Company faces trials amid industry scandal

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BYDICKPIERSOL

Heritage Administrative Services has been in flux since mid-April, when founder Rod Beery and his son R.J. left the company's management.

But that was just its latest trial.

About three weeks earlier, a Lancaster County District Court jury ordered Heritage to pay more than $855,000 in damages to an Arizona company that sued Heritage for interfering in its business. Heritage has appealed, Lincoln lawyer Robert Otte said.

The company is part of an industry that gained unwanted attention from the failure of another Lincoln company, National Warranty.

Heritage is also facing regulatory scrutiny in South Carolina, where its risk retention group, which insures the performance of its vehicle service contracts, is domiciled.

Heritage Administrative Services and its Heritage Warranty Insurance Risk Retention Group sell, administer and insure performance of vehicle service contracts.

The elder Beery used to work for National Warranty Insurance Group, but left to create Heritage in 1998. National Warranty failed financially last year, and its insolvency left almost half a million vehicle service contract holders without claims protection, except for those claims covered by dealers who sold the contracts.

That failure caused shock and fear throughout the insurance industry, said Heritage's new president, Larry Roseberry. Heritage, meanwhile, has remained solvent, according to South Carolina regulators, but not without its problems.

The Heritage risk retention group's South Carolina regulators are overseeing Heritage's solution to an unspecified deficit in the amount of money saved to pay vehicle service claims into the future.

Steve Matthews, a manager in the South Carolina Department of Insurance, said Heritage is in good standing, but it has conditions it is expected to meet. The company is contributing money to make up that deficit, he said.

"It's very slight, in our terms," Matthews said. "Nothing the company can't correct. They've given us a plan to correct it. - They're doing it by a combination of pricing increases."

Roseberry said there is no danger of insolvency at Heritage.

Ann Roberson, a spokeswoman for the South Carolina Department of Insurance, said Heritage hasn't accomplished everything the department requested in a letter Matthews wrote to the risk retention group's manager, USA Risk Group, in April.

That letter asks Heritage to provide its plans for establishing adequate loss reserves, money to pay claims into the future. It also asks Heritage to confirm plans to correct deficiencies in its risk-based capital, the money an insurer has to back its commitments and solvency.

"It is imperative, especially in light of the proposed management change, that this Department be kept apprised of the progress towards establishment of the contractual liability reserve and adequate levels of capital and surplus," the letter said. It asked for monthly reports.

It also asks for background on any new board members or managers expected and detailed changes in the company's business plan, if any.

To take over the risk retention group, a new owner would have to file documents for approval by the South Carolina authorities. That filing hadn't been done as of this week, Roberson said.

On Friday, Roseberry offered assurances.

"We've presented a basic plan to South Carolina, they've approved it, but approval is based on completion of it," Roseberry said. "We have until Sept. 30 to present the plan to South Carolina, and they can take up to the end of the year to approve it."

The letter specifies a Dec. 30 deadline.

Over the years, Heritage and its risk retention group have encountered and apparently resolved regulatory issues in other states.

In March 2001, regulators in Hawaii, where Heritage originally registered the risk retention group for domicile, issued a cease and desist order to stop the company from issuing unauthorized spot coverage liability insurance contracts to auto dealers in New Jersey and Pennsylvania. Hawaii regulators also levied a fine of $150,000 and won access to a $1 million letter of credit to wind up Heritage's affairs there.

Heritage redomesticated itself for regulation in South Carolina, which has become a haven to many risk retention groups and other "captives" - insurers that cover only their owners' risks.

In Pennsylvania, also in 2001, Heritage signed a consent order and agreed to pay $35,000 after it was accused of exceeding its limit on commercial liability coverage.

In California, a cease and desist order in October 2001 forced Heritage and other vehicle service contract programs insured by risk retention groups to stop selling vehicle service contracts over the Internet. Heritage was fined $7,500, according to the California Department of Insurance Web site.

Among the companies forced out of California was Warranty Gold, which was insured by National Warranty. Now in bankruptcy, Warranty Gold blames its failure on its inability to gain access to money it paid to the insolvent National Warranty.

Reach Dick Piersol at 473-7241 or dpiersol@;journalstar.com.