In 2009, a major regional bank with over $111 billion in assets brought suit against a large insurance company. The insurance company had sold the bank a BOLI – Bank Owned Life Insurance Policy – and collected $612 million in premiums, which were subsequently invested in a private investment fund managed by a global investment manager. Due to allegedly lax oversight of the invested premiums, the insurance company failed to properly re-allocate the portfolio to more conservative positions in light of the market conditions of 2007, per the BOLI offering documents and investor policy statement. As a result, the underlying portfolio, consisting of MBS, ABS and leveraged loans, as well as engaging in municipal bond arbitrage strategies, lost over $323 million.
Counsel for the bank, Quinn Emanuel Urquhart & Sullivan, engaged SFC Associates to review the insurance company’s claim that even if a re-allocation provision was triggered, the lack of market liquidity at the time would have prevented any disposition of the BOLI portfolio, and further, to analyze the market conditions at the time for each type of underlying security. After reviewing the trading records and portfolio holdings of the securities held in the bank’s portfolio during the period leading up to the fund’s redemption request, SFC Associates refuted the insurance company’s claims in a detailed expert report, which directly addressed the opinions issued by the insurance company’s expert witnesses. The case settled favorably for the plaintiff.