A few years before the more-recent spate of Florida insurance carrier insolvencies, a workers’ compensation insurer known as Guarantee Insurance Co. was declared insolvent in 2017—a rarity in the usually profitable workers’ comp line of business.
Regulators blamed owner Steve Mariano for diverting more than $15 million and using the funds for “no discernible business purpose,” something Mariano has d
isputed. News reports and lawsuits at the time raised questions about the entrepreneur’s purchase of a multi-million-dollar mansion, a condominium and a yacht in south Florida.
A few months later, the Fort Lauderdale insurance technology and back-office and underwriting services firm, Patriot National, whose largest customer was Guarantee and whose CEO and majority owner was Mariano, filed for bank
ruptcy. The collapse came just three years after Patriot National went public on Wall Street, raising more than $140 million from investors.
It was a stunning and sudden downfall that made headlines for years and is still ringing through courthouses in Florida and New York. Since the Chapter 11 bankruptcy fil
ing, Mariano has blamed his auditors, Wall Street investment funds, and large national law firms for the demise of Patriot National.
On Tuesday, July 14, a long-delayed jury trial in Mariano’s malpractice lawsuit against the law firm of Simpson Thacher & Bartlett, which advised and facilitated on the IPO in 2014 and subsequent fundraising and litigation,
is set to begin in Broward County Circuit Court in Fort Lauderdale. The trial promises to make for some new revelations and perhaps provide some guideposts for insurance companies and insurtech firms considering going public.
Mariano’s lawsuit was initially filed in 2018, but has met with years of delays, motions to dismiss, changes of attorneys, calls for sanctions, and more. The 172-page complaint argues that instead of looking out for Patriot National’s best inte
rest in raising new capital in 2015, Simpson Thacher paired Mariano with “predatory hedge fund investors” who engaged in market manipulation “that placed Patriot National into a death spiral and threw both Patriot National a
nd Mariano into major litigation with the hedge funds and other opportunistic claimants seeking to capitalize on the crash of Patriot National’s stock price.”
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The New York-based Simpson law firm is well known for handling other major Wall Street deals through the years, including the famous Kravis Kohlberg Roberts $25 billion acquisition of RJR Nabisco in 1988. But for Patriot Natio
nal, the white-shoe law firm failed to draft non-disclosure agreements and securities purchase agreements that would have protected Patriot National from the hedge funds’ alleged actions, the lawsuit complaint charges.
“After getting fleeced by the hedge funds in a transaction that doomed Patriot National and thrust both Patriot National and Mariano into litigation, Simpson Thacher made matters worse by directing the litigation w
ork to one of its alumni who would not be likely to criticize Simpson Thacher’s handling of the transaction and who proceeded to cause further damage to Patriot Nation
al and Mariano by negligently preparing Mariano’s affirmative defenses without pleading readily available facts supporting Mariano’s available defenses to the hedge funds’ claims,” the complaint reads.
That Simpson Thacher alumnus was at the time an attorney with Kasowitz, a New York firm with offices in Miami. The Kasowitz firm put its own interests abov
e Mariano’s, failed to advise him of potential claims against Simpson Thacher, and failed to properly defend him in litigation brought by the hedge funds, the suit charged. The judge in the case put the legal action against Kasowitz on hold p
ending the outcome of other litigation.
“As a result of the actions of both Simpson Thacher … Patriot National’s business was decimated, laying off 250 employees in Fort Lauderdale and declaring its
intention to enter Chapter 11 bankruptcy in November 2017, and Mariano has been personally embroiled in expensive litigation over Patriot National’s demise,” Mariano’s complaint alleges.
