A Salt Lake district court judge Thursday ordered the liquidation and declared the insolvency of Wasatch Crest Mutual Insurance Co., a Utah-based company that previously was authorized to do business as a life, accident and health insurance company.
The liquidation order grants the Utah Department of Insurance authority to take immediate possession of the company's property, accounts, documents and other assets.
Merwin Stewart, commissioner of the department, said the company's "hazardous financial condition" had substantially increased the risk of loss to policyholders, creditors and the public.
"They have kind of struggled over the last two to three years," said Stewart, who added that the company did not have a lot of policyholders.
Prior to the state's petition, Wasatch Crest was working with investors to secure enough funds to stave off liquidation.
A June 27 letter to the Department of Insurance by Bank of America verified that the company had $15.2 million in an account, enough working capital to satisfy reserve requirements mandated by state statute.
However, the verification and money turned out to be a deception.
"There was a fraud here because the person confirming the money was not a Bank of America employee," Stewart said. "The fraud investigators are looking for the money now. The money didn't come. It wasn't really there."
In court documents responding to the missing money, the company said that it had been a victim of a fraud and believed that new investors had been located and were ready to place a sum of $15 million in a bank account.
Evidently that money never materialized, leading 3rd District Judge Timothy Hanson to sign the liquidation order.
Calls to Wasatch Crest seeking comment were not answered.
The liquidation process is similar to a bankruptcy case. However, insurance company receiverships are handled through state courts rather than federal bankruptcy courts, according to Lennard Stillman, appointed as a special deputy liquidator over the case.
Wasatch Crest's assets will be sold off, and the proceeds will be used to pay off creditors and policyholders' claims.
Claims by policyholders that aren't covered under the liquidation proceeds will be met by the Utah Property and Casualty Insurance Guarantee Association, a quasi-governmental agency that reports to Utah's insurance commissioner.
"In insurance company context, reserve means the liability that the insurance companies carry on the books. They need assets in sufficient amount to cover the reserves," Stillman said. "They didn't have adequate assets to cover the reserves."
Stillman added that the company recently had been meeting its day-to-day obligations, but that was "no longer the case."
In addition to the liquidation of Wasatch Crest Mutual, Judge Hanson also ordered the liquidation of its subsidiary, Wasatch Crest Insurance Co.
Claims can be filed against the company over the next year. The liquidation process could take three to four years to complete.
E-mail: danderton@desnews.com