Clear Blue updates Aon complaint, claims broker solicited Vesttoo engagement

Clear Blue Insurance has amended its complaint against Aon, in the New York court lawsuit related to the reinsurance letter of credit (LOC) fraud perpetrated by insurtech Vesttoo, with the language strengthened and Aon now accused of soliciting the fronting specialist’s involvement in a scheme it says was structured and masterminded by the broker.

Clear Blue had filed a lawsuit against insurance and reinsurance broking giant Aon and subsidiary Aon Insurance Managers in the New York court last year, with the fronting specialist looking to recover some of its losses caused by its exposure to the fraudulent activity undertaken by Vesttoo.

Recall that Vesttoo linked transactions were found to have fake and forged letters of credit (LOC) against them as collateral, resulting in the drawn-out legal action and bankruptcy case that Artemis has covered in-depth.

Clear Blue had been involved as the fronting carrier within many Vesttoo linked collateralized reinsurance transactions, including certain intellectual property deals brokered by Aon.

The fronting company has been facing significant financial ramifications after it transpired that deals it had fronted were not backed by valid collateral, as the letters of credit (LOC) purportedly from international banks turned out to be fake.

After an extended deadline, stipulating that Aon should respond to the complaint by the end of January 31st 2024, passed, broker Aon then filed a motion calling for the New York state lawsuit to be dismissed in its entirety.

Then, earlier in April 2024, we’ve now learned that Clear Blue filed a first amended complaint, updating the language in the original and in the process being much more direct in its accusations, it appears.

The amended complaint still demands a jury trial be held to decide on the issues Clear Blue believes need to be heard.

In changes and additions to the language used, Clear Blue now accuses the broker of soliciting it to become engaged in a trading relationship “with Aon and its partner named Vesttoo, in which they provided reinsurance capacity and coverage to Clear Blue.”

The complaint continues to claim that Aon breached its contractual duties, but now also adds an accusation that this included breaching “the implied covenant of good faith and fair dealing” with all participants of the program, including Clear Blue.

Where previously the complaint stated that, “The scheme was structured where Vesttoo purported to provide letters of credit as collateral to the Aon’s controlled affiliate White Rock Insurance (SAC) Ltd. (“White Rock”), whose sole function was to transform the letters of credit into insurance and reinsurance capacity.”

The amended complaint now states (emphasis on the edit), “The scheme was structured and masterminded by Aon where Vesttoo purported to provide letters of credit as collateral to the Aon’s controlled affiliate White Rock Insurance (SAC) Ltd. (“White Rock”), whose sole function was to transform the letters of credit into insurance and reinsurance capacity.”

The amended complaint goes into some detail on the intellectual property insurance product in question, that had been fronted by Clear Blue and those arrangements backed by reinsurance capacity provided by Vesttoo which turned out to have no substance, as the collateral LOCs were forged.

Another edit that shows the intent of Clear Blue to ramp up the seriousness of its complaint, is where previously the original complaint had stated, “Clear Blue entered into a series of reinsurance transactions…”

Has been updated in the amended complaint to state (again, with emphasis on the edits), “Aon induced Clear Blue to participate in a series of reinsurance transactions…”

Further, Clear Blue has also claimed in an addition to the amended complaint, regarding the defendants Aon and Aon Insurance Managers, “In every instance where Defendants failed to verify the letters of credit to collateralize the Segregated Accounts, Defendants took no other steps to ensure that there were valid and collectible assets linked to the liabilities of the segregated accounts.”

The amended complaint also states that Aon had represented in its marketing materials that it would ““insure the compliance with” the collateral requirements of each transaction,” Clear Blue has added.

Another amendment is the explicit inclusion of the word damages to the sentence, “Clear Blue seeks to recover damages for the wrongs perpetrated against it by Aon, in hosting a rogue operation on its Bermuda-based Platform in clear violation of law, regulation, contract, and standard market practice.”

A further change amends the line “Aon took deliberate actions to avoid confirming wrongdoing by Vesttoo despite knowledge of critical facts respecting the required collateral for the subject business,” to now read, “Aon took calculated actions to avoid confirming wrongdoing by Vesttoo despite knowledge of critical facts respecting the required collateral for the subject business.”

The amended complaint also explicitly states that “Aon held itself out as the “exclusive reinsurance broker” on these transactions.”

After which it adds further text to explain why Clear Blue feels the New York court does have jurisdiction over its complaint against Aon, which is something Aon had contested in its motion to dismiss the original.

At the heart of the complaint remains Clear Blue’s assertion that, while Aon had said it would ensure compliance with collateral requirements for the reinsurance deals, it had not undertaken a validation of the letters of credit (LOC), that later turned out to be fraudulent.

Of course, it’s important to note that many parties (outside of this specific lawsuit) saw some of the fraudulent LOCs and conducted whatever checks they typically did, without noticing their fraudulent nature, including other cedents, intermediaries, brokers and carriers. Presumably Clear Blue saw them too.

But still the LOCs passed undetected across the entire industry, until the first claim against one was attempted which triggered this whole LOC fraud saga.

As we’ve said in our previous reporting on the Vesttoo LOC fraud saga, it still isn’t clear-cut as to who, if anyone, within the reinsurance market chain should take any responsibility for the events that occurred, outside of the perpetrators of the fraud, so Vesttoo themselves.

Clearly, Clear Blue feels Aon failed in its duty, but in that case so did everyone else involved in any of the transactions affected by the fraud, including the fronting specialist itself.

Every participant must take some ownership, for the failure of industry checks and balances, as well as of collateral security controls.

But, as we’ve also said, with billions of dollars of value damaged or destroyed, legal action and settlements are inevitable, as the Vesttoo bankruptcy case outcome showed.

In terms of who might have been solicited, it was the way the fraudsters conjured up a perception across the industry that they had ample capital to conduct reinsurance deals, an innovative way to analyse and price them, along with what we understand to have been especially keen price points too, that really attracted those that did to work with them.

Had they not given that perception and created that allure, it’s clear that none of the major re/insurance related firms named in the bankruptcy court, or in other cases such as this, would have given a minutes thought to participating in their deals.

Whether Clear Blue can succeed in its pursuit of damages from Aon remains to be seen.

Efforts may have been better directed at the fraudsters themselves. But, of course, Vesttoo had little in capital at the end and the bankruptcy case has already eroded most (if not all) of that, leaving nothing to be recovered through any additional litigation. It’s no surprise the focus has shifted away from the perpetrators of the fraud at this stage, as parties damaged financially by those events look to any other source of potential recoveries.

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