Allstate Insurance Sued Over Esurance Purchase Terms

White Mountains Insurance Group filed a lawsuit against Allstate this week claiming the nation’s second-largest insurance company broke contractual obligations when it bought Esurance in a billion-dollar sale last October.

In the federal lawsuit, filed Monday with the U.S. District Court for the Southern District of New York, White Mountains alleges that Allstate breached its contract by improperly adjusting the final purchase price.

According to court documents, the agreement was that Allstate would pay $700 million plus an additional amount to acquire Esurance.

A clause in Allstate’s purchasing contract required the insurer to adhere to a “two-stage process” that would determine the additional payment made to White Mountains, which would be based on the book value of Esurance. The initial payment would be determined by White Mountains’ assessment of the book value and be made upon the closing of the deal, which was on Oct. 7 of last year. After that closing date, the contract required a “Purchase Price Adjustment” that would settle the difference between the estimate and actual book value.

White Mountains claims that Allstate was almost five months late in auditing its balance sheet for the purchase, missing a “firm 90-day deadline after the closing.”

Allstate then proposed to cut $5.2 million from the book value based on an unrelated settlement Esurance had to pay in April 2012, which was technically after the 90-day deadline.

“It is improper for Allstate to adjust the [Oct. 7] tangible book value, and thus change the purchase price, based on events that occurred long after [Oct. 7],” White Mountains stated in the suit. “Had Allstate met the contractual deadline, the $5.2 million payment in April 2012 would not and could not have been included.”

As a top rated auto insurance company, Allstate holds the second-largest market share in the auto coverage industry with about 10 percent, according to the most recent data from the National Association of Insurance Commissioners. GEICO and Progressive closely trail in market share with about 9 percent and 8 percent, respectively.

Judge George B. Daniels is presiding over the case, named White Mountains Holdings (Luxembourg) S.a.r.l. vs. The Allstate Corp.

About Ben Zitney
Benjamin Zitney has been covering the auto insurance industry for the past 2.5 years. Before coming to Online Auto Insurance News, he produced an extensive company history of the 30-year-old California Joint Powers Insurance Authority and worked at the Cal State Long Beach Daily Forty-Niner as a reporter, copy editor and news editor.

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