AIB sues insurers over failure to cover Rusnak losses

AIB has brought legal proceedings against a number of insurers after they declined to cover the bank for losses arising out of $700 million (€596 million) fraud by rogue trader John Rusnak.

The bank says its insurance policies, which includes claims due to crime, covered it for sums in excess of $200 million.

The case is against a number of well-known insurance companies and underwriters, including AIG (as lead insurer), Chubb Insurance of Europe and Lloyds Syndicates over policies taken out by AIB in 2001.

Mr Justice Brian McGovern admitted the case to the Commercial Court on Monday.

Rusnak served five years in prison after he pleaded guilty to a number of counts of fraud in an American court in 2002.

Sharon Daly, a solicitor acting for AIB, said in an affidavit that the policies covered the bank, and its US subsidiary Allfirst, for losses arising from dishonest and fraudulent acts of employees.

Rusnak was a proprietary currency/foreign exchange trader at Allfirst, which suffered losses periodically, something he sought to conceal by causing false assets to be entered into the books of record of Alfirst, Ms Daly said.

When the extent of those false assets became too large, he covered up portions of them through unauthorised third-party funding, she said.

AIB spent considerable time and money investigating the fraud, and its costs for that alone came to $13 million, excluding litigation in New York for fraudulent concealment against Rusnak’s counterparties, Bank of America and Citibank, she said.

The proceedings against Bank of America were settled in 2012 and against Citibank in 2016. The insurance claim had been held in abeyance pending those proceedings, she said.

On November 30th, the insurers’ solicitors formally declined coverage.

As a result, AIB brought proceedings that require the court to decide, in circumstances where the bank suffered losses of about €700 million, whether the policies were responsive to any of those losses, she said.