31 January 2020Law & regulation

CIC files lawsuit against SRM Group and its owner

CIC Services has filed a lawsuit against a former client, SRM Group, as well as its owner, Suresh Prabhu, and two related captives CIC formerly managed.

The lawsuit, filed in the Circuit Court for Knox County, Tennessee, alleges breach of contract and fraud and seeks both compensatory and punitive damages. It comes after a year of arbitration between the parties, in which all claims against CIC Services were dismissed by the arbitrator.

The arbitrator accepted that CIC warned Prabhu explicitly and repeatedly that he needed to operate the captives as legitimate insurance companies, said CIC. However, it concluded that Prabhu never actually intended to operate his captive insurance companies as insurers and even “resisted” CIC Services’ good faith attempts to do so.

“The arbitrator ruled that the claims against CIC Services and its agents were unfounded based in part upon the fact that Prahbu and SRM Group misrepresented their intentions in forming and operating the captive insurance companies in question,” said Sean King, general counsel for CIC Services.

The arbitrator said: “If there is one fact that is absolutely beyond dispute in this proceeding it is that Mr. Prabhu...in no meaningful way...intend[ed] to operate either [captive insurance company] as an insurer.”

It continued: “Even though Mr. Prabhu was made aware [by CIC Services] that there needed to be a business purpose for captive insurance and that claims, even small claims, needed to be made, he clearly regarded the requirement that the captives operate as real insurers as contrary to his objective and resisted efforts by [CIC Services] to have claims filed. His focus was on the investment, wealth-enhancing aspect of the transactions.”

That wealth enhancing aspect was almost exclusively related to tax savings, the arbiter said.

King said: “Prabhu knew that our firm would not voluntarily assist anyone in forming and operating a pretextual captive insurance company for the purpose of improperly claiming tax benefits. All of our material emphasizes as much.

In order to get around this fact, King said, “Prabhu intentionally, knowingly, repeatedly and explicitly misrepresented his motives to us. For instance, he represented and warranted in multiple contracts that he was motivated primarily by insurance considerations rather than tax or investment motives when, as the arbitrator explicitly concluded, he actually was not.”