ACE Property & Casualty Insurance Co, has lost a jury verdict over asbestos claims.

Gerling Global Reinsurance Corp. won the verdict rescinding reinsurance coverage of ACE Property & Casualty Insurance Co. for asbestos claims of a former United States Gypsum Co. subsidiary, Business Insurance reported this week.

A jury in US District Court in New York granted Gerling's request to rescind two facultative contracts reinsuring portions of ACE excess umbrella liability policies covering A.P. Green Refractories Co., a former unit of US Gypsum and successor USG Corp.

The ACE policies, which ACE assumed through its acquisition of CIGNA Corp. business, provided limits of $20 million excess of $6 million and $25 million excess of $26 million.

After paying a $40 million asbestos settlement for A.P. Green, ACE demanded a $3.2 million contribution from Gerling under the facultative contracts.

Gerling sued to void the contracts in 2001, though, arguing that ACE failed to disclose what it knew about A.P. Green's asbestos exposure at the time it applied for the reinsurance coverage in 1982.

In April 1982, A.P. Green's broker informed ACE's managing general agent - Cravens, Dargan & Co. - that the manufacturer was a defendant in 58 asbestos-related lawsuits. Cravens, Dargan failed to disclose that information when it solicited the Gerling reinsurance a month later, and Gerling didn't find out that Cravens, Dargan had been told of the asbestos suits until 2000, according to court filings.

ACE argued, among other things, that the information was not material and that Gerling did not act promptly to rescind coverage, but a jury found in Gerling's favour after a three-day trial.

In a separate case, ACE American Insurance Co. is suing to rescind excess directors and officers liability coverage it wrote for troubled health care services provider HealthSouth Corp., charging that the company concealed accounting fraud that inflated its earnings by more than $1.4 billion over several years.

Business Insurance reported that the accounting scandal at Birmingham, Alabama-based HealthSouth erupted in March, when the Securities and Exchange Commission charged the company and its former chairman and chief executive officer, Richard M. Scrushy, with systematically overstating HealthSouth's earnings and assets from the time it became publicly traded in 1986.

The overstatements from 1999 to early 2002 totalled at least $1.4 billion, the SEC alleged.

ACE, working through HealthSouth's broker McGriff, Seibels & Williams Inc., issued a D&O policy last September with limits of $10 million excess of $45 million in underlying coverage, according to the insurer's lawsuit, filed in US District Court in Birmingham.

In binding the coverage, ACE relied on HealthSouth's SEC filings and financial and other information provided by its officials, including former president and chief operating officer William T. Owens, the lawsuit says. Mr. Owens pleaded guilty to criminal charges last month.

"Having participated in a years-long scheme to defraud the public by falsifying HealthSouth's financial statements, HealthSouth and Owens knew that the information they provided to ACE in connection with HealthSouth's request for insurance coverage was materially false and misleading," the insurer's complaint charges.

The suit seeks recision against HealthSouth and 27 former directors and officers, including Mr. Scrushy and Mr. Owens.