Vesta creditors committee seeks court OK to prosecute claims to avoid insurance extension premium

By Caroline Salls

Pittsburgh, Nov. 21 - Vesta Insurance Group, Inc.'s official committee of unsecured creditors requested court approval to prosecute potential claims against the company's current and former officers and directors to avoid payment of a $1.25 million insurance policy extension premium, according to a Monday filing with the U.S. Bankruptcy Court for the Northern District of Alabama.

Based on the company's financial collapse and information obtained by its professionals, the committee said it believes that claims exist against some of the company's current and former officers and/or current and former members of the board of directors for breaches of duties.

The committee said it is seeking permission to prosecute the claims in case the company's plan of liquidation is not confirmed and the plan trustee is not appointed in time to prosecute the claims before Dec. 31.

According to the motion, on Aug. 4, the company, acting through one or more of the officers or directors, extended the term of an XL Specialty Insurance Co. policy for one year and paid a premium of $1.25 million for the extension.

The committee said the policies are "claims made" policies, meaning that they cover certain types of claims made while the policies are in effect, and the XL policy includes a cancellation endorsement providing for a refund of the extension premium if a court forces the company to cancel the policy extension.

As a result, if the claims are asserted before Dec. 31, thereby triggering coverage under both policies and rendering the policy extension unnecessary, and the court orders Vesta to cancel the policy extension, the extension premium can be recovered for the estate without affecting its ability to access the XL policy as a source of recovery on the claims.

Vesta is a Birmingham, Ala., insurance company. Its involuntary Chapter 7 case was converted to a voluntary Chapter 11 case on Aug. 7. Its case number is 06-02517.

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