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HIH to plead film finance fraud against JLT

The defunct Australian insurer HIH Casualty & General will be able to allege fraud against its broker JLT Risk Solutions over controversial film finance losses written in 1997.

HIH received the green light from the Honourable Mr Justice Langley following a hearing in the UK Commercial Court last month. The insurer – which became Australia’s largest corporate collapse when it sank in 2001 with debts estimated at around AUS$5.3bn – had already issued proceedings against JLT for negligence and breach of contract after reinsurers such as New Hampshire and AXA successfully avoided their contracts with HIH after arguing that the policies included warranties to the number of films that would be made under each project.

Known as Hollywood Funding numbers 1,2 and 3, the films were financed by Flashpoint, an enigmatic film financier established by the former Lloyd’s underwriter David Forrest. But in addition to being cinematic flops, Flashpoint failed to make the minimum number of films in the slates, which, in July 2002, the Court of Appeal upheld as an implied warranty in the policy wordings. HIH, which wrote a pecuniary loss indemnity insurance policy that effectively underwrote the commercial success of the projects, had already paid the claims and sought approximately $15.6mn for Hollywood 1, $14.7mn for Hollywood 2 and $25.1mn for Hollywood 3 from its reinsurers.

But following its defeat by reinsurers, HIH revealed in November 2003 its intention to amend its pleadings to include fraud against the broker, which, in 1997, traded as Lloyd Thompson. Similar allegations had already been levied against JLT in the trial relating to Hollywood Funding 4 and 5 before a confidential settlement was reached between the parties mid-trial. A settlement over an earlier Flashpoint project, The New Professionals, also prevented the fraud allegations from being tested in trial.

JLT sought to prevent the pleading amendments but, after a two day hearing last month, the Honourable Mr Justice Langley ruled in his 13 July judgment: “HIH has not in my judgment acted unreasonably in bringing forward the amendments now and they will if allowed cause no significant prejudice to JLT which cannot be compensated in costs.

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