time now.' So we were not trying to deceive anybody."
Documents show that might have been wishful thinking on Eaton's part. And nearly 11 months of delays in federal approval have left San Diego housing officials leery about their decision to buy discount rate insurance from a firm that did not exist until last year and wrote its first policy for the San Diego Housing Commission. The decision was made at a time when U.S. public housing agencies were finding it costly to buy insurance from American companies.
After months of accepting the company's assurances that federal approval would soon be forthcoming--promises they apparently didn't check with HUD--Housing Commission officials appear ready to dump Centurion if the company is not HUD approved when the liability policy comes up for renewal in December.
"We would be unlikely to use them unequivocally if they're not HUD rated," said Elizabeth Morris, the Housing Commission's acting executive director. "We'd have to look into it and see what the situation is. If we find that a company that we do business with has misrepresented (themselves) to us, then it would certainly color our willingness to do business with them in the future."
Look at Alternatives
A risk-management consultant hired by the commission to review its six separate insurance policies also will recommend that the commission not transact new business with Centurion because of the lack of approval by HUD and reluctance on the part of Centurion and Wyndham to reveal information requested by the consultant.
"We're going to recommend that they look at other alternatives . . . because of the lack of information (about the company) and the fact that they haven't been approved," said Craig Collings, a consultant with Advanced Risk Management Techniques.
Public housing agencies purchase liability insurance primarily to protect themselves against lawsuits from people who are injured on their property. HUD, which puts up the money for the housing, reviews the policies to ensure that the agencies are dealing with reputable companies.
HUD has no enforcement power over the actions of private insurance companies short of formally barring them from selling insurance to public housing agencies, a drastic measure that was not adopted in Centurion's case. Instead, HUD negotiated with Centurion over the standards it wanted the firm to meet before selling insurance.
But J. Michael Dorsey, HUD's general counsel, said that HUD made it very clear that Centurion needed its approval to sell insurance to any public housing agency. "They have to be approved by HUD to be able to sell insurance to housing authorities," Dorsey said. "And they don't have that approval."
Centurion's policy offered the commission $2 million in total coverage and up to $1 million for any particular incident for $177,113 per year--at least $22,000 less than a policy offered by broker Robert F. Driver through a regulated U.S. insurance company.