Holland Files Fraud, Civil Conspiracy Lawsuit Against Rod Frates, Frates Insurance, Others

Insurance Commissioner Kim Holland has filed a multi-count lawsuit against prominent Oklahoma City business executive Rodman A. Frates, his company C. L. Frates and Company, and three others. The lawsuit, filed August 2nd in Oklahoma County District Court and unreported until now, accuses Frates of fraud, breach of contract, negligence, civil conspiracy, breach of fiduciary duty and unjust enrichment.

It accuses others named in the suit of professional negligence, civil conspiracy and allowing Hospital Casualty Company to sink into "deepening insolvency."

Efforts to have the lawsuit dismissed, court records show, have not been successful; a hearing is set for November 8th.

Whether the lawsuit figures in the attempt by the mysterious "Just The Facts America" to defeat Democrat Holland is unknown. JTFA launched its Internet-television commercial blitz against Holland 10 days ago, just 36 hours after the group was formed as a 501(c)(6) entity in Texas; as such, it does not have to disclose the names of its members or donors. The front man for JTFA, prominent Texas Republican activist James B. Cardle, has not responded to questions about his group. Benjamin L. Ginsberg, the high-powered Republican attorney in Washington who represents JTFA, also has not responded to questions.

The lawsuit, which could involve millions of dollars, names Holland as the receiver of Hospital Casualty Company and identifies the Frates Company, Frates, Madison Consulting Group, Terry Biscoglia and Grant Thornton as having been "entrusted to operate HCC and provide professional services to ensure its solvency and continued operation." The lawsuit alleges HCC instead became insolvent.

"From 1977 until 2004," the lawsuit alleges, "HCC provided hospitals and nursing homes in Oklahoma with professional liablity insurance. The Defendants were entrusted to operate HCC and provide professional services to ensure its solvency and continued operation. From investigation, the Receiver has discovered the insolvency of HCC and the deepening of the insolvency is the direct result of the failure, negligence, and fraud of the Defendants."

The lawsuit identifies Rodney "Rod" Frates as president and chief executive officer of C. L. Frates and Company and vice president of HCC. Madison Consulting Group of Georgia provided actuarial services to HCC. Biscoglia, from Georgia, is a professional actuary. Grant Thornton LLP, based in Illinois, was HCC's independent auditor.

C. L. Frates and Company manages insurance assets that approach $225 million, industry sources told The McCarville Report Online.

Here are the allegations leveled by Holland against each of the defendants:

C. L. FRATES AND COMPANY ~ Breach of contract, alleging the company failed to fulfill its contractual obligations.

C. L FRATES AND COMPANY AND RODMAN A. FRATES ~ Negligence, alleging the company and Frates "failed to comply with industry standards for managing an insurance company...." Breach of fiduciary duty, alleging the company and Frates failed "to ensure that HCC's policies (and especially policies covering nursing homes) were properly underwritten" and that the company and Frates "failed to follow Oklahoma laws regarding the regulation of insurance." Fraud, alleging that the company and Frates were in total control of HCC and "defrauded HCC by affirmative misrepresentations and material omissions." Preferential transfer, alleging the money Frates received from HCC should be recovered "for the benefit of the estate, its policyholders, and other creditors." Unjust enrichment, alleging the company and Frates "have in their possession funds which, in equity and good conscience, they should restore to HCC."

MADISON CONSULTING GROUP AND TERRY J. BISCOGLIA ~ Professional negligence, alleging that "HCC reserves and related actuarial values were not fairly stated...."

RODMAN A. FRATES AND TERRY J. BISCOGLIA ~ Civil conspiracy, alleging the two "conspired to ensure that HCC's loss and loss adjustment expense reserves were kept at a minimal level that HCC was able to fund. Rod Frates and Biscoglia furthered this conspiracy by manipulating the reserve ranges included in Biscoglia's actuarial reserve studies to allow HCC's posted reserves to fall with in Biscoglia's range of reserves."

GRANT THORNTON LLP ~ Professional negligence, alleging the firm failed to properly audit HCC and that, "For each of the years audited by Grant Thornton, HCC's financial statements were false and misleading with regards to the sufficiency of HCC's reserves for expected losses and loss adjustment expenses." Breach of contract, alleging the company failed to "complete the 2002 and 2003 audits of HCC's statutory financial statements and issue its audit reports thereon, (and thus) HCC violated Oklahoma law."

C. L. FRATES AND COMPANY, RODMAN A. FRATES, MADISON, BISCOGLIA AND GRANT THORNTON ~ Deepening insolvency, alleging that as a result of the acts and omissions of the defendants, HCC "existed in a state of near insolvency for at least the last five years before the Court imposed a receivership on it."

In each allegation, the lawsuit claims that HCC "suffered substantial damages in excess of $10,000." An attorney familiar with such litigation said the sums involved in such cases can reach into "the many, many millions."

Rod Frates is active in numerous civic groups and public causes, as is C. L. Frates and Company. His brother, attorney Kent Frates, is a former Republican member of the Oklahoma House of Representatives.

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