Insured loss claims – rejection to recovery in multi-party dispute in 8 weeks

This case study exemplifies Solve Global’s approach, value and benefits in high stakes disputes:

The Facts

Our client was the Lender (party 1) of numerous insured loans to property borrowers.

Numerous borrowers defaulted.

The lender claimed indemnity for loan losses from the Insurer (party 2), for circa $12m.

The Insurer refused to pay the claim, asserting that the Lender had not properly credit-assured the borrowers before the loans were made.

The Conundrum

The Insurer had ceased business and was managed by an appointed Receiver (party 3).

The Insurer retained cash capital of $20m, controlled by a Custodian (party 4).

The Insurer’s Shareholders (party 5), entitled to the cash, were 2 “uninvolved” US hedge funds.

Any release of the cash to the Shareholders, required the resolution of the Lender’s claim and approval of the insurance Regulator (party 6), Australian Prudential Regulation Authority (APRA).

The Problem

The problem for the Lender was how to recover its “insured” losses from the Insurer’s regulated capital?

The lawyer’s approach – sue the insurer

The Lender’s lawyers advised to commence court proceedings against the Insurer for breach of the insurance contract and for damages.

The lawyers estimated legal costs @ $1.5m-$2.5m and required of the Insured $1.0m on account.

The lawyers estimated time to trial and judgment was 2 years. The Insured’s prospects of success were advised as only “reasonable”. Therefore, the Lender faced a real risk of losing in Court and paying the Insurer’s legal costs, as well as its own costs.

Considerations beyond the litigation

The complex commercial risks, opportunities and objectives of each of the 6 parties were not analysed or predicted as beyond the 2 party legal issues between the Lender and Insurer.

Three only of the Lender’s 6 directors desired to litigate and possibly recover the losses (the high stakes gamble). The other 3 directors wished to abandon the claim to avoid legal costs and the litigation risk of also having to pay the Insurer’s costs (the safe bet).

Solve Global’s solution

Solve Global collected key dispute, commercial and governance data of the 6 parties.

Extensive data points were collected and Solve Global’s unique predictive analytics used to predict the opportunities, risks, costs and optimal outcomes for each of the Lender, Insurer, Shareholders and Regulator (the exposed Stakeholders).

The client Lender’s own costs, risks and probable recovery at trial, compared to possible early settlement, were predicted and the present value of each outcome calculated.

With data-based insights, Solve Global devised a multi-party settlement proposal for each of the 4 exposed Stakeholders, outlining a ‘true value’ outcome for each of them and compared to their assessed potential risks and costs. The solution was readily agreed by the Stakeholders so that the client Lender recovered a multi-million-dollar amount, thereby avoiding any litigation, legal cost and further risk.

The Value created

Solve Global analysed, predicted, solved and recovered payment within 8 weeks of engagement
(see figure below). Value delivered for the Lender included:

• Avoided litigation saving time, business disruption and significant legal costs – $1.5m – $2.5m was saved to the P & L.
• Significant capital value was recovered to the Balance Sheet.
• The Lender directors were freed for core business.