Investment Mgmt Firm Sues Liability Insurers
Business Insurance reports that the Pittsburgh-based investment management firm filed suit in federal court in Pittsburgh last week against American International Specialty Lines Insurance Co. (AISLIC), a unit of American International Group Inc.; and Chubb Corp.’s Federal Insurance Co. According to the complaint, AISLIC provided $10 million in investment advisors professional liability and directors and officers liability coverage, while Federal provided $5 million in overlapping errors and omissions and D&O coverage.
Ohio Attorney General Jim Petro sued MDL in June for fraud, negligence and breach of contract, charging that the advisor misled the state workers comp bureau while losing nearly all of its $225 million investment in a government bond fund, according to Business Insurance. Petro’s lawsuit claims that MDL leveraged the fund by 1,900% or more in a series of mistaken bets that interest rates would rise (See Performance Qualms Cost MDL Another Client ), while the fund’s private placement memorandum said it could leverage up to 150% of its assets. The suit also says t he MDL fund produced an amendment stating that leveraging of government securities “has been and will continue to be significantly higher than 150%,” but the workers comp bureau never approved the amendment and MDL’s chairman and CEO along with other fund officials proposed it only after MDL had already exceeded the leverage limit, Business Insurance says.
MDL’s suit says coverage with AISLIC ran from May 19, 2004, to May 19, 2005, while the Federal coverage runs for one year starting May 19, 2005, for acts occurring during the 2004 through 2006 policy periods, and the AISLIC policy also provided an additional 30 days beyond the expiration date to report claims, BI reports. Petro’s lawsuit was filed on June 10, 2005, and MDL notified AISLIC and Chubb the same day. MDL claims that AISLIC immediately denied coverage, saying the investment firm did not give it timely notice of the claim.
In addition, the suit says MDL sought to exercise its option for a one-year extended reporting period for the AISLIC policy, and the insurer responded by demanding a $10 million premium for the extension, an amount equal to MDL’s limit. AISLIC later offered the extension for $268,500, but only if liabilities related to the Ohio litigation were excluded.
Chubb also denied claims improperly, according to the suit.
Business Insurance reports that MDL’s is seeking a declaratory judgment that both policies provide coverage, along with damages for breach of contract from both insurers.