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Liberty Mutual Asks Judge to Amend Settlement in Gen Re Reinsurance Deal, Alleges Fraud

Source: Business Insurance

Posted on 17 Feb 2010

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Stating that it was a victim of fraud, Liberty Mutual Insurance Co. has asked a federal judge to "intervene and amend" a recent settlement between General Re Corp. and the U.S. Securities and Exchange Commission.

The motion filed Friday in U.S. District Court in New York follows last month's agreement in which Gen Re paid $92.2 million to the SEC to settle charges that it entered into a fraudulent reinsurance agreement with American International Group Inc. and Prudential Financial Inc.

Boston-based Liberty Mutual is seeking to recover $12.1 million that Gen Re paid to the SEC as part of the settlement.

The legal battle stems from Liberty Mutual's May 2003 acquisition of several of Prudential Financial’s property/casualty units, known as PruPac.

In its motion, Liberty Mutual said it was unaware at the time that the units were involved in a “sham reinsurance transaction,” including what was represented as a $41.3 million recovery from PruPac’s reinsurance policies with Gen Re.

“Liberty Mutual is the victim of one of the fraud schemes described in the SEC’s complaint against defendant Gen Re Corp. As such, the $12 million the court has directed Gen Re to disgorge because of that scheme should be paid to Liberty Mutual, and not to the Treasury” as the Jan. 26 judgment directs, according to the filing.

Liberty Mutual said Gen Re later paid it $29.2 million of $41.3 million owed under some agreements, but Gen Re paid the rest to the SEC. Liberty Mutual said it previously requested that the SEC put the disputed sum in escrow until a court or arbitration panel could decide who had a right to it. However, the SEC refused, according to the filing.

A spokesman for Liberty Mutual said the insurer is “not presently a party to the SEC–Gen Re action” but is “asking the court to allow us to intervene so we can make our case.”

Spokespeople for AIG, Gen Re and Prudential did not immediately respond to request for comment.

A hearing date has not been set.