Pair Lose Bid To Derail Hih Suits

Sydney Morning Herald

Saturday March 11, 2006

Elisabeth Sexton

WARREN BUFFETT'S General Reinsurance and insurance broker Guy Carpenter & Co have lost their first formal attempt to derail two big damages suits being prepared by HIH liquidator Tony McGrath.

Mr McGrath's claims, relating to controversial reinsurance contracts that boosted FAI's profits and assets before HIH took it over in 1998, were filed with the NSW Supreme Court in 2004 but are yet to be served.

On Friday, Justice Cliff Hoeben refused to give Gen Re and Guy Carpenter access to an affidavit Mr McGrath gave the court last year when he was allowed to extend the time for service until June.

The two firms wanted to consider what options were open to them to set aside the extension.

A successful challenge to the extension would halt the claims because they would then fall outside the statute of limitations. Until the claims are served, Gen Re and Guy Carpenter are not formal parties to the actions and so have no automatic right to documents on court files.

Justice Hoeben said the application was premature and it was possible the statements of claim would never be served. If they were, Gen Re and Guy Carpenter could then apply for the extension to be set aside. He said they had offered no reason why access should be granted.

On Friday, Mr McGrath said: "We have strong and genuine claims and we will continue to seek to resolve them for the benefit of the estates."

The international Guy Carpenter, a subsidiary of US-listed insurance and consulting group Marsh & McLennan, acted as broker in 1998 when FAI bought a reinsurance contract from National Indemnity, a subsidiary of Mr Buffett's Berkshire Hathaway, which the HIH royal commission found allowed FAI to overstate its profits by $29 million.

General Re, which was taken over by Berkshire Hathaway in 1998, sold FAI a second policy which the royal commission found boosted the same profit by $28 million.

In its annual report released last week, Berkshire listed Mr McGrath's suits under contingent liabilities.

"The liquidators contend, among other things, that [Gen Re] engaged in deceptive conduct that assisted FAI in improperly accounting for such transactions as reinsurance, and that such deception led to HIH's acquisition of FAI and caused various losses to FAI and HIH," the report says.

Mr McGrath's lawyers have previously told the court he was seeking $400 million in damages relating to HIH's takeover of FAI.

© 2006 Sydney Morning Herald

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