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Insurance muddle leaves promoters scrambling

An alleged nationwide insurance scam may have left hundreds of bike races, sanctioning organizations and clubs without coverage for much of the 2002 season, and could make it difficult for mountain-bike clubs and promoters to insure events independent of USA Cycling or other large groups. On July 17, Iowa-based McKay Insurance Agency Inc. began informing its clients - among them USA Cycling Inc. and the International Mountain Bicycling Association (IMBA) - that policies McKay issued through insurance companies Harbour Entertainment and Sports and American International Group, Inc. (AIG) may

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By Patrick O’Grady

An alleged nationwide insurance scam may have left hundreds of bike races, sanctioning organizations and clubs without coverage for much of the 2002 season, and could make it difficult for mountain-bike clubs and promoters to insure events independent of USA Cycling or other large groups. On July 17, Iowa-based McKay Insurance Agency Inc. began informing its clients – among them USA Cycling Inc. and the International Mountain Bicycling Association (IMBA) – that policies McKay issued through insurance companies Harbour Entertainment and Sports and American International Group, Inc. (AIG) may be invalid due to what is alleged to be fraud on the part of Harbour.

Harbour Entertainment and Sports, a company with offices in New York, Texas and California, is alleged to have sold policies on behalf of AIG without authorization to do so.

AIG had no comment, beyond referring to an ad in major American newspapers announcing that Harbour had “no authority to issue insurance policies or related insurance documents that purport to evidence insurance coverage by any AIG member company.”

Attempts to contact Harbour, meanwhile, proved unsuccessful. But the company is under investigation by agencies in numerous states – McKay Insurance learned of the alleged scam after a call from the Texas Department of Insurance – and could face criminal and civil penalties.

Indeed, the California Department of Insurance served a cease-and-desist order on Clarence Joseph Hall III, also known as Harbour Insurance or Harbour Entertainment and Sports, “for allegedly selling bogus insurance policies and conducting business in California without a license,” according to a departmental press release. “Investigators suspect Hall may have duped hundreds of consumers and insurance brokers to the tune of millions of dollars by allegedly writing bogus policies and pocketing the premiums,” the CDI release continued.

The situation is of particular concern to the cycling community because most major cycling organizations, including the U.S. Cycling Federation (USCF), National Off-Road Bicycle Association (NORBA) and IMBA clubs, were insured through Harbour Entertainment and Sports.

Harbour also provided coverage for a number of alternative sanctioning organizations, such as the American Cycling Association, American Bicycle Racing, the Oregon Bicycle Racing Association and the American Track Racing Association.

As a result, with the validity of their policies in question, both USA Cycling and its competitors were forced to scramble to keep their seasons going.

”I had everybody drop everything they were doing, and we moved as fast as we could,” said Gerard Bisceglia, USA Cycling’s chief executive officer. “This was a tragedy. I had made a decision if we didn’t have coverage, I was going to cancel events.”

That proved unnecessary, as USA Cycling quickly found insurance through two large carriers, though it’s paying about 30 percent more for its new coverage. The national governing body also purchased retroactive insurance covering races dating back to January 1.

Many large non-USA Cycling racing organizations also switched insurance carriers in early July, after their insurance agent, Ed Moore of California’s Haywood, Chapman and Kirby Insurance Brokers Inc., received warning of the Harbour investigations.

But while many groups have found insurance coverage for the remainder of the season, it is unclear whether they have been conducting races without liability insurance for the first half of 2002.

“That is a question for AIG, for the legal department … to say a policy is in force [or not], that is something that would have to be legally duked out,” said Nanci Kramer, spokesperson for the California Department of Insurance. “AIG is concerned, as is this department, as to what [Harbour] has pocketed for himself and not issued [as] real insurance.”

Also unclear is what effects the alleged scam will have on the ability of independent groups to afford and acquire insurance, and whether the issue might force them to consider reaffiliating with USA Cycling.

The larger independent racing organizations who switched coverage in early June are covered for the season and say they see no need to return to USCF under USA Cycling’s current system.

“I don’t think it will send us back [to USCF],” said Casey Kerrigan, vice president of the 2,300 member Northern California/Nevada Cycling Association. “Basically, the main reason why we left was most of our members thought USCF was investing too much time and energy in elite-level cyclists and elite-level programs and ignoring 95 percent plus of the members who are not elite racers and probably never will be. We are getting stronger, with no real pressing need of why we should go back to the USCF system.”

Kerrigan added, however, that the independent race movement was intended to get USCF’s attention not put it out of business and that his group will meet with USCF in September and are willing to rejoin USCF if conditions are right.

“We will sit down at the table and see if we can come together,” he said.

However, smaller mountain-bike racing promoters and clubs may have to reconsider their relationship with NORBA, as far fewer insurers are willing to cover small off-road clubs and events.

“It’s very hard to find anyone interested in a market for mountain-bike racing,” said Dan McKay of McKay Insurance. “Right now we are finding out there are no other markets [to insure independent mountain-bike groups]. With the smaller groups, quite frankly, you can’t get companies to look at them for [a club] who puts up $30,000 and insurance covering a risk of a million dollars.”

McKay is negotiating with several companies to provide liability coverage for IMBA-affiliated clubs, but says many independent promoters may have to return to NORBA.

Others are not so certain. Todd Forest of the Delaware Trail Spinners, race director of the Fair Hill Cross-Country Classic, says independent promoters have been able to find insurance from other sources, such as adventure-race organizations, and are confident they can continue without NORBA.

“From what I’ve heard from other race promoters, there is insurance out there to be had,” Forest said. Until it’s found, however, the Trail Spinners had to cancel all club activities. Other off-road organizations echo Forest’s sentiments, saying that while NORBA may now be in a better position to provide insurance, the key issues of fees and bureaucracy remain.

Sara Wells of the West Virginia Mountain Bike Association said her group wants to continue offering “reasonable rates and reasonable membership dues, and we can’t do that if we hand everything over to NORBA.”

“What we are going to have to do is use some of the money we have in reserves to put this insurance back in motion,” Wells added. “No, we are not going to NORBA.”

Nevertheless, Bisceglia sees the insurance situation as an opportunity to reconnect with independent organizations.

“I am going to look at this as an opportunity to reach out to other organizations because it’s important to keep people on their bikes and keep the events operating,” he said. “My job goal and intent is to reverse that entire trend [of anti-USA Cycling sentiment]. If we are going to be an organization such as we are, we cannot be an organization of diminishing returns [for member groups]. I would like them to know if they are having problems getting coverage, we would be more than happy to speak with them, to reconnect.”

Bisceglia was not specific about what steps USA Cycling would take to assist or attract independent organizations. But he did say that USAC would not transfer its increased insurance costs to members for the remainder of the season.

Though the last few weeks have been nerve-wracking for many cycling groups and some remain without coverage, those involved say the insurance issue will not bring down bicycle racing.

“I think there will be some short-term adjustments and then things will settle down,” said insurance agent Moore. “One guy isn’t going to ruin the whole bicycling industry.”