Porch agrees $7.1m settlement with Vesttoo Creditors Liquidating Trust

Porch Group, the owner of insurer Homeowners of America Insurance Company (HOA) which was impacted by the Vesttoo reinsurance letter of credit (LOC) collateral fraud, has agreed a $7.1 million settlement over constructive trust claims with the Vesttoo Creditors Liquidating Trust, court documents show.

An order has been entered in the Delaware bankruptcy court approving a Stipulation between the Vesttoo Creditors Liquidating Trust and Porch in the Chapter 11 case.

It relates to so-called constructive trust claims related to a reinsurance transaction for HOA that utilised a specific White Rock cell and under these claims, which had been disputed by the bankruptcy Trust, Porch had asserted entitlement to $15,011,392.70 in cash held by the Liquidating Trust.

The Trust continues to dispute Porch’s assertions, but the court order states that “to avoid the substantial risks and expenses of litigation, the Parties have negotiated this Stipulation in good faith and at arms’ length to resolve this dispute,” and so a settlement has been agreed.

The parties have agreed to a payment of $7.1 million for Porch to settle these claims, as a result of which Porch shall waive all future claims against the bankruptcy debtors and Liquidating Trust in the Vesttoo bankruptcy case, it seems, aside from any general unsecured claims that emerge which would then be subject to reduction due to this payment that is now seemingly due.

The settlement does not constitute any admission by any party, simply being a settlement to avoid the ongoing costs and challenges associated with any continuation of the litigation, is how we understand it.

Continuing the litigation over the constructive trust claims held by Porch could have resulted in additional costs for the bankruptcy trust, and other parties including Porch, hence finding a settlement agreement was deemed important to reduce this risk, it appears.

For Porch, the settlement adds to recoveries the company will make to cover some of the significant costs it has suffered due to the Vesttoo scandal.

For some background recall that, Homeowners of America Insurance Company (HOA), the Porch subsidiary, had been revealed as one of the first companies to be exposed to Vesttoo’s fraudulent reinsurance letters of credit (LOCs).

It has since pursued remedies in the courts to help the company recover some of the value destroyed by the Vesttoo fraud, saying it would vigorously pursue all damages caused to the firm by the incident.

We haven’t covered the Vesttoo debacle for some time, but parties impacted by the fraud, such as Porch, have continued to pursue damages in the courts to recover some of the value lost and destroyed.

Recall that Porch initially said its Homeowners of America Insurance Company (HOA) subsidiary had an exposure to reinsurance contracts arranged via Vesttoo, as a result of which the company realised a charge of $48.2 million in its second-quarter 2023 results and said it was pursuing $300 million of collateral from a letter of credit (LOC).

Porch had to replace significant HOA reinsurance limit that was affected by fraudulent letters of credit collateral and made additional investments into its Homeowners of America Insurance Company to help it recover from the episode.

The company had also agreed a $30 million strategic arrangement with Aon, that included releasing all claims related to the Vesttoo fraud that it had made against the broker.

Porch had also filed a law suit in New York against China Construction Bank Corporation, over the Vesttoo reinsurance collateral fraud, accusing the massive Chinese bank of “enabling its personnel to perpetrate a colossal fraud” on the plaintiffs.

The company had also sued broker Gallagher Re, claiming it “grossly mismanaged” the administration of the reinsurance, a case which seemingly remains in limbo at this time, while its aforementioned case against China Construction Bank had been combined with one filed by program services and fronting specialist Incline P&C Group.

The China Construction Bank and Gallagher cases continue, it seems, with no adjudication or any settlements to-date that we’re aware of. Other cases related to the Vesttoo fraud also continue, although with little progress and no further recoveries it seems at this time.

But, Porch has now secured this further $7.1 million settlement with the Vesttoo Creditors Liquidating Trust to cover some more of the damages its business has suffered, enabling it to make another recovery and close another thread in this saga for the company.

Read all of our coverage of news related to the fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo reinsurance deals.