Tousa, committee seek OK of key lawsuit, insurance coverage settlement

By Caroline Salls

Pittsburgh, June 6 - Tousa, Inc. and its official committee of unsecured creditors requested court approval of a settlement of a fiduciary duty action and directors and officers' insurance coverage action, according to a June 6 filing with the U.S. Bankruptcy Court for the Southern District of Florida.

The other parties to the settlement include first-lien loan agent Citicorp North America, Inc., first-lien revolving credit facility sub-agent Gleacher Products Corp. and second-lien term loan agent Wells Fargo Bank, NA.

A total of 19 directors and officers also entered the settlement, as did director and officer insurers Federal Insurance Co., XL Specialty Insurance Co., Zurich American Insurance Co., St. Paul Mercury Insurance Co., National Union Fire Insurance Co. of Pittsburgh, Pa., Arch Insurance Co., AXIS Reinsurance Co., Westchester Fire Insurance Co., Allied World Assurance Co. (U.S.) Inc. and Beazley Insurance Co., Inc.

Settlement terms

Tousa said the settlement requires the insurers to make $67 million in cash payments to conveying subsidiaries and the pre-bankruptcy secured lenders.

Of that amount, $47.86 million will benefit the unsecured creditors of the subsidiaries, $7.66 million will benefit the first-lien lenders and $11.49 million will benefit the second-lien lenders.

In addition, some of the insurers will pay defense costs incurred by the directors and officers.

Specifically, XL and Federal will pay up to $8.27 million for fees and expenses incurred before March 19, and XL Bermuda will pay up to $250,000 for fees and expenses incurred from and after March 19.

Confirmation condition

According to the motion, the proposed settlement is part of a larger "grand bargain" resolving claims among many parties in Tousa's Chapter 11 cases, and court approval of the settlement is a condition to the confirmation of its amended joint plan of liquidation.

"This settlement agreement and the settlements embodied in the plan will finally bring to a close these Chapter 11 cases that have been pending for over five years," the motion said.

Action background

The committee filed the fiduciary duty action in June 2009 on behalf of the conveying subsidiaries, alleging that the directors and officers breached their fiduciary duties by failing to act in the best interests of the subsidiaries and all of their constituencies.

The Tousa debtors notified the insurers of the fiduciary duty action and sought coverage for the debtors and the directors and officers.

The company said it filed the insurance coverage action in November 2009 when some insurers denied coverage of the fiduciary duty action.

In the coverage action, Tousa alleged that the insurers are liable to cover the claims and related defense costs resulting from the fiduciary duty action.

On Dec. 11, 2009, counsel to pre-bankruptcy secured lenders Monarch Alternative Capital LP and Trilogy Capital LLC sent a demand letter providing notice of alleged claims against the settling defendants and others. Tousa said the insurers also denied coverage of those claims.

Tousa is a Hollywood, Fla.-based homebuilder. The company filed for bankruptcy on Jan. 29, 2008 under Chapter 11 case number 08-10928.

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