Conseco Sues Six DO Insurers Over Litigation Coverage

Conseco Inc. is suing six of its own insurers, claiming they are attempting to dodge legitimate potential claims on directors and officers policies bought by the Indianapolis-based insurer.

In its annual 10-Q filing with the U.S. Securities and Exchange Commission, Conseco said it “maintained certain directors’ and officers’ liability insurance that was in force at the time the Indiana securities and derivative litigation was commenced and, in our view, applies to the claims asserted in that litigation,” according to BestWire.

The Indiana litigation involves 45 lawsuits filed against Conseco in U.S. District Court for the Southern District of Indiana. Conseco said 19 of those cases were putative class actions on behalf of people or entities that purchased the company’s common stock during alleged class periods that generally run from April 1999 through April 2000.

In those cases, plaintiffs allege that the company and individual directors and officers violated federal securities laws by, among other things, making false and misleading statements about the then-current state and future prospects of Conseco Finance–particularly with respect to performance of certain loan portfolios of Conseco Finance–which allegedly rendered the company’s financial statements false and misleading.

Because it had directors and officers coverage, Conseco didn’t establish any reserves for possible losses with respect to those claims, the company said in its 10-Q. “The insurers have denied coverage for those claims, so we commenced a lawsuit against them on June 13, 2001, in Marion County Circuit Court in Indianapolis,” Conseco said.

Named as defendants are National Union Fire Insurance Company of Pittsburgh, a subsidiary of American International Group Inc., Royal Insurance Company of America, a unit of Royal & Sun Alliance; Westchester Fire Insurance Co., a unit of Ace Ltd.; RLI Insurance; Greenwich Insurance Co., a unit of XL Capital Ltd., and HSBC Insurance Brokers Ltd.

Morgan Stanley analyst Alice Schroeder, in an Aug. 31 property/casualty insurance briefing, wrote that she doesn’t believe an unfavorable outcome for the defendants would have a material impact on the earnings of AIG, XL or Ace. Schroeder said in her report that AIG’s National Union Fire “was apparently the primary carrier issuing the policy, which carries limits of $10 million.”

“With jury awards rising at a rapid pace, insurers are getting tougher to protect against larger losses–whether they succeed remains to be seen,” Schroeder said in her report. “This event also confirms our view that the D&O market remains difficult, and prices must continue to rise.” A.M. Best Co. rates the financial strength of National Union Fire as A++ (Superior), Royal Insurance and Greenwich Insurance as A+ (Superior), and Westchester Fire and RLI as A (Excellent).

Topics Lawsuits Carriers