Recovering returns from reinsurance commissions can be a costly and time-consuming endeavor, at least when a former director of the agency that received the provisional commissions allegedly engages in a slew of activity to transfer and comingle the funds from the commissions.

Odyssey Reinsurance Co. knows that lesson all too well: Recovering funds from the director of an underwriter has been quite the odyssey for Odyssey Reinsurance Co.

Diana Dostalik and her husband were the officers, directors, managers, and shareholders of Cal-Regent Insurance Services Corp. Cal-Regent underwrote certain risks on behalf of State National Insurance Co. Odyssey Reinsurance Co. reinsured State National. Pursuant to the reinsurance agreements between Odyssey and State National, Cal-Regent received a provisional commission paid in part by Odyssey for the policies it underwrote for State National. The provisional commissions were subsequently adjusted depending on the profitability of the business Cal-Regent underwrote. Thus, Cal-Regent was sometimes required to return portions of the provisional commissions.

In 2013, Ms. Dostalik and her husband allegedly realized that they would be obligated to return a significant portion of the commissions they had received from, among others, Odyssey, due to a settlement in a lawsuit against State National. As a result, Ms. Dostalik and her husband allegedly “embarked on a plan to strip Cal-Regent of assets” by forming Pacific Brokers Insurance Services” and transferring substantially all of Cal-Regents assets to Pacific Brokers.

Odyssey sued in the District of Connecticut. While that suit was pending, Ms. Dostalik and her husband allegedly sold substantially all the assets of Pacific Brokers to AmTrust North America Inc. Ms. Dostalik and her husband then agreed that Ms. Dostalik would receive $2,500,000 from AmTrust’s initial payment to Pacific Brokers as part of the couple’s divorce.

After obtaining a $3,200,000 judgment in the District of Connecticut against Cal-Regent, Odyssey brought suit in the Southern District of California against Pacific Brokers, Cal-Regent, Ms. Dostalik and her former husband, and others in a continued effort to recover the returns it was owed from the provisional commissions it paid to Cal-Regent. The court issued temporary restraining orders and injunctions that, in short, prohibited Ms. Dostalik from transferring, assigning, disposing of, or comingling any of the funds she received from the sale of Pacific Brokers’ assets to AmTrust and ordering Ms. Dostalik to deposit into the court’s registry all the funds she had received from AmTrust.

Ms. Dostalik apparently not only failed to deposit funds into the court’s registry despite having several accounts that consisted of more than 99% funds from AmTrust totaling hundreds of thousands of dollars, but also then comingled AmTrust funds with proceeds from the sale of real estate and continued to engage in efforts to shield the AmTrust funds from the court.

The court, however, had had enough. It held Ms. Dostalik in contempt of several of its temporary restraining orders and gave her 14 days to, among other things, deposit nearly $700,000 in the court registry or ordered that she would “be committed to the custody of the U.S. Marshal.” The court also awarded Odyssey its attorneys’ fees and entered additional injunctions.

Odyssey Reinsurance Co. v. Nagby, No. 3:16-cv-03038 (S.D. Cal. 2019).