VarTec Telecom trustee seeks approval of $9 million settlement with former management over insurance dispute

By Reshmi Basu

New York, Oct. 25 - VarTec Telecom, Inc.'s Chapter 7 trustee requested court approval of a $9 million settlement agreement, which would resolve a conflict between the company's former members of management in connection to the disputed amount of coverage provided under insurance policies, according to a Thursday filing with the U.S. Bankruptcy Court for the Northern District of Texas.

In October 2006, the trustee launched litigation proceedings against former officers and directors of the company for allegations of wrongful doing, which he claimed ultimately led to the demise of the company.

In addition, the trustee also began litigation regarding the officers and directors' insurance coverage, in which National Union Fire Insurance Co. provided $25 million in coverage.

The excess coverage was under a policy issued by Federal Insurance Co. and together with the National Union policy, the policies provided $25 million in coverage limits above the National Union policy.

The amount of coverage under the policies is in dispute between the various parties. Meanwhile an adversary proceeding had begun in connection to claims made under the Federal Insurance policy.

On Oct. 17, the parties entered into a second round of mediation, in which a settlement was reached and, if approved by the court, would eliminate the need for expensive and time-consuming litigation, according to the trustee.

Under the proposed agreement, the parties will pay $9 million to the trustee, who in turn will make the necessary disbursements.

National Union will pay $6.47 million while Federal Insurance will pay $500,000. The rest of the settlement will come from the pockets of the company's former officers and directors.

A hearing is scheduled for Nov. 21.

VarTec, a Dallas-based telecommunications provider, filed for bankruptcy on Nov. 1, 2004. Its Chapter 7 case number is 04-81694.

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