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In late 2005, ECI was purchased by Professional Employer Holdings, L.L.C., a Delaware limited liability corporation (“PEH”). Although ECI was licensed in Illinois as a professional employer organization (“PEO”), it was never licensed for purposes of transacting the business of insurance. Pursuant to its statutory obligations as a PEO, ECI provided its client companies with workers compensation coverage. Subsequent to its purchase by PEH, ECI commenced issuing certificates of insurance for workers compensation coverage under a policy of workers compensation insurance issued by the Reinsurance Company of America (“RCA”) to another PEO owned by PEH, The Administrative Employers Group, Inc. (“AEG”) in 2004. The RCA policy issued to AEG, under which ECI was issuing its certificates of insurance, had been cancelled effective August 19, 2005, prior to purchase of ECI by PEH. Because ECI’s issuance of the certificates of insurance constitutes the unauthorized transaction of the business of insurance, Guaranty Fund coverage is not available.

On April 21, 2008, an Order of Liquidation with a Finding of Insolvency was entered against Employer’s Consortium V, Inc. (“ECI”). The liquidation proceeding follows the commencement of a conservation proceeding on August 27, 2007. These actions were taken following the Division of Insurance’s determination that the company was transacting the unauthorized business of insurance and was insolvent.

Subsequent to ECI being placed into liquidation, in July 2008 a former officer and director (against whom a petition for rule to show cause was pending) filed a Chapter 7 bankruptcy petition on behalf of ECI. This was dismissed on the motion of the US Trustee on the ground that the petition has not been signed by an attorney. In November, on the same date as a hearing before the liquidation court on the rule to show cause, the officer and director caused a second Chapter 7 bankruptcy petition to be filed on behalf of ECI. The US Trustee learned that the attorney’s signature on the second filing had been forged. As of the end of the year, the US Trustee was preparing to file a motion to dismiss the petition on the ground that it was not properly signed by an attorney.  The motion was dismissed. 

Subject to the possibility of future litigation recoverables, ECI is a no asset estate. Prior to filing a motion to close the liquidation estate, the Rehabilitator obtained the services of an outside counsel, Clausen Miller, to undertake a due diligence review of possible causes of action. A potential cause of action was identified arising from fraudulent transfers effectuated during the course of the 2006 calendar year by Leading Edge Insurance Group Holdings, Inc., owned ECI’s ultimately controlling person (Alan Hilly). A decision was made to retain Clausen Miller on a contingent fee basis, there being no assets in the estate with which to pay the firm on a current basis.   A default judgment was entered in favor of AEG/ECI in their action filed against Leading Edge.  Judgments were entered in the amount of $7,176,619 for AEG and $7,090,387 for ECI.  Outside counsel is now seeking to pursue recovery on the judgments in an action pending in federal court in New Jersey.  Prior to the Liquidator being able to obtain the necessary court approval of the proposed fee agreement, the second bankruptcy petition was filed, one effect of which was to stay the liquidation of ECI. Both approval of the proposed fee arrangement and the filing of the complaint were pending at the end of the year.

On June 27, 2013, the Circuit Court of Cook County, Illinois entered and order terminating the conservation proceedings, closing the estate of Michael A. Ward and discharge of the Conservator.  The AEG and ECI estates are still pending in the liquidation proceedings.