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Hartford sues Arch over employee defections


NEW YORK—The Hartford Financial Services Group Inc. filed a lawsuit Thursday against Arch Insurance Group Inc. and three former employees of its Hartford Financial Products division, charging Arch has raided its employees and attempted to destroy its financial products business.

According to the lawsuit, filed in New York Supreme Court in Manhattan on Thursday, David McElroy retired as president of Hartford Financial Products on Friday, June 5, and on the following Monday, New York-based Arch announced he would join its newly created financial and professional liability products group.

“What quickly followed was an unlawful corporate ‘raid’ of unprecedented proportions, characterized by threats, bullying and repeated disparagement of The Hartford to employees, clients and other business partners,” the complaint charges.

The suit states that since June 8, more than 60 of Hartford Financial Products’ 250 employees, “including several of its most senior executives and the vast majority of its underwriting staff,” have resigned and joined Arch.

The complaint charges also that the timing of the “raid” deliberately coincided with the period when Hartford renegotiates its reinsurance contracts.

“Although The Hartford has effectively managed and contained the damage from defendants’ onslaught, such egregious behavior cannot go unchecked,” the complaint states.

A Hartford spokesman said Hartford Financial Products accounted for 6.8% of Hartford’s 2008 net premiums, or about $695 million. According to the complaint, the unit is one of the largest providers of directors and officers, employment practices, liability errors and omissions, and crime insurance in the United States.

The suit names as defendants: Arch Insurance Group; Mr. McElroy; Arch parent, Bermuda-based Arch Capital Group Ltd.; and former Hartford Financial Products Vps John Rafferty and Michael Price.

The suit, which seeks compensatory and punitive damages, charges the defendants with breach of fiduciary duty, breach of contract, tortious interference with contract and prospective contract, raiding and unfair competition, unjust enrichment, and misappropriation of trade secrets.

In a statement, Hartford said: “We have a deep bench of talented and dedicated employees within Hartford Financial Products, and we have capable and experienced senior leaders to manage the division going forward. Hartford Financial Products continues to actively write new business and service its existing business. We filed this lawsuit because we will not tolerate illegal or unethical behavior.”

An Arch spokesman could not be reached for comment.