Ohio Director of Insurance Lee Covington has filed suit against American Chambers Life Insurance Co., currently under a liquidation order by the state, for funneling money away from the company into other affiliates instead of using the money to pay policyholders and creditors.

American Chambers was originally put under rehabilitation by the Ohio department of insurance (DOI) in March 2000 and was placed in liquidation just two months later when the courts found the company to be insolvent.

According to Todd Boyer, director of communications for the DOI, "When we got involved in the rehabilitation of the company, some things didn't add up. We initiated a six-month investigation and found there was a lot of incorrect information and that there was money being diverted that shouldn't have been."

When a company is placed in liquidation, its assets are sold and the proceeds are distributed to policyholders and creditors depending upon priority established by Ohio state law.

Covington's lawsuit alleges that American Chambers, instead of using any remaining reserves to pay claims for policyholders, was diverting the money into other company affiliates. Much like the Enron/Arthur Anderson scandal, the suit also alleges that American Chambers' financial advisors knew the company was diverting the funds and lied about the company's reserves.

The suit alleges that:

• The officers of American Chambers signed materially misleading financial statements that were filed with the DOI.
  
• The officers and directors of American Chambers knew about financial conditions and misleading statements, but didn't correct the reports or file accurate reports, nor did they notify the DOI of these inaccuracies.
  
• Officers and directors knew or should have known that specific legitimate intercompany accounts were used for improper purposes such as funneling money away from American Chambers. They also did not inform the DOI of the improper misuse of these funds.
  
• American Chambers actuaries, Spencer Kippel and QED Consulting Group, signed statements of actuarial opinion incorrectly advising that American Chambers reserves were correct and the company was in good standing.

A court date has been set in May 2003, according to the DOI, a long way off for resolution of policyholders of the company. Boyer says it may take time, but the DOI has no intention of releasing American Chambers from its obligations.

Calls to American Chambers were not immediately returned. When the company was last listed on the state's financial life insurer reports in 1999, it showed $7.7 million in Ohio life insurance premiums and a reserve of negative $18.5 million.