Clear Blue files legal action against Aon over Vesttoo letter of credit fraud issue

Artemis has learned that fronting specialist Clear Blue Insurance has filed a lawsuit against broking giant Aon, in relation to the reinsurance letter of credit (LOC) fraud perpetrated by insurtech Vesttoo.

We’re told this lawsuit has been filed yesterday in New York, so details are limited and we don’t have any comment from any parties at this time.

We understand the lawsuit sees Clear Blue targeting a broker involved in some of the deals where Vesttoo had been involved and LOC’s proved invalid, as it looks to recover some of its losses due to the impacts of the fraudulent activity.

Remember, many parties in the reinsurance market chain are now out of pocket due to the fraudulent LOC’s sourced by Vesttoo as reinsurance collateral for deals it facilitated, some significantly so.

Clear Blue was particularly affected by the LOC fraud, but has been able to recover quickly and saw its ratings taken off a negative watch recently, seemingly able to come through the experience with its business wholly intact, albeit not financially unscathed.

As we also reported recently, the lack of bankruptcy estate capital that is expected to be made available to those out of pocket from Vesttoo’s liquidation, could mean that creditors would turn elsewhere to recover funds.

Now, it seems that process is beginning, with a lawsuit filed against one of the brokers that transacted deals where Vesttoo had been involved as a provider of what turned out to be fraudulent reinsurance capital.

We’re told the lawsuit claims Aon introduced Vesttoo to Clear Blue, so the fronting specialist appears to feel wronged by that, after certain deals it had sat in the middle of went south due to the collateral fraud.

But, of course Vesttoo was already very well-known in the industry and making a lot of noise around its product and offering. Clear Blue itself had a significant relationship with Vesttoo and had said in 2022 it would help the insurtech deploy a billion dollars from the capital markets.

It’s also clear now that Vesttoo capacity was seen as particularly cheap in the market, so many parties involved in deals were attracted for that reason as well.

So, it’s certainly not clear-cut as to who within the reinsurance market chain should take any responsibility, outside of the perpetrators themselves, for the fraud going by unnoticed for so long and spiralling to such a size that it has affected a whole market in this way.

In fact it seems every participant must take some ownership, for the failure of industry checks and balances, as well as of collateral security controls.

But, with numerous companies now out of pocket and Vesttoo’s bankruptcy unlikely to make anyone whole again, we are almost certain to see more lawsuits over the coming weeks and it’s likely some claims might stick.

Aon responded to our request for comment, saying, “This complaint is meritless. Vesttoo has publicly admitted that its executives conspired with third parties in a highly sophisticated and elaborate fraud. As one of the victims of that fraud, Aon is focused on continuing our work to develop a path forward for all affected parties.”

We’ll bring you more as it becomes available, as this is likely a developing story.

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