Bear Stearns in insurance battle

Chubb has won a significant legal victory against Bear Stearns, the stricken investment bank bought this week by JP Morgan. The victory is worth up to $45m (£22.5m) to the insurer.

Bear Stearns had been attempting to claim on a $10m professional liability policy issued by Chubb subsidiary Vigilant Insurance Company, following an investigation into and subsequent settlement over the bank’s allegedly biased stock research. This was backed by a $40m excess of loss policy issued jointly by Federal Insurance Company, another Chubb subsidiary, and Gulf Insurance Company.

The insurers won the case because a term in the policies required Bear Stearns to consult them before agreeing to pay out on any settlement over $5m.

With backing from the Federal Reserve, JP Morgan bought Bear Stearns at the weekend for around $2-per-share, valuing the bank at $236m – although JP Morgan said the deal would cost nearer to $6bn with expenses.

Andrew Hubbard, senior partner at Mazars, said: “The financial markets are not stand-alone and the ripples will impact everybody. For insurers it’s a double whammy because it impacts upon both their assets, which fall in value, and liabilities, in the form of losses on professional liability policies.”