General Re Says Chase Tricked It Into Film Finance Business
By Christopher Mumma
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New York, Dec. 11 (Bloomberg) -- A General Re Corp. unit sued Chase Manhattan Bank, contending the bank tricked it into writing bad policies to insure 11 different film productions, including ``A Civil Action'' and ``Rules of Engagement.''
Two lawsuits filed in federal court in New York by General Star International Indemnity Ltd. seek to invalidate insurance policies underwritten for the films, which also include ``Runaway Bride'' and ``Angela's Ashes.''
The suits say Chase took advantage of General Star's ignorance of the inner workings of the film industry to structure deals that paid the bank high commissions and shifted too much risk to the insurer. The suits also contend that ``risk managers'' who were supposed to act on the behalf of the insurer instead collaborated with Chase.
``Once film finance industry insiders learned that insurance was available to finance film production, industry insiders began to structure transactions to take advantage of insurance companies in other forms,'' the complaint said, noting that the policies transferred ``box office risk from banks, production companies and distributors to insurance companies.''
General Re, a unit of Berkshire Hathaway Inc., also said that the insurers have been presented with loss claims for movies that were commercial successes.
``Indeed, even in the face of box offices success, many of the films have purportedly generated losses close to 100 percent of the insured policy limits,'' the complaint says.
The lawsuits do not specify how much money is being sought in each insurance claim. The suits, though, identify some amounts, such as a $12.9 million loss claim for ``A Civil Action,'' which earned about $56.7 million in the U.S. and Canada.
Fallen Into Disfavor
Such financing, designed to cushion producers against film losses, was popular in the 1990s. Chase, a unit of JP Morgan Chase & Co. funded a number of insurance-backed deals through its Entertainment Industries Group.
Chase officials estimate that between $2 billion and $3 billion worth of insurance-backed film financing has been written since 1996. The policies, however, have fallen into disfavor within the insurance industry.
A spokeswoman for Chase, Nancy Israel, said she hadn't seen the General Re lawsuits.
Israel said the suits ``sound similar'' to a recent New York State Supreme Court case. In a trial that ended last week, a state jury ordered Axa SA, Europe's largest insurer, to meet contractual obligations for a portion of a $107.5 million credit line Chase funded for George Litto Pictures.
The amount of that obligation was not set by the jury. The judge overseeing the case, State Supreme Court Justice Ira Gammerman, is expected to set that amount within a month. It could be as much as $20 million.
Axa underwrote the credit lines, but refused to pay for the losses incurred by the first film produced, ``The Crew,'' starring Burt Reynolds. Axa contended that one of its underwriters was acting on behalf of Chase and not the insurer. |
