Family Law

Omega Insurance Surrogacy Scandal Surpasses $6M In Claims

Yes, the victims were insured. But no, the insurance policy is not paying covered claims.

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(Image via Getty)

The damage from the Omega PregnancyCare insurance scandal continues to mount. Court-appointed liquidators for the Cayman-based segregated portfolio company — which housed the main insurance entity of the U.S.-sold insurance product — put a call out for claims from victims. As reported in a May 6, 2021, Zoom meeting of creditors, those claims have surpassed $6 million and are expected to increase before the count is complete.

The claims to-date were submitted by more than 350 victims — surrogates, intended parents, and supporting organizations who trusted Omega when they were promised a reliable insurance product to cover medical costs related to their surrogacy pregnancy. In exchange, they paid a steep monthly premium of over $1,000, and closer to $1,300 by the time the company folded in late 2020, two years after its inception.

The current accounting of the remaining assets of the company do not give victims a lot of hope for recovery. At least not from the company directly. The liquidators report that the company’s Cayman bank account barely reaches $200,000, with another $50,000 located in another account and a possible $350,000 owed to the company from related parties with “unknown realisable value.” But with a monthly accounting of expenses by the liquidators themselves of $20,500 in March and $52,500 in April, those accounts are dwindling fast.

Raising Funds For Further Investigation

The Cayman liquidators have undertaken a preliminary analysis regarding potential avenues of recovery, including, among others, the directors and officers (D&O) insurance policy. However, the liquidators explained that it would take significant funds to pursue such contingent assets, including a full investigation, litigation, and enforcement. They estimate these phases to cost somewhere between $800,000 to $1,050,000. The liquidators are seeking proposals from interested parties for the provision of funding and asking such interested parties to contact them by June 30, 2021

That’s a lot of money to front, but could be well worth it if liquidators were able to successfully access D&O policy funds to help cover damages.

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Victim Letter

The situation has not gone unnoticed by government authorities. Multiple states — including California and Oregon — have investigatory forces at work to get to the bottom of what happened. Among those digging deep is the California Department of Insurance. In order to assist victims as they attempt to struggle with hospital billing, the department issued a “victim letter.” The letter explains that the department has received complaints regarding Omega Insurance Company and the PregnancyCare Plan and that the department is investigating these complaints and aware of related litigation.

In addition to giving assurance to victims that there is an active investigation, the victim letter provides validation of victims’ explanations when describing the situation to medical providers’ billing departments. Yes, they were insured. But no, the insurance policy is not paying covered claims. Really.

So Many Lawsuits

The victim letter references a couple of the ongoing lawsuits related to the Omega PregnancyCare situation, but not all. There are a lot to keep straight! Bankruptcy expert attorney Justin Leonard is keeping close track of the various related lawsuits and summarizes them as follows:

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  • A lawsuit in U.S. District Court in Kentucky against Performance Insurance Company SPC (Performance) (W.D. Kentucky 3:20-cv-00330), regarding allegations of insurance fraud involving a captive of Performance (Omega Insurance Company SP), and allegedly counterfeit policies (PregnancyCare) issued through Omega Family Services, LLC.
  • The Chapter 7 bankruptcy filing of Omega Family Services, LLC (S.D. Cal. Bankruptcy Case No. 20-06121-LA7), which also did business as “Prime Insurance Solutions” and “Lyfgro”) and marketed the PregnancyCare insurance plan to various surrogacy agencies and to prospective surrogates and intended parents.
  • The Chapter 7 bankruptcy filing of Omega Risk Management, LLC (S.D. Cal. Bankruptcy Case No. 21-01389-MM7), which owned the business name “Omega Insurance Company” in the United States, and owned and operated the websites for Omega Insurance Company and PregnancyCare.
  • The voluntary liquidation proceedings of Performance Insurance Company SPC and its captive insurance companies, including Omega Insurance Company SP (Grand Court of the Cayman Islands Case No. FSD 70 of 2021 (RPJ)), including the appointment of independent Joint Liquidators (Kenneth M. Krys and Neil S. Dempsey).
  • The chapter 15 bankruptcy case of Performance Insurance Company SPC and its captive insurance companies, including Omega Insurance Company SP (S.D. Florida (Miami) Bankruptcy Case No. 21-12609-AJC), based on the U.S. Bankruptcy Court’s recognition of the foreign liquidation proceeding.

Wow. That’s a lot of litigation surrounding one insurance product!

The Real Problem

The Cayman liquidators of Omega Insurance Company SP took nominations and put together an ad hoc committee charged with a consulting role and used to promote transparency with creditors. Lisa Stark Hughes, founder of Gestational Surrogate Moms and education chair and vice treasurer of the nonprofit organization Society for Ethics for Egg Donation and Surrogacy (SEEDS), volunteered and was appointed to the committee.

Stark Hughes explained that, at this point, no one knows exactly on what level the fraud happened and who knew what when. However, The real crime, Stark Hughes explained, is the state of the U.S. health care system that put the Omega victims in a position that they couldn’t rely on usual insurance options. Most intended parents to a surrogacy arrangement have already suffered through failed fertility treatments — likely not covered by insurance — before turning to surrogacy. Universally in the United States, the intended parents’ insurance will not cover costs relating to the surrogate’s medical care. And then, to make matters more difficult, the surrogate’s own insurance frequently fails to cover her medical expenses as well. A number of insurance plans have excluded coverage for maternity care if a woman’s pregnancy is as a surrogate. Other policies place a lien on any compensation a surrogate may receive for acting as a surrogate.

The lack of a consistent and comprehensive health care insurance system lead the victims into the open arms of unique insurance “providers” like Omega.

Nevada Has The Right Idea

I’m sure those from both sides of the aisle can agree that the American medical insurance system could use significant improvement. A few years ago Nevada took a stand when it came to insurance coverage for women acting as surrogates. The state passed a law prohibiting surrogacy discrimination and requiring insurance providers to treat surrogates the same as any other pregnant woman carrying her own child.

Guaranteeing affordable health care for all would hopefully eliminate any future PregnancyCare type scams, among the many other benefits. In the meantime, buyer beware, good luck to the PregnancyCare victims, and congrats to all the well-employed attorneys benefiting from the mess.

Ellen Trachman is the Managing Attorney of Trachman Law Center, LLC, a Denver-based law firm specializing in assisted reproductive technology law, and co-host of the podcast I Want To Put A Baby In You. You can reach her at babies@abovethelaw.com.

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