Aon given more time to respond to Clear Blue lawsuit over Vesttoo LOCs

Insurance and reinsurance broking giant Aon has been given an extended time-frame to respond to the complaint filed against it in the New York Supreme Court by fronting specialist Clear Blue Insurance, in relation to the reinsurance letter of credit (LOC) fraud perpetrated by insurtech Vesttoo.

Recall that back at the end of November, Clear Blue Insurance filed a lawsuit against Aon and certain subsidiaries of the company, alleging that the broker had failed in its duty to protect it from the fraud perpetrated by executives at Vesttoo

Aon was one of the main brokers involved in transactions where Vesttoo was involved as a provider of what turned out to be fraudulent reinsurance capital.

As a reminder, letters of credit (LOCs) provided by the insurtech turned out to be fraudulent, resulting in billions of dollars worth of reinsurance collateral needing to be replaced, some companies going without coverage as a result, and driving significant expense to companies involved in the transaction chain.

Vesttoo’s bankruptcy case proceeds, with hearings scheduled for later this month.

But, as we’ve reported before, the potential recoveries that could be made under that Chapter 11 case almost pale into insignificance alongside the figure of $4.8 billion of creditor claims, some $2.8 billion of which were said to be allowable.

Nearly $3.36 billion of value in standby letters of credit (LOC) for reinsurance deals are said to have been fraudulently created by former senior employees of Vesttoo.

As a result, it’s important to remember that many parties in the reinsurance market chain have lost money due to the fraudulent LOC’s sourced by Vesttoo as reinsurance collateral for deals they were involved in, some significantly so.

Clear Blue was a fronting provider to a number of transactions that ended up backed by forged LOCs provided by Vesttoo and so the company has faced significant upheaval to replace cover where needed, as well as likely significant expense because of the situation.

Which led to Clear Blue filing the lawsuit against Aon, alleging the broking group acted to introduce Vesttoo and its collateral to certain of the deals it was involved in and was obligated to verify letters of credit used for collateral.

Aon responded by saying, that it was just as much a victim of the Vesttoo LOC fraud as the other parties in the transaction chain.

Now, it seems that the attorney’s on both sides have been speaking, as the time-line to respond to Clear Blue’s complaint has been extended.

The original complaint, filed on November 30th 2023, sought a response to the complaint from Aon within 30 days, after the service of the complaint was completed.

That serving of the judicial documents on the parties named took some time. But now the attorney’s of Clear Blue and Aon have reached an agreement on an extended deadline, stipulating that Aon should now respond to the complaint by the end of January 31st 2024.

That extended time-frame may also give the parties involved time to mediate via their counsel, meaning there could be a chance that some kind of agreement is reached before that date.

Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.