Gallagher urges court to dismiss Porch lawsuit over Vesttoo reinsurance transaction

Broking group Gallagher has filed a motion to dismiss the Vesttoo transaction related lawsuit brought against its reinsurance arm Gallagher Re by Porch Group, the owner of insurer Homeowners of America Insurance Company (HOA), saying that “the claim falls well short of the plausibility threshold.”

Back in May we reported that Porch Group had launched a lawsuit targeting broker Gallagher Re, claiming it “grossly mismanaged” the administration of the reinsurance related to a reinsurance transaction that was impacted by the Vesttoo reinsurance letter of credit (LOC) collateral fraud.

Porch had already reached a number of settlements related to the Vesttoo fraud, as it had been one of the more affected cedents.

That fraud scheme had seen the use of reinsurance collateral promises from the insurtech, backed by fraudulent letters of credit (LOC) that turned out to have been forged, lacking substance and had no real backing from capital providers.

Porch turned to the reinsurance broker behind one of its deals that involved Vesttoo, as it continued to seek financial compensation for the damages incurred due to the fraud.

Gallagher has now responded and urged the Texas court, where the lawsuit was filed, to dismiss the petition filed by Porch “in its entirety and with prejudice.”

Gallagher explains, in its motion to dismiss the case, that the defendants named in Porch’s lawsuit, parent AJG and Gallagher Re, “were not the fraudsters.”

“The fraud scheme was executed and enabled by a combination of non-parties to this suit: Vesttoo Ltd. (“Vesttoo”), Aon plc (“Aon”) and its subsidiary, White Rock Insurance (SAC) Ltd. (“White Rock”), and China Construction Bank. As it should, Porch has sought recoveries from these parties,” Gallagher stated.

Remember, Porch has already agreed a $30 million strategic arrangement with Aon, that included releasing all claims related to the Vesttoo fraud that it had against the broker, and it filed a separate and ongoing lawsuit against China Construction Bank.

The broking group’s motion continues to state, “But now Porch has filed this one-count breach of contract action against Gallagher Re, who merely acted as the broker for Porch’s subsidiary, Homeowners of America Insurance Company (“HOA”), in the reinsurance deal that ultimately went south. And, in a transparent attempt to avoid federal jurisdiction, Porch has improperly joined Gallagher Re’s parent company, AJG, despite AJG not being a party to the contract at issue. This action should be dismissed for several reasons.”

The motion states that a breach of contract claim levelled against AJG “must be dismissed because AJG has been improperly joined,” and that AJG was not party to the reinsurance contract in question, so was wrongfully named in the suit.

Secondly, the motion from Gallagher also claims that Porch has failed to state a claim against Gallagher Re, saying the claim “falls well short of the plausibility threshold” and that contract language shows that “Porch explicitly agreed that Gallagher Re was not obligated to perform the very tasks that Porch now alleges Gallagher Re was contractually obligated to perform.”

Gallagher says that Porch’s breach of contract claim is implausible and that contract language in documents governing the reinsurance agreement backs this up.

Here, the motion is referring to Porch’s claim that Gallagher Re was obliged to seek evidence that China Construction Bank, the bank named on the fraudulent letter of credit, had agreed to assume the risk related to the funding of the reinsurance agreement.

Gallagher states that its obligations were only to retain documentation related to the funding of the reinsurance agreement, not to seek evidence or confirmation of the funding that was supposed to be sitting behind it.

The motion also states that Porch has failed to joinder all parties to the lawsuit, saying, “Vesttoo and China Construction Bank are both required parties to this suit, but Vesttoo cannot feasibly be joined, and this Court should not in equity and good conscience proceed in Vesttoo’s absence under Rule 19(b). The Petition should therefore be dismissed pursuant to Rule 12(b)(7).”

As a reminder, Porch Group has already filed a law suit in New York against China Construction Bank Corporation.

Gallagher is also stating that without the joining of these other parties to the lawsuit, Porch could feasibly “double” the recoveries the plaintiff receives, if its legal actions were successful.

In such a significant fraud case, involving multiple parties and now with multiple lawsuits looking for recovery across them, the courts are going to have a challenging time ensuring accurate recoveries are awarded, where appropriate.

But parties will seek damages from all avenues, especially as the bankruptcy of Vesttoo did not result in sufficient liquidity to make anyone involved whole for their losses related to the insurtech’s fraud.

As we’ve said in our reporting before, it remains to be seen how successful these legal actions are, when all parties in the reinsurance market value chain that touched the Vesttoo transactions appear to have been equally-duped by the fraud that occurred.