NEW YORK (Reuters) – A subsidiary of Chubb Corp. and other insurers must defend themselves against a lawsuit for refusing to cover more than $200 million paid out by Bear Stearns over illegal mutual fund trading practices, New York's highest court ruled on Tuesday.
Reversing an intermediate court, the Court of Appeals revived claims seeking coverage for a 2006 settlement between Bear Stearns and the U.S. Securities and Exchange Commission over market timing and late trading. The settlement included $160 million in ill-gotten gains and a $90 million penalty, according to court papers.
JPMorgan Chase & Co., which acquired Bear Stearns in 2008, brought the claims accusing the insurance companies of breach of contract. It sought insurance payments to cover the $160 million, plus $14 million it paid to settle related private cases, and $40 million in legal fees. It did not seek coverage for the $90 million penalty.
The insurers argued, among other things, that Bear Stearns could not recoup the $160 million payment as a matter of public policy since the SEC found Bear Stearns willfully violated securities laws by facilitating late trading and market timing by hedge funds. As is typical in SEC actions, Bear Stearns neither admitted nor denied the findings.
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