HCC Insurance Holdings Inc. is defending three lawsuits, one aclass action, in connection with its admission that executives inthe company engaged in backdating stock options that led torestatement of earnings.

The actions were all filed in Houston, where the specialtyinsurance carrier is based, at U.S. District Court SouthernDistrict of Texas. HCC had no comment on the litigation.

All three complaints allege that executives illegally profitedfrom backdating stock options (the practice of awarding the stockat a price that is lower than the actual price of the stock on theday it was given to improve its value to the holder) and thepractice resulted in a restatement and loss in share price forstockholders.

The case stems from an internal investigation of backdatingissues. According to the company's Dec. 12, 2006 Securities andExchange Commission filing, the investigation found the company'schief executive officer, Stephen L. Way, engaged in backdatingstock options in violation of the company's stock option plans andpublic statements. General counsel Chris L. Martin, the filingcontinues, knew about these practices and allowed it to happen.

The filing contends Mr. Way's purpose in engaging in thispractice was to attract and retain talent by “providing theemployees with the best option price.” Neither individual sought tofalsify financial statements, it was stated.

Mr. Way and Mr. Martin both resigned from HCC on Nov. 17. Mr.Way remained as a consultant to the new CEO, Frank J. Bramanti, andnonexecutive chairman of the board until March 12 when J. RobertDickerson was elected the new chairman.

The discovery resulted in HCC restating financials affecting2003 to 2005. It also said financial statements from 1997 throughMarch 31, 2006 could not be relied upon. The restatement affectedcompensation charges amounting to approximately $30 million anddecreased shareholders equity by $5 million as of Dec. 31,2005.

For shareholders, the revelation that the company engaged inbackdating, which was also announced on Nov. 17, resulted in a 9percent drop in the stock price from $31.64 to $28.81 a share.

According to the complaints, two of the suits, Bacasderivatively on behalf of HCC Insurance Holdings (07-cv-456) andInternational Brotherhood of Electrical Workers Local 98 PensionFunds (07-cv-550), were discussed in the company's SEC filings.

The class action suit, Bristol County Retirement System(07-cv-801) filed on March 8, names Edward S. Ellis Jr., chieffinancial officer, and Walter J. Lack, a director and chairman ofthe compensation committee, as defendants in addition to Mr. Wayand Mr. Martin.

Mr. Ellis remains with the company, and Mr. Lack resigned inNovember of last year.

The suit seeks a compensatory damage award and payment ofexpenses and fees.

(Additional reporting from Susanne Sclafane)