Maryland Insurance Commissioner John A. Donaho has approved a fine of $231,500 against United Capital Exchange Inc., a defunct Silver Spring surety company, and its two principals, Stephen R. Woods and Dean A. Manson, for operating in the state without the proper state licenses. United Capital went out of business in 1989.
Earlier this month, federal prosecutors in Baltimore filed criminal charges against seven men connected to United Capital and another company, United Funding & Investment, in Bethesda. The federal indictments alleged that the seven defendants collected bonding fees from the companies for acting as individual sureties. But the defendants allegedly were insolvent or a net worth far below what each listed in the official documents.
Neither Manson nor Woods was included in those indictments.
A surety bond is bought by a construction company to insure that subcontractors that work for that company will be paid for their work even if the contractor defaults. Surety bonds are normally required as a condition to work on many large projects.
Donaho's decision upholds a fine that was recommended by Administrative Law Judge Thomas G. Welshko, who heard the case in October and November. The company and the principals did not hold a state Certificate of Authority to act as an insurer or a Certificate of Qualification to act as insurance agents or brokers, according to an Insurance Division press release.
United Capital, Woods and Manson were fined $230,000 for engaging in the unauthorized business of insurance and $1,500 for failure to honor valid claims. They were also ordered to make restitutions of $14,000 to three subcontractors for their damages.
Woods was president of United Capital and Manson was executive vice president. Neither appeared at the hearings last year. However, Manson was represented at the hearing by attorney Edward J. Birrane Jr., the state insurance commissioner from 1977 to 1982.
Birrane said he has not talked to his client about the decision yet and does not know how he will respond to it. However, the attorney contended during the hearing that the insurance division does not have jurisdiction over Manson as an individual.
"The commissioner has made his decision, now let him enforce it," Birrane said, adding that he believes the division will have to take the case to court. "I don't know if we have an obligation to do anything," he said.
"We cannot have irresponsible people operating in the state of Maryland," Donaho said in a prepared statement. "We will not stand by and allow unauthorized acts of business of insurance and unfair trade practices of failing to honor claims," he said in the statement.
Donaho was unavailable for further comment.
From 1986 to 1988, United Capital made or proposed to make 46 separate surety contracts, according to the Insurance Division.
Several of the charges involved a contractor who was issued bonds by United Capital in order to be eligible for work on various projects. While working on these projects, the contract filed for bankruptcy. When subcontractors and material suppliers sought reimbursement under the United Capital surety bonds, the claims were not honored, according to the Insurance Division press release.