Judge orders insurer to indemnify JPMorgan Chase

October 30, 2009 – 6:36 pm

The litigation in JPMorgan Chase & Co. vs. Twin City Fire Insurance Co. stemmed from the investment bank’s 2005 agreement to pay $2.3 billion to settle a class action suit and other litigation brought by purchasers of bonds of Ashburn Va.-based WorldCom Inc.

WorldCom revealed in 2002 that improper accounting made the company appear profitable for years. The company filed for bankruptcy later that year and emerged in 2004 as MCI Inc. JPMorgan served as an underwriter in connection with the bonds’ issuance.

According to court papers, Twin City refused to indemnify JPMorgan for the insured portion of its losses. The investment bank had a combined lines insurance program providing $200 million in bankers professional liability insurance for the period Nov. 30, 2001, to Nov. 30, 2002. It also had a catastrophic excess financial products insurance program providing $500 million in errors and omissions coverage for its acts prior to its 2000 merger into the Chase Manhattan Bank.

Twin City’s share of the coverage, which JPMorgan sought and received under the summary judgment, was $10 million for the bankers policy and $7 million for the catastrophic excess program, said Steven E. Obus, a partner with law firm Proskauer Rose L.L.P. in New York, which represented JPMorgan in the litigation.

Mr. Obus said at issue was whether Morgan had complied with a policy provision relating to the insurer’s consent to the settlement, “and the court held we did, in fact, comply with it.”

In addition to the $17 million in coverage, New York Supreme Court Judge Charles E. Ramos granted JPMorgan more than $5 million in prejudgment interest, Mr. Obus said.

Settlements were reached previously with several other insurers that participated in the coverage, he said.

A Hartford spokesman could not be reached for comment.

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