London liable for US sub-prime compensation costs

by Gill Montia

Story link: London liable for US sub-prime compensation costs

London insurers may face compensation claims arising out of the crisis in the US sub-prime mortgage market.

So far, at least ten claims have been lodged against mortgage providers in the US.

These have been made by investors who are maintaining that the lenders did not explain the true risks associated with selling home loans to people with bad credit histories.

Similar claims are also expected to be made against credit ratings agencies and investment banks that have purchased asset-backed securities based on the bad loans.

Companies found liable are likely to look to their errors and omissions (E&O) and directors’ and officers’ (D&O) insurance, to cover the cost of their defence.

E&O insures companies against claims arising from errors in their professional services and D&O covers executives against claims that they have mismanaged a company.

According to experts in the field, a large part of the bill for these types of claim is likely to be picked up by the London insurance market.

Insurance broker, Marsh, has already received notifications of claims from clients being sued in the US, and does not expect to know the full extent of its losses until American financial regulators have completed their investigations.