American Safety Insurance Group has filed a lawsuit to rescind its previously announced acquisition of a Michigan insurance agency and two related insurance companies specializing in insurance program business.
In January, American Safety Holdings acquired the stock of L&W Holdings Inc. along with its wholly owned subsidiary, RCA Syndicate #1, Ltd, an Illinois licensed insurance carrier operating on the INEX (formerly the Illinois Insurance Exchange). Also acquired was the stock of Principal Management Inc., an insurance program development and management group headquartered in Okemos, Mich.
In a related transaction, American Safety acquired the stock of Pegasus Insurance, a Cayman Islands licensed insurance carrier. The transactions were structured as stock acquisitions with the purchase price consisting of cash plus American Safety common shares and earn-out provisions for the future issuance of additional common shares.
When RCA Syndicate filed its 1999 annual statement in March, American Safety claims it became aware of a material adverse change in the business affairs and financial condition of the acquired companies. American Safety investigated, allegedly finding that the insurance claims experience of the acquired companies had been misrepresented and that incurred losses from insurance claims were significantly in excess of the amounts reported in their claims records and their financial statements.
As a result, American Safety made a written demand for rescission of the transactions, including a return of the purchase price paid for the companies. The company has now filed suit to rescind based upon the sellers’ breach of the representations and warranties made concerning the business affairs and financial condition of the acquired companies.
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