|  | | 2007 News and Press Releases | | |
HEADLINE NEWS:
As Subprime Problems Spread Through Economy, So Do Questions About Liability Exposure
Alyn Ackermann
BestWire Services. December 31, 2007
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EXCERPT: The subprime mortgage crisis may lead to a surge in professional liability claims that will spread across the United States and global economies in ways that haven't been seen from one event. With past stock-options scandals and the savings-and-loan collapses of the 1970s, the lawsuits involving directors and officers or errors and omissions covers that followed were fairly tightly focused on the companies or industries involved. "But here the losses have a ripple effect that goes out through the economy as whole, because of the way these were marketed," said Bill Boeck, senior vice president of the Financial Service Group at Lockton Cos. Inc., and a lawyer with more than 20 years of experience in professional liability litigation. In a briefing paper, Guy Carpenter & Co. said one "reason why the impact is likely to be greater than it appears is that investors may begin to file against companies not involved in subprime lending but which felt the disruption caused by the subprime mortgage market." An example cited by Carpenter, Boeck and others is the fate of U.K. mortgage lender Northern Rock, which was not involved in subprime lending. It did heavily utilize short-term debt to fund its lending, however, and when that financing dried up in the subprime-sparked credit crunch, the company needed emergency funding from the Bank of England to stay afloat. But it lost 90% of its market value, said Guy Carpenter: "The net result, of course, was litigation, with various institutional investors filing lawsuits against Northern Rock's directors. Stanford Law School's Securities Class Action Clearinghouse Web site listed 32 class-action lawsuits filed in relation to subprime-related issues. The companies involved run the gamut from direct mortgage companies and banks, home builders, Wall Street firms, Moody's Corp., the rating agency, and the parent of rating agency Standard and Poor's, McGraw-Hill Cos. "You see the banks and lending institutions, not surprisingly," said Robert P. Hartwig, president of the Insurance Information Institute. "And there are a number of suits against builders, who have been hard hit by this." The Guy Carpenter brief predicted that "more litigation is on the horizon for 2008." |
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