Nightclub Insurer Founder Fights Delaware Regulator Over Seizure

Indemnity Insurance Corp., which insures nightclubs, is at the center of a legal tug of war between its founder and the Delaware insurance commissioner.

The dispute between company founder Jeffrey B. Cohen and Commissioner Karen Weldin Stewart involves the state’s seizure of the firm over claims of financial mismanagement and plan to liquidate assets including a $186,000 Aston Martin automobile, according to court papers.

The commissioner’s examiners on June 21 “seized control of Indemnity with the aid of armed sheriff’s deputies” while “wrongfully detaining and falsely imprisoning more than 50 individuals for over three hours, refusing them even bathroom privileges,” at its offices in Sparks, Maryland, according to a petition filed Oct. 25 by Cohen-affiliated companies.

Most of the Delaware Chancery Court case documents are sealed, and only Cohen’s petition names Indemnity as the target of Stewart’s investigation.

The commissioner’s “patently unlawful financial examination of Indemnity can only be considered a vindictive attempt at retribution against Indemnity” for supporting an opponent in her successful 2012 election, IDG Companies LLC, which had managed Indemnity Insurance, wrote in the petition.

IDG Companies lawyers said Stewart “actively recruited” Indemnity to move from the District of Columbia to Delaware, leading Cohen “down the primrose path.”

Seizure Order

The commissioner abandoned support for a proposed $200 million initial public offering and after an investigation claimed Indemnity was insolvent, leading to the seizure order, according to court documents.

In partially redacted court papers that twice refer to the insurer only by its initials, IICRRG, Stewart alleged officials submitted “a fraudulent bank confirmation,” made “misrepresentations in financial statements,” took part in “schemes to hide and conceal the true financial condition,” and “attempted through bodily force” to keep authorities off its premises.

Chancery Court Judge J. Travis Laster issued the seizure order and is hearing the case, according to filings. Laster allowed partial-unsealing of some documents after Bloomberg News challenged the secrecy.

Stewart didn’t immediately respond to e-mail requests for comment on the litigation. Alex J. Brown, an attorney for Cohen’s companies, didn’t immediately return e-mail requests for comment.

The case is ABC v. XYZ or State of Delaware and the Honorable Karen Weldin Stewart v. Indemnity Insurance Corporation, RRG, CA8601, Delaware Chancery Court (Wilmington).

(Editors: Mary Romano, Stephen Farr)