The Nebraska Department of Insurance is going after one of the companies associated with the failure of the insolvent National Warranty Insurance Group. 

National Warranty's insolvency almost two years ago left hundreds of thousands of people without financial coverage of motor vehicle service contracts sold nationwide by auto dealers and online.  

Now, department counsel Ann Frohman has filed a petition that accuses A.I. Life Ltd., a Nevis Islands insurer, and its president, Robert Gattuso, a Texan, of insuring the performance of vehicle service contracts without authority in Nebraska, of misleading people about the nature of its insurance and failing to pay state insurance premium taxes.   

Gattuso could not be reached for comment.

A.I. Life was affiliated with SC&E Administrative Services, the Texas company that promoted the sale of Smart Choice service contracts administered by National Warranty of Lincoln, according to documents from National Warranty's insolvency.

Those documents showed A.I. Life was set up to perform an intermediate role for auto dealers who went through SC&E to set up their own reinsurance companies, which invested service contract premiums in tax-deferred accounts.

Gattuso was a principal of SC&E before it was sold to Yamagata Enterprises of Las Vegas. SC&E was not named in the petition but remains under scrutiny in a case the department has investigated since National Warranty failed in spring 2003.

"SC&E and its principals remain under investigation," said Frohman, who told a Nebraska legislative hearing last year the FBI, too, had been investigating the case. 

A.I. Life and Gattuso acted illegally with "numerous Nebraska businesses," the petition said, but the only two identified were Anderson Ford Co., which has dealerships in Lincoln, Grand Island, Iowa and Missouri, and H&M Financial Inc., which Frohman said was an Omaha agency of SC&E. Neither Anderson Ford nor H&M is accused of doing anything illegal but both did business with A.I. Life and Gatusso from 1996 to 2003, the petition said. 

"It had nothing to do with us," said Roger Anderson, president of the company that bears his name.  "We never had heard of A.I. Life.   Years ago we were doing business with Smart Choice, and I guess they had a subsidiary or something called A.I. Life, that's all I know about it."

For two years now, Anderson said, his company has done its service contract business with Ford.  

Doreen Speaks, who said she was one of the owners of H&M Financial, also said she'd never heard of A.I. Life. She acknowledged her agents offered the Smart Choice vehicle service contract program to dealers but did not sell the contracts to consumers.

"The insurance company we dealt with was National Warranty," she said. "If H&M would have had any inkling this wasn't being done ethically we would have discontinued doing business with them."

Frohman said she doesn't know how many more dealers that sold the contracts or agents who sold the Smart Choice program there were in Nebraska, but there were plenty selling the program nationwide, according to court documents filed earlier.

 The complex case has frustrated drivers all over the nation who bought Smart Choice vehicle service contracts that were supposed to cover repairs on their cars and trucks years into the future.   

Almost two years after the financial failure of National Warranty, which administered and in some cases insured the contracts, some consumers are still just finding out their contracts are worthless and trying to find a way to get some financial satisfaction.

Frohman would not discuss details of the investigation.

 "Once our investigators started digging, we saw significant issues in what the department believes is violation of the insurance laws by promoters of extended auto warranties," she said. "It's much larger than National Warranty."

She expects to describe the department's case this weekend to other state regulators gathering at a meeting of the National Association of Insurance Commissioners. A group of those commissioners has been working on behalf of consumers burned by National Warranty's failure since last year.

The petition Frohman filed is to be handled under state administrative legal procedures, which means an appointed officer will hear the facts of Frohman's case and make recommendations for action to the director of insurance, Tim Wagner.     The first hearing in the case is set for March  25. 

Specifically, Frohman accused A.I. Life and Gattuso of violating a number of  insurance laws: conducting  insurance business without a license; issuing unlawful reinsurance; evading licensing requirements through a Nevis Islands offshore trust; failing to pay lawful claims; and not paying state insurance premium taxes. In addition, the petition accuses A.I. Life and Gatusso of illegal and unfair trade practices, including misrepresenting A.I. Life as a lawful insurer, misrepresenting the insurance coverage offered on vehicle service contracts and using National Warranty to misrepresent coverage.

Frohman said she's heard no response from Gattuso or A.I. Life.  

The state Insurance Department is entitled to subpoena witnesses for the hearing but Frohman would not say if she has done so or will.

Violators of these state laws can be fined thousands of dollars per violation and be forced to pay unsatisfied claims. It isn't clear whether the case will be used as leverage to get a financial settlement for the people burned by National Warranty's failure.

"We have a lot of reasons for filing the action," Frohman said.  "Clearly we don't want to see a National Warranty happen again,  that's my primary goal … It's to stop the promotion of unauthorized insurance in the automobile industry." 

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