Porch sues Chinese bank over Vesttoo scandal
A US insurer is suing China Construction Bank for allegedly enabling the Vesttoo fraud that cost insurers millions of dollars.
Porch, which offers homeowners' insurance and home inspection software to customers, accused the bank of conspiring with employees of the now bankrupt Israeli insurance firm Vesttoo to issue dozens of fake reinsurance letters of credit that guaranteed insurance companies access to reinsurance funds, according to a complaint filed in the US Southern District Court of New York on Thursday.
Reuters reported that Porch and its unit, the Homeowners of America Insurance Co, paid tens of millions of dollars in premiums for this non-existent reinsurance until it emerged in July 2023 that certain letters of credit backstopping Vesttoo's reinsurance transactions were fake, the company said.
CCB, China's third largest bank by assets, didn't immediately respond to a request for comment from Reuters.
Vesttoo filed for Chapter 11 bankruptcy protection in the US last year after discovering fake letters of credit had been used on its platform. The company provided insurers with access to so-called insurance-linked securities, an alternative form of reinsurance. These securities may be backed by collateral in the form of letters of credit.
Porch said the Homeowners of America lost tens of millions of dollars when its reinsurance facility, backed by a false $300 million letter of credit from the CCB, suddenly proved worthless.
Porch's complaint said it would seek monetary damages in an amount to be determined at trial. However, the complaint said Homeowners of America had to pay out $80 million to cover insurance claims that should have been reinsured and Porch had to provide $57 million to stabilise the unit and Porch's stock price fell after the scandal broke.
Vesttoo has been embroiled in legal actions in the US, Israel and Bermuda and has sought bankruptcy protection in Delaware. CCB has not been directly named in many actions, although it has been alleged its employees were involved in drawing up false letters of credit.
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