A Tennessee independent insurance agency sued its former producer for more than $400,000 after discovering that he and his wife had been overcharging clients and embezzling funds.
The producer handled commercial lines accounts for the agency for 16 years. According to the trial judge’s opinion, his wife “assisted (him) in the services he rendered to (the agency.)”
In April 2023, the agency learned that the couple had been creating fake invoices for the agency’s clients. These invoices stated amounts due that were greater than the premiums the clients actually owed. According to the complaint, they had fraudulently taken almost a half million dollars in client funds. In addition, they created fraudulent documents for the agency that omitted information about the overcharges. These documents successfully hid their activities. On top of that, they embezzled premium payments from clients that were intended for the insurance carriers.
In one case, a trucking company paid almost $393,000 to the producer for a premium, but he forwarded less than $77,000 to the carrier and kept the rest. The judge’s opinion does not say, but it can be assumed that the carrier canceled the policy for non-payment of premium. The agency subsequently lost the account. He billed another client $161,773, including a $10,000 overcharge. The couple forwarded none of the payment to the carrier, keeping it for themselves instead.
One carrier withheld $102,762 in commission payments to the agency to offset premiums the couple embezzled. They later terminated the agency’s contract. The agency estimated that it would lose at least a half million dollars in business because of the termination.
In addition, the agency principal and the producer had become equal shareholders in a separate agency in April 2022. The two allegedly formed an oral contract under which:
- The principal would receive 50% of the agency’s commissions as payment for services.
- The producer would pay the principal $630 per month for access to an agency management system, in return for which the principal would maintain a subscription to the system.
However, the commission payments stopped in January 2023, shorting the principal on at least $20,000 in earned commissions. Three months later, the monthly agency management system payments also ceased, leaving more than $3,000 unpaid.
The agency sued the couple that August. In February 2024, the couple’s attorney withdrew from the case. Without an attorney, they did not respond to the complaint, and the court awarded the agency a default judgment in May. In June, the wife asked the court to extend the time for them to find a new attorney and respond to the default judgment. The court gave them 45 days. When that deadline passed with no notice from the couple, the agency moved to have the default judgment finalized.
On February 12, 2025, the judge partially ruled in the agency’s favor. He agreed that the agency had made a good case on eight counts including fraud, conspiracy, breach of fiduciary duty, breach of oral contract, and others. Where he disagreed was on the amount of damages. While he sympathized with the difficulty in calculating an exact number, he said additional detail was needed. He therefore reserved a ruling on the amount of damages until the agency provided more information.
The judge’s opinion did not mention criminal proceedings against the producer and his wife, though it sounds like the basis for a criminal investigation exists. The bigger question for the agency is how the couple got away with this. The opinion did not mention the size of the agency, but it is large enough to service a trucking account paying hundreds of thousands in premium. Financial controls appeared to be lacking, either due to management attention having been spread too thin or too much trust placed in this producer.
This is a situation a small agency could easily find itself in. The principal may be the boss, lead producer, bookkeeper, and risk manager all rolled into one. The only way to prevent this is to watch the books closely each month for any sign of irregularities. Sometimes, the people a principal trusts the most are the ones robbing the agency.
