By Tom Shean of The Virginian-Pilot

For many insurance companies, reinsurance provides crucial protection against unexpectedly large claims.

But for Reciprocal of America, a trio of lawsuits suggests it became a ruse to deceive rating agencies and state regulators.

In two suits filed in federal court in Montgomery, Ala., two hospitals and a physician contend that Reciprocal of America entered into secret agreements wit a major reinsurer, General Reinsurance, to mislead regulators and rating agencies “into believing that they were financially solvent.”

The agreements “greatly reduced the risks assumed by General Re’ but enabled Reciprocal of America to attract business from unsuspecting policyholders, the suits contend.

A Memphis lawyer insured by American National Lawyers Insurance Reciprocal made similar allegations in a third suit recently filed in federal court in Memphis.

The agreements between Reciprocal of America and General Reinsurance were documented by records in Reciprocal of America’s files in Richmond, said Jay Aughtman, a Montgomery attorney. His firm is representing policyholders of Reciprocal of America, Doctors Insurance Reciprocal and American National Lawyers Insurance Reciprocal. Aughtman declined to say how the agreements came to his firm’s attention.

Alfred W. Gross, Virginia’s insurance commissioner and deputy receiver for Reciprocal of America, said he was aware of the lawsuits but declined to comment. General Reinsurance, which is based in Stamford, Conn., could not be reached for comment.

The suits don’t specify any dollar amounts for the damages sought by Plaintiffs.

Aughtman said he and other attorneys who prepared the suits hope to have them certified by the courts as class actions on behalf of hospitals, physicians and lawyers who had been policyholders of Reciprocal of America and its affiliates.

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