The Community Resource Collaborative, under fire for its inability to efficiently oversee the county’s distribution of American Rescue Plan Act funds for area nonprofits, alleges an insurance company is wrongfully denying coverage.
The CRC says Hiscox, a Chicago-based firm specializing in small business insurance, has refused to provide legal defense coverage as specified by its professional liability insurance policy.
A Rochester-based nonprofit, the CRC was served in March with a lawsuit by ESL Federal Credit Union. The lender now seeks default judgment relating to an unpaid loan, delinquent credit card payments, overdrawn checking account and line of credit, with a total on all just shy of $189,000.
The CRC submitted details of the ESL lawsuit to Hiscox in March and requested that the insurer “provide coverage for the lawsuit and any accompanying and companion claims, or at the very minimum, to cover the defense costs associated with the lawsuit under a reservation of rights position,” according to its own lawsuit.
That CRC complaint was filed Wednesday in state Supreme Court in Monroe County by attorneys Spencer Ash, Langston D. McFadden and Radhika Shukla of Pullano & Farrow.
The nonprofit contends the insurance policy through Hiscox would cover “all case management services and the ‘continuous or repeated acts, errors or omissions in the performance of professional services.’ ” CRC paid an annual premium of $3,141.
Hiscox, however, denied the insurance claim by CRC, saying it had “no obligation to pay any sums including any damages or claim expenses for any claim: including misappropriation of funds based on or arising out of the actual or alleged theft, misappropriation, commingling or conversion of any funds, monies, assets or properties.”
The decision, the CRC’s complaint says, was based on the policy’s “bad acts” exclusion clause. The CRC has been accused by Monroe County of mismanagement of $1.1 million in ARPA funding.
The CRC was chosen to be the county’s administrator for distribution of $7.1 million in APRA funds over four years, but the contract was voided when several nonprofits said they were not receiving allotted funding on time.
Of the $1.1 million that was to be distributed to nonprofits by the CRC in late 2023 and into 2024, $243,907 was unaccounted for in a forensic audit by the county.
The attorney representing Tina Paradiso, a former CRC volunteer and/or executive, said those monies were used solely “to keep the doors open at CRC (by paying expenses such as rent and salaries)” until the organization’s own grant funding was received. She provided the auditors with documentation for every penny, said attorney Steven Feder of Pirrello, Personte & Feder, PLLC.
In essence, the CRC employees made mistakes simply because they were overwhelmed by the complexities of endeavor, Feder said today.
“They thought they could do a lot of good for people but the enormity of the funds — $7.1 million — dwarfed anything they had done before,” he said.
In a letter to McFadden at Pullano & Farrow, in March that was included in court papers, Feder explained “this was their first time in such a setting; they were overwhelmed and inexperienced. Additionally, there appears to have been little to no understanding of the formalities necessary to conduct an operation such as the one that CRC now faced.”
In this week’s lawsuit against Hiscox, the CRC contends that no nefarious activity has been alleged or proven. The organization claims the CRC is entitled to legal defense, paid for by Hiscox, because there is “no allegation of theft, misappropriation or bad acts against plaintiff in any formal complaint or claim for which plaintiff seeks defense and indemnification from defendant.”
The complaint goes on to say that “plaintiff has repeatedly stated that it, as an organization, was not involved in any acts of dishonesty, fraud, or deceitfulness, and has repeatedly offered Hiscox exculpatory evidence which Hiscox has either ignored or refused to consider.”
Hiscox told the CRC it is not contractually bound to defend the plaintiff on the basis of a “bad acts” exclusion clause in the policy.
“However, as stated above there are no allegations of bad acts in the referenced complaint against plaintiff,” the CRC lawsuit says. “Furthermore, Hiscox has not established that the allegations of the claims against plaintiff fall solely and entirely within the exclusion of the policy, as required by law.
“Hiscox malevolently and irrationally used its discretion to find allegations of bad acts or fraud by plaintiff, though Hiscox conducted no investigation and the complaint neither expressly or impliedly alleges fraud, deceit or bad acts by plaintiff,” court papers say.
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Clinton Mora is a reporter for Trending Insurance News. He has previously worked for the Forbes. As a contributor to Trending Insurance News, Clinton covers emerging a wide range of property and casualty insurance related stories.