This is the property of the Daily Journal Corporation and fully protected by copyright. It is made available only to Daily Journal subscribers for personal or collaborative purposes and may not be distributed, reproduced, modified, stored or transferred without written permission. Please click "Reprint" to order presentation-ready copies to distribute to clients or use in commercial marketing materials or for permission to post on a website. and copyright (showing year of publication) at the bottom.

CONFIDENTIAL

Aug. 6, 1994

Breach of Contract
Insurance
Coverage Denied

Confidential

Settlement –  $4,850,000

Judge

J. Spencer Letts

Court

USDC Central


Attorneys

Plaintiff

James C. Potepan


Defendant

David T. DiBiase


Facts

In 1984 Defendant issued a $5,000,000 crime policy to a national insurance broker. The policy afforded coverage for loss resulting from theft or forgery by employees of the broker. In 1985 a major oil company filed a suit against the broker for recovery of $22,500,000 of premium paid through the broker for what was later revealed to be a fictitious reinsurance policy. The broker had delivered the premium by wire transfer to an account controlled by conspirators who had misrepresented that the reinsurer was a well-known London underwriter. However, when the fictitious reinsurance documents were delivered, the risk taker was revealed not to be the London underwriter, but a non-existent insurer. Eventually, more than $20,000,000 of the stolen premium was transferred to a secret Swiss bank account. Plaintiffs afforded errors and omissions coverage to the broker. In 1986, Plaintiffs, other insurance companies, and the broker settled the oil company's claims for $32,000,000, the amount required to purchase replacement coverage. As part of the settlement, the broker assigned to Plaintiffs all rights and interests under the $5,000,000 crime policy issued by the Defendant. The parties entered into a stand-still agreement to investigate whether an employee of the broker participated in the fraud. In April of 1993, following the sealed indictment of a former officer, Plaintiffs brought suit against Defendant for recovery of benefits under the crime policy. When later unsealed, the indictment alleged that the former officer received $1,125,000 of the stolen premium. Bank records confirmed the allegations.

Settlement Discussions

Plaintiffs contend they demanded $5,000,000 and Defendant offered $4,800,000.

Damages

$5,000,000 in addition to prejudgment interest.


#106027

For reprint rights or to order a copy of your photo:

Email jeremy@reprintpros.com for prices.
Direct dial: 949-702-5390