Freddie Mac settles $32mn coverage lawsuit with Lloyd’s of London underwriters

By Mia MacGregor

Jan 27 - (The Insurer) - Freddie Mac has told a Washington DC federal court that it has settled a $32mn coverage lawsuit with Lloyd's of London underwriters, resolving the case linked to civil actions and federal investigations stemming from its collapse during the 2008 financial crisis.

In a joint motion filed on 22 January, Freddie Mac and the underwriters confirmed the settlement and requested dismissal of the case with prejudice, with both parties covering their own legal costs.

Freddie Mac, now in conservatorship under the US government since September 2008, faced investor lawsuits alleging it downplayed exposure to subprime loans, as well as an SEC investigation into potential misleading of investors.

The lender’s primary and first four excess insurers paid approximately $85mn in policy limits, while Twin City Fire Insurance Co, the fifth-layer excess insurer, contributed $7.3mn.

In June 2023, Freddie Mac sued Twin City, Axis Reinsurance, Houston Casualty, and the Lloyd's underwriters, seeking over $32mn in unreimbursed defense coverage.

Twin City was dismissed from the suit in May following a settlement, and Freddie Mac resolved its claims against Axis in October.

Earlier this month, the court dismissed with prejudice all claims against Houston Casualty Co following notification of a settlement.

Freddie Mac’s status report noted that with all four insurer settlements in place, the case can be closed once the underwriters are dismissed.