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In one of most far-reaching insurance scandals in New York, a family-run insurance broker in Long Island partnered with Lloyds of London for at least 15 years to peddle $30 billion of improper policies to more than 300 Catholic universities and charities, an investigation by The Post has uncovered.
The unregistered policies allowed Huntington-based Waldorf & Associates to pocket tens of millions of dollars in extra profits over the years while its clients — including St. John’s and Fordham universities, Catholic Charities, Sisters of Mercy, the Diocese of Rochester and scores of others — were potentially put in harm’s way, The Post has learned.
If Lloyds of London had gone bankrupt — as it nearly did in 1992 — the hundreds of Catholic educational, charitable and religious clients would not have the safety net of the state insurance fund to fall back on and could have been left holding the bag for billions of dollars in claims, experts told The Post.
“This is the biggest case we’ve ever seen of this type,” said a senior industry executive.
THE scandal spanned a dozen states yet none of the institutions — longtime clients of Waldorf, which bills itself as a specialist serving religious and non-profit groups — had any inkling they were being denied legitimate, top-shelf insurance when they purchased their liability, auto, property and casualty, and other types of insurance policies.
The sub-par insurance the Waldorfs sold them is known in the industry as independent procurement, or IP, insurance. Such policies are pricey, rare and usually reserved only for risky businesses, like fireworks exhibitors. Under strict state laws, such policies cannot be sold directly by a broker like Waldorf.
Clients must request them specifically and directly from an insurance underwriter that is based out-of-state, and pay premiums to the IP policy underwriter, not a broker.
That’s not what happened with Waldorf’s clients.
At St. John’s University, which buys multimillion-dollar policies on its campuses in Queens and Staten Island, the legal department was surprised when reached by The Post. “I’m aware of us having insurance through the Waldorfs, but I’m not aware of any of these issues,” said general counsel, Joe Oliva.
A spokesman for Fordham University said the school will investigate the matter.
The Waldorf firm, that includes millionaire siblings Stephen, Bill, and Pamela Waldorf, grew wealthy in recent years through selling high-margin IP insurance as normal insurance to unsuspecting charities.
IP policies earn profits of up to 30 percent of the premiums paid by clients, compared to 7 percent or 8 percent profit on traditional policies.
If state-regulated insurance companies go bust, clients are covered by the state insurance fund — much like bank depositors are covered by FDIC insurance.
While the Waldorf company got rich selling improper insurance to hundreds of Catholic institutions, it also robbed cash-starved New York of millions of dollars in taxes on the policies.
Under state law, the client is responsible for paying special taxes on these IP policies. But since Waldorf’s clients had no idea they were buying IP insurance, no taxes were paid.
The three Waldorf owners spent their ill-gotten gains on posh estates, a horse farm, boats and a private plane.
And they might still be selling the improper policies if not for a dutiful New York City Department of Law employee who stumbled over a Waldorf IP policy in 2009, and alerted the state Insurance Department to the scandal, The Post probe learned.
STATE regulators found that the Waldorfs did indeed sell IP insur ance improperly since 1995, and that millions in required taxes were never paid.
In an unusual, three-page settlement of violations, a copy of which was obtained by The Post, the Waldorf group agreed to pay the state $3,417,908.40 in back taxes owed by clients and for penalties. The settlement was agreed to despite a state law requiring brokers inform their clients of tax exposures — but bars them from paying taxes on behalf of customers.
Several insurance professionals and lawyers interviewed by The Post called the settlement a sweetheart deal for Waldorf, and a steal — since it was estimated to be just 20 cents on the dollar of actual taxes owed.
Despite Waldorf’s admission it broke state insurance law for 15 years — infractions that normally would cause a license to be revoked — the settlement allowed the brokerage to keep its lucrative insurance licenses.
The department said that the matter was “a taxation case, not a disciplinary one.” Helping the firm win a hush-hush settlement at the end of a 16-month state probe was former Department of Insurance Superintendent Greg Serio, now Managing Director at former US Sen. Al D’Amato’s Park Strategies lobby firm.
Serio, who also runs his own lobbying firm, Albany-based Compass Company Consultants, was hired by the Waldorfs for damage control.
Serio, an appointee of Gov. Pataki, ran the insurance department from 2001-2004, and for a decade before that headed its legal department, supervising some of the employees who handled the Waldorf probe, sources said.
A copy of the settlement was obtained by The Post through a Freedom of Information Act request on April 5. The document, however, wasn’t even signed until April 12, a week after it was requested. It was signed by a deputy superintendent and Steven M. Waldorf, a principal of the family-run brokerage.
The Waldorf firm didn’t return The Post’s calls.
A spokeswoman for Serio, Dana Sanneman, said he doesn’t comment on “confidential client matters” and had no response to questions whether he faced a conflict of interest by representing a client before regulators he once supervised and while they were overseeing compliance of the very violations that occurred.
Lloyds, which profited handsomely from the 15-year deal, said it was not a party to the settlement, adding that its policies were “valid and enforceable.”
O NE state official said, “This raises a lot of questions about what’s going on in the department. It tells brokers that if they go out and hire the right person, they can get a deal that no one else can.”
When informed of the lax settlement one veteran insurance executive said, “This is outrageous. The Waldorfs got to keep their money machine running and keep their licenses, too.” tharp@nypost.com