Insurers to pay $50 million in Hollinger settlement

American International Group Inc. and Chubb Corp. may pay CD$50 million to cover a settlement involving a suit against past directors of Hollinger International Inc., Ontario Superior Court Judge Colin Campbell recently ruled.
The minority Hollinger shareholder Cardinal Capital Management LLC said it would accept the CD$50 million payment and in exchange drop its suit which accused directors of ignoring the alleged financial scandals of ex-CEO Conrad Black.
This proposed action would leave excess insurers Ace Ltd., Zurich Insurance Co. and Royal Insurance Plc responsible to provide the coverage for future defence costs of ex-Hollinger directors.
Judge Campbell says it is the primary insurers position that under the settlement they will be released from their obligations under their policies.
As a result, monies being paid in the settlement will no longer be available for use to cover defense costs of potential future actions taken against the directors.
Therefore, the obligation to pay for defence costs would be passed on to the excess insurers, which means that less money would be available from the excess insurers for liability payments.
All three excess insurers opposed the CD$50 million settlement.
“The material before the Court leads to the conclusion that if the settlement is not approved before this Court, the policy limits of the applicant primary insurers would be entirely paid out in defence costs of either the derivative action in Delaware or other litigation in which all the directors, both inside and outside, as well as Inc. and other related entities, are at risk,” Judge Campbell said in a January 13, 2006 judgement.
The excess insurers would, according to Judge Campbell, rather see the funds under the proposed settlement being used to reduce the obligation they would otherwise have in respect of defence costs.
The settlement will not be finalized until it receives approval from a judge from Delaware, the location where Cardinal’s lawsuit was filed.