An arbitrator has awarded $1.4 million in damages to PoolRe and Capstone Associated Services after clearing the companies of negligence and fraud charges brought by a captive client.
The Texas arbitrator ruled in their favour on 6 March.
David Rivero and Gary McNelley, owners Market Health, an internet affiliate network, set up two captives through Capstone.
The captives, Nutrition Casualty Corp and Solution Casualty Corp, jointly underwrote insurance to Market Health with PoolRe, which served as the stop-loss insurer.
In 2011, McNelley contacted Capstone’s Stuart Feldman and claimed that Market Health was being overcharged for the services it was receiving for its captives. He claimed that they had agreed a price of $45,000 per captive per year.
Feldman agreed to the fee, but only for 2011, according to the arbitration decision. McNelley then attempted to re-negotiate the fee again in 2012, but when Feldman refused, the Market Health co-owner threatened to terminate their deal.
“Because McNelley got away with it once, he tried again to renegotiate the terms of the engagement letter again. Possibly as a negotiation tactic, McNelley threatened to fire Feldman and the firm if the fee was not reduced. However, this time McNelley was hoist to his own petard,” explained the Texas arbitrator.
Feldman attempted to receive assurances that he would and his firm would not be fired. Market Health ignored repeated requests and instead continued to request a reduction in fees.
Capstone subsequently informed PoolRe of the dispute, resulting in the Nutrition and Solution captives being expelled from its insurance pool in late 2012. Market Health’s co-owners then claimed that Feldman and Captstone were in breach of their agreements, leading to the arbitration dispute.
Dismissing all of Market Health’s claims, the Texas arbitrator said: “Were it not for the actions of McNelley acting on behalf of [Market Health] to renegotiate the terms of the engagement letter to save $78,000 over the remaining life of the agreement, this arbitration would not have occurred.”
“All of the claims brought by [Markit Health] against [Feldman and Capstone] are merely making a creative attempt to obfuscate this issue. None of the testimony of any of [Market Health’s] witnesses did anything to overcome the express terms of the agreements...”
The Texas arbitrator awarded $564,000 in damages to Feldman and Capstone, as well as a further $633,598.73 in attorney fees and expenses.
Capstone, Feldman and PoolRe were jointly awarded a further $157,668 and $45,925 in attorney fees and expenses, taking the total sum to just over $1.4 million.
In a statement, Feldman commented: “Thank you to all for your help in achieving this fine result. We find it unfortunate that the very poor advise accorded Market Health Inc along with the injudicious actions of its owners, Gary McNelley and David Rivero, lead to their multi-million loss.”
“Since 1998, Capstone has built its reputation on having 130-plus happy clients who want quality alternative risk planning services, overseen by skilled professionals, including tax, financing, corporate and regulatory lawyers. We do it right.
This was the 2nd challenge to PoolRe Insurance Corp in the last year, both of which resulted in $1 million-plus decisions in PoolRe’s and Capstone’s favour.”
