Omega ‘PregnancyCare’ Surrogacy Insurance Scandal Moves Offshore, And The Outlook For Victims Is Grim
Originally posted on abovethelaw.com
Last week, a Cayman Islands professional liquidator held an illuminating — and depressing — meeting concerning the train wreck that is the Omega PregnancyCare case. Essentially, an insurer, catering specifically to women who were carrying pregnancies as gestational surrogates for others, was a total scam. And in the hearing, the court-appointed liquidator delivered one piece of bad news after another to a Zoom audience crowded with victims of the Ponzi-schemed insurance product.
Recap On The Drama
As a recap, hundreds of hopeful parents who turned to surrogacy in the United States to have a child — many after years of heartbreaking infertility struggles — fell victim to Omega’s PregnancyCare product. These hopeful parents-to-be needed insurance coverage for their surrogates’ maternity and delivery costs. Omega Family Services, under other such aliases as Prime Insurance Solutions and Lyfgro, persuaded intended parents, gestational carriers, and surrogacy-matching agencies that it had the answer through its PregnacyCare insurance policy. Omega Family Services (OFS), the Omega advertising and sales arm, aggressively and successfully sold the product by assuring buyers that the policy was backed by trusted insurance heavyweights such as AXA and State National.
Only … it wasn’t. The scheme came crashing down last October when OFS received a cease and desist letter demanding that it stop using State National’s name. As it turned out, State National had no relation to the product. The State National name was being used fraudulently. So it probably wasn’t much of a surprise to find out that AXA and Lloyds of London (another big name appearing on Omega’s organizational charts) also had no relationship with, or knowledge of, the PregnancyCare product, and that they were definitely were not committed to backing it.
OFS soon after filed for bankruptcy in California. There, we learned that it had zero money in its accounts to pay the now-mounting medical bills of those who relied on the insurance policy. Of course, during the California hearings, OFS director Robert Park reiterated that OFS was just the seller of the policies, not the actual company that cut the checks to the insureds. Worse, despite the principals being the same between the various Omega entities, the OFS director refused to answer questions about Omega Insurance Company SP, the Cayman Islands company where, supposedly, all the premiums for the insurance policy had gone.
Cayman Islands Liquidation Proceeding
Finally, on February 26, 2021, Omega Insurance Company SP was placed into a voluntary liquidation — the Cayman Islands’ equivalent of bankruptcy. Insureds desperately hoped for answers.
Kenneth M. Krys, a professional Cayman Islands liquidator, formerly with the Cayman Islands Monetary Authority, described the situation to creditors on the Zoom call on March 25. He explained that he and his coliquidator act as officers of the court, not representatives of the company.
Krys painted a grim picture for intended parents left holding the bag on hefty medical bills. The chance of recovery, he described, is very slim. First, he revealed that the company had only around $200,000 in cash along with a relatively small receivable. Wow. That’s a shockingly low capitalization level for a company who is understood to have been “insuring” as many as 700 policies at a cost of more than a thousand a month per policy. Robert Park had previously testified that $700,000-plus of premiums for November had been paid by insureds to Omega — yet PregnancyCare stopped paying out any claims before, in mid-October!
So where did all of the money go? This will be investigated. However, the Cayman Island liquidators have fewer and less powerful legal tools for avoiding and recovering transfers than in the United States.
Krys reported that Omega’s books showed $1.9 million in liabilities. However, I spoke with Justin Leonard, a U.S. bankruptcy attorney intimately familiar with the case, who said he expected claims to be much higher — likely $5 million and possibly more.
The liquidator shared with the group that it was quite likely there would be no distribution to creditors, and in the best-case scenario, he estimated a distribution of less than 10% of claims. The liquidators themselves, and their attorneys, get paid first, and there may not be enough money to pay them. Krys implied that because it was a complicated case and two law firms were working on it, all of the $200,000 cash may be required for the administration of liquidation proceedings.
D&O Hopes. So the company has no money. Are there other avenues of hope for victims to find relief from the overwhelming medical bills? One popular idea is to look to directors & officers (D&O) insurance for the company and its directors. In good news, it appears there was such a policy, with a reported $5 million cap. There’s a catch. Well, actually a couple of catches. Krys explained that proving up claims against directors is challenging in light of the business-friendly standards in the Cayman Islands. Krys explained that costly investigation and legal work will be required to bring a claim. In this case, sufficient funds do not appear to be present. When pressed to estimate the cost, Krys projected that it could be a quarter to half a million. Expect that GoFundMe to pop up any minute.
In the meantime, both California and Oregon have open investigations into wrongdoing by Omega. While none of the investigators have shared information about the states’ pending investigations, those investigations may lead to criminal prosecutions of any wrongdoers.
As Leonard explains it, there are multiple levels of apparent fraud at play in the Omega case. First is the fraudulent use of the names and logos of reputable insurance companies and faking contracts with them, allegedly by Brandon White and his companies. Such claims brought by State National are currently playing out in federal court in Kentucky (W.D. Ky. Case 3:20-cv-00330-BJB-LLK). Will the D&O cover the directors from such charges?
It is unclear how much the principals of the Omega entities in the United States (Robert Park and Frederick Gaston) knew about Omega’s fake contracts and the lack of any real connection with AXA, State National, etc. It would seem that, if they were indeed surprised, they should be outraged that they had been duped. Instead, at the first OFS bankruptcy hearing, Robert Park testified that COVID-19’s impact on the surrogacy industry was the reason for the business shutting down. Not exactly persuasive. In a later hearing, he admitted that the PregnancyCare business had been good, but the Kentucky litigation’s Cease and Desist Order (regarding use of State National’s name) had forced the company to immediately shut down.
Moreover, OFS was relying on an insurance license that was limited to California, for Life Insurance Company of the Southwest. As Leonard explains it, that license was very specific, and it was mischaracterized by the company. In reality, OFS was not authorized to sell the PregnancyCare product in any of the states it indicated on its website.
To complicate things further, the D&O policy is actually held by Performance Insurance Company SPC, which holds Omega and 11 other segregated portfolios (SPs). It’s possible that Performance and its other SPs would have claims against the D&O policy as well, reducing Omega’s share — and reducing the chances of any payment to PregnancyCare victims or their medical providers.
Back To The Starting Line
Krys explained that the liquidators have filed a Chapter 15 bankruptcy petition in Florida, essentially requesting recognition of a foreign bankruptcy-equivalent proceeding. A successful Chapter 15 will stay any pending litigation in the U.S. against Omega Insurance Company SP or Performance. So to all those intended parents paying attorney fees to take action in the U.S. — those may be more losses.
Adding insult to injury, Omega had required all the victims to complete and submit detailed proof of claim forms to document their injury, including their outstanding medical bills that should have been covered by PregnancyCare. This had provided comfort to victims, suggesting a possibility of eventual recovery. However, the claim process appears to have been another scam.
Krys reported that none of the claim forms, nor the underlying data, had been turned over. Even if they can be located, they will not be honored. Creditors will need to complete and submit new claim forms directly through the liquidators. So victims, time to start over in submitting all those uncovered medical bills for possible reimbursement (of less than 10% at best)!
Grace From Our Medical System?
In the meantime, the surrogates and intended parents who had relied on these policies are drowning in medical bills, many which have been sent to collections. The victims have had a hard time explaining the situation to hospitals. After all, when does an insurance company just go bankrupt like this? Leonard explained that the answer is essentially never. The insurance industry is highly regulated, with insurance guaranty associations (IGAs) in every state that step in to pay claims. Insurance insolvencies are rare, and when they happen, there are normally safeguards that pay insureds’ claims. So a hospital has likely never seen such a situation before.
In this case, there are no protections for the insureds. The victims purchased — and paid for — insurance coverage that they did not receive. There are no state funds to protect against fraudulent insurance, when an insurance company misrepresents its licensing.
Given the very low hopes of ever recovering from Omega or any of those complicit in the fraud, the best the victims can hope for may be that hospital systems and medical providers’ billing departments will recognize that the insureds are effectively crime victims — casualties of an insurance fraud scheme. Hopefully, medical providers will work in partnership with victims of the scam to resolve outstanding medical bills as fairly and as timely as possible.