Marsh: Many claims loom in subprime crisis

NEW YORK -- Marsh Inc., the world's largest insurance broker and risk adviser, yesterday warned financial institutions they may face more claims as a result of the subprime mortgage crisis.

Marsh, a unit of Marsh & McLennan Cos., said insurers, banks, and rating agencies could face liability claims under directors and officers (D&O) and errors and omissions (E&O) policies.

Among the biggest insurers offering these policies are American International Group Inc., Chubb Corp., and Ace Ltd.

"Although this market has been largely stable, if there are a high number of costly claims, the trend may reverse and costs rise," said Siobhan O'Brien, a senior vice president of Marsh.

Countrywide Financial Corp., the largest US mortgage lender, has already been sued several times as it struggles with foreclosures and delinquencies, which in July reached their highest levels since at least 2002.

D&O insurance protects the top officials of a company against charges that they erred, did not fulfill their duty, or committed an illegal act. E&O policies protect against claims by customers that a company made mistakes or failed to perform on a contract.

Attorneys in the insurance industry agreed with Marsh.

"This is a big deal," said James Wood, cochairman of the insurance practice at LeBoeuf, Lamb, Greene & MacRae in San Francisco. "We expect this to grow in terms of litigation."

Marsh said potential litigation could include lender lawsuits against banks, because some lenders were forced to file for bankruptcy protection when they were asked by banks to buy back loans. Shareholders may sue lenders that have gone into bankruptcy, along with their accountants and trustees. And insurers themselves may sue lenders for poor underwriting, Marsh said.