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Insurer sues Aon over alleged Vesttoo fraud


Clear Blue Insurance Co. and its affiliates on Thursday sued Aon PLC, alleging the brokerage exposed the insurer to hundreds of millions in losses through intellectual property insurance and reinsurance programs it established with Vesttoo Ltd.

In Clear Blue Insurance Co. et al v. Aon PLC and Aon Insurance Managers Bermuda Ltd, filed in state court in New York, Clear Blue alleges the programs, which were supposed to be fully collateralized, were backed by fraudulent letters of credit and that Aon should have known about the fraud.

Aon said in a statement that it was also a victim of the alleged fraud.

According to the Clear Blue suit, Aon worked with Tel Aviv, Israel-based Vesttoo to establish insurance-linked securities structures to provide reinsurance for Clear Blue and to enable it to participate as a reinsurer for intellectual property insurance contracts Aon placed.

Collectively, Clear Blue’s exposure to intellectual property insurance transactions is at least $362.3 million, the suit alleges.

Aon controlled every aspect of the programs, which used Aon’s Bermuda-based segregated cell company White Rock Insurance (SAC) Ltd., the suits states.

“Every single contract by and between Clear Blue and White Rock was signed by Aon, not Vesttoo. Aon, not Vesttoo, had the sole and absolute discretion to enter into those contracts,” the suit states.

Each contract involving Vesttoo was supposed to be backed by letters of credit, but the LOCs alleged to have been issued by China Construction Bank Corp. were fraudulent, the suit states.

Aon and its subsidiaries did not have procedures in place to verify the LOCs, Clear Blue alleges.

“No such audit or confirmation of the LOCs was ever conducted, and Aon took no steps to conduct any due diligence on any of the investors that it knew were critical for the funding and collectability of any LOC,” the suit states.

The Vesttoo program unwound in July when allegations of the allegedly fraudulent LOCs surfaced.

In late July, rating agency A.M. Best Co. Inc. placed the A- rating of Clear Blue under review for a possible downgrade. Clear Blue later replaced its reinsurance capacity and raised additional capital, and Best revised its outlook for the insurer to stable from negative.

Aon in July disclosed that clients were taking legal action against the brokerage over transactions involving the allegedly fraudulent LOCs. In August, Aon sued Vesttoo, which soon after filed for bankruptcy protection.

In a statement, Aon said: “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.”