American Safety hit with $250m lawsuit
A subsidiary of Bermuda-based insurer American Safety Insurance has been hit with a $250 million lawsuit in California.
The case, which has been brought by PMA Capital Insurance Company, revolves around an insurance policy written by Oklahoma-based American Safety Indemnity Company (ASIC), part of the American Safety Insurance group.
In the suit, filed at the US District Court for the Eastern District of California, PMA claims that ASIC failed to honour an insurance contract with JW McClenahan Company, a subcontractor working on a construction project in El Dorado county in California.
Court documents show that McClenahan took out a number of commercial general liability insurance contracts with ASIC between 2001 and 2007.
PMA claims the policies covered McClenahan, which was working on the Lake Tahoe Vacation Resort, in South Lake Tahoe, California, against third-party claims arising out of property damage, to which the insurance applies.
McClenahan is involved in a property damage case, but the subcontractor's efforts to claim on the ASIC policy for a contribution towards the defence costs have been unsuccessful, PMA claims.
Consequently, PMA claims: "As a result of ASIC's failure to contribute to the defence of McClenahan in the underlying action, Plaintiff (PMA) has paid and will continue to pay an unfair an inequitable share of the defence fees and costs incurred..."
In a separate development last week, American Safety Insurance announced that it would take an aggregate $9.1 million charge for investment losses that would result in the insurer posting a third-quarter loss.
These losses relate partly to $7.7 million of equity and debt securities in collapsed investment bank Lehman Brothers and US mortgage giants Freddie Mac and Fannie Mae at the time of their failures last month.
Additionally, American Safety said it sold off $17 million of other fixed-maturity securities because of credit concerns over financial services sector issuers. The sales will result in a further realised loss of $1.4 million, the company said.
