XL charged with breach of contract - Analyst Blog
December 31 2012 - 8:00AM
Zacks
Last week, California-based automaker – Fisker Automotive, filed
a lawsuit against XL Group Plc (XL) for the
infringement of the pledged insurance coverage.
XL Insurance America Inc.’s policy contract with Fisker compels
it to pay a maximum $100 million of coverage for losses incurred
from catastrophes including hurricanes like Sandy. However, Fisker
alleged that despite putting in a timely claim recently, XL denied
the automaker any reimbursements as previously agreed in the mutual
contract. Hence, Fisker decided to sue XL and filed a complaint in
the New York Supreme Court.
In October this year, Super Storm Sandy supposedly caused a $33
million loss to Fisker by destroying 338 of its plug-in hybrid
electric cars (Karma) at its shipping facility in Port Newark, New
Jersey. The newly designed and manufactured cars were waiting to be
traded to different parts of the country. However, the flood is
said to have submerged the vehicles in more than 5 feet of
seawater.
The conflict between the two companies is said to have started
on two fronts – firstly whether the cars were at all awaiting
shipment and secondly, regarding the terms of the contract.
Conversely, XL defends itself believing that prior to the breach of
the contract, Fisker faced a number of hindrances with
the launch of Karma from its financial operations and quality
control. Now, with the advent of Sandy, it said the company faced
even more problems and ultimately blamed XL for not paying the
insurance coverage. If Fisker is proved to be true, it might help
Fisker recover its losses.
Fisker alleged XL violated the deal and is expecting a court
order on its behalf that would mitigate its losses incurred from
Sandy as also compensate for breaking the contract by XL along with
other remedies.
If proved guilty, the litigation issues on XL may pull down
investor confidence. Moreover, XL previously had provided its
pre-tax loss estimate from Sandy to be $ 350 million. This loss
along with the compensation to Fisker, may hamper the financials
for XL.
Overall, Superstorm Sandy is projected to have damaged more than
10000 vehicles at the New Jersey facility, many of which belonged
to Toyota Motor Corporation (TM). The industry
loss from Sandy is expected to be more than $25 billion and hence,
poses to be the second most expensive U.S. catastrophe after
Hurricane Katrina.
XL shares deteriorated 10 cents to $24.69 on the New York Stock
Exchange on the date the case was filed. XL reported earnings of 61
cents in the third quarter of 2012. The Zacks Consensus Estimate
for the fourth quarter of 2012 is a loss of 32 cents representing a
year-over-year decline of 29.9%.
XL currently holds a Zacks #3 Rank translating into a short tern
Hold. Other insurers like Axis Capital Holdings
Limited (AXS) and ACE Limited (ACE) also
share the same Zacks Rank.
ACE LIMITED (ACE): Free Stock Analysis Report
AXIS CAP HLDGS (AXS): Free Stock Analysis Report
TOYOTA MOTOR CP (TM): Free Stock Analysis Report
XL GROUP PLC (XL): Free Stock Analysis Report
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