The company which provides $40 million in liability and fiduciary coverage for Foster & Gallagher Inc. claims that insurance is void because of misrepresentation by the Peoria-based mail order firm.
St. Paul’s Mercury Insurance Co. filed a motion in U.S. District Court in Peoria last Friday for relief from the obligations of the insurance coverage it provides Foster & Gallagher according to a report in the Journal Star.
The insurance company also cites failure of Foster & Gallagher officials to alert the carrier in a timely fashion about a lawsuit filed over a $70 million loan from the employee stock ownership plan used to finance a stock purchase from key executives.
St. Paul’s Mercury Insurance filed the suit against Ellen Foster as executrix of the estate of Foster & Gallagher founder Tom Foster, The Northern Trust Co., Melvyn Regal, Robert Ostertag Jr., Terry Cole, Alan Dix, Jon Elletson, Robert Pellegrino, Debra Keach and Patricia Sage.
Keach and Sage are suing Ellen Foster and the other named defendants in the St. Paul’s suit for restoration of the ESOP. That lawsuit also contends the company misrepresented its financial outlook and mounting legal problems at the time officials gave the go-ahead for the $70 million ESOP loan.
Court papers show Foster & Gallagher paid $207,200 in premiums for the liability and fiduciary coverage. The plan provided for $10 million in coverage with three additional riders for $10 million each.
Court papers cite “materially incorrect information in the application” as grounds for cancellation of the policy.
Foster & Gallagher filed for bankruptcy July 2, two days after laying off its workforce. Reasons cited in the bankruptcy were a precipitous drop in company earnings following its agreement to remove sweepstakes marketing. The bankruptcy also cites the growing burden of repaying the $70 million ESOP loan.
An amended complaint was filed in that lawsuit last Thursday.
A hearing is set in that case for Nov. 8.
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