Farmers Insurance sued for fraud

Two businessmen claim the insurer sold them worthless agencies

Farmers Insurance sued for fraud

Insurance News

By Ryan Smith

Farmers Insurance is being accused of fraud by two Illinois businessmen, who say the insurance company induced them to buy worthless agencies through a bait-and-switch scheme. The businessmen have filed a lawsuit accusing the insurance giant of violating the Illinois Fraud and Deceptive Business Practice Act.

The businessmen, Brian Pugliese and James Bohr, purchased agency operations from Farmers Group, Bohr in 2016 and Pugliese in 2017. The lawsuit claims that Farmers induced Bohr and Pugliese – who had no previous insurance experience – to buy the agencies by fraudulently inflating the businesses’ equity values and revenue projections.

The lawsuit said that the agencies the plaintiffs bought were “not viable businesses,” but that Farmers was aggressively recruiting new agents due to an exodus of agents leaving because their businesses had failed and they “frequently were in debt to Farmers or its affiliated lending company, Farmers Insurance Federal Credit Union.” The suit claimed that Farmers “sought inexperienced persons such as Bohr and Pugliese to become Farmers agents hoping to take advantage of their inexperience about the insurance agency business.”

In cases where the selling agent was in debt to Farmers, the lawsuit alleged that the insurer was motivated to persuade the buyer to overpay for the agency, so that the seller could clear enough to pay the debt. The suit also alleged that Farmers managers were incentivized by the insurer to persuade “inexperienced persons” to become Farmers agents.

According to the lawsuit, Farmers managers Joseph Strauss and Jason Tuck, both also named as defendants, recruited Bohr and Pugliese to buy Farmers agencies. Farmers allegedly pursued the plaintiffs using marketing material that the suit said “purposely painted a false picture” that owning a Farmers agency was an opportunity to earn unlimited income, despite the fact that Farmers agents recruited contemporaneously in the same district had failed in their businesses.

The suit alleged that Farmers controlled the market for buying its agencies, “restricting the choices available to prospective buyers and restricting the information the buyers received.” Farmers allegedly presented the plaintiffs with inflated revenue projections and equity values for the agencies on offer, then priced the agencies based upon those inflated values.

Once they commenced in their new businesses, neither Bohr nor Pugliese achieved the income they “had been reasonably led to expect,” the lawsuit said. The suit alleged that this was because Farmers rates for insurance in Illinois were not competitive – a fact it said Farmers concealed from the plaintiffs. When Bohr and Pugliese sought permission from Farmers to cut expenses, the insurer rejected their requests.

“Farmers exercises control over the way the allegedly independent agent can operate his or her business, and Farmers used its control to block Bohr and Pugliese from cutting expenses the way prudent business owners do when revenue is disappointing,” the lawsuit said.

Bohr and Pugliese are each seeking damages for lost profits “in amounts to be proven but over $5 million.” They are also each seeking the right to rescind their purchases of the agencies and have the purchase price returned to them. The lawsuit also seeks attorney’s fees and punitive damages against Farmers Group, Tuck, and Strauss “in amounts sufficient to punish defendants and deter them from continuing this misconduct against others and deter others from like misconduct.”

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