The legal battle between Chase Manhattan Bank and angry insurance underwriters over what the insurers view as a bad business arrangement has just spread to another continent.
And many financial experts on both sides of the Pond say this is a step toward the ultimate end for many insurance-backed film finance schemes.
“The overall implication is that it will be harder for independent producers to get their films financed,” one top financial source claimed. “Banks don’t like getting sued.”
With one Oct. 19 lawsuit filed by insurance giant AXA pending against it in New York Superior Court (Daily Variety, Nov. 8) and another just filed in London against Chase and U.K. broker C.E. Heath by a group of 12 underwriters led by HIH, Chase Manhattan is suddenly fighting a war on two fronts.
Chase has fought back by filing a $2 million counterclaim against the Gotham-based AXA suit on Dec. 10.
In it, Chase refutes AXA’s claim that it misrepresented AXA’s involvement in a five-picture deal, one of which was the Barry Sonnenfeld-produced “The Crew” at Disney.
“With regard to the New York action, … Chase … believes there is no validity to any of the claims made by the plaintiffs against … Chase … in either the New York or London actions,” a Chase rep said in a statement.
In an effort to show how AXA may have wanted to exit the original deal, Chase also is attempting to put into perspective how thin AXA is spread in the movie business:
In the Dec. 10 countersuit, Chase points to AXA’s $200 million involvement in Village Roadshow Ltd., its $100 million investment in Destination Films, and the $100 million insured portfolio with Imperial Bank and U.K.-based Flashpoint, which the bank alleges has between $56 million and $90 million against it in claims.
In its reply, it is Chase’s contention that AXA is guilty of “tortious interference with contractual and business relations,” and “anticipatory breach of contract” — in other words, Chase now believes it was never AXA’s intention to make good on the original deal.
Despite such Sturm und Drang, insurance-backed film producers question the significance of the new suit, in which HIH (which is reinsured by AXA) wants the Queen’s Bench Division of the Commercial Court to cancel its Phoenix slate of pictures because of “material misrepresentation” — a criticism similar to what AXA claimed about Chase in New York.
One top production source countered that this will affect “not in the least” the volume of insurance-backed arrangements already in existence, especially since material parts of the London suit are already being settled.
The Nov. 25 London writ was triggered by a $20 million claim lodged against Chase for “The Mirror Has Two Faces,” with another claim about to be lodged against “The People Vs. Larry Flynt” at the end of this month.
Details of the writ were not available, since it is effectively a statement of intent to file more details within 28 days.
“Heath categorically denies that insurers have any right to void the insurance arranged for the Phoenix facility,” said Randy Weston, a director of the Heath Group. “In support of this, the leading underwriter and two further insurers have agreed to honor their obligations, which account for some 60% of the amount due under the facility.”
Per experts, the parties paying up are insurers XL Re., Sun Alliance and NIG Skandia.
Chase confirmed in a statement that it had been sued in London by 10insurance companies “seeking a declaratory judgment voiding credit enhancement insurance policies held by Chase, as collateral for loans made to finance the production of five theatrical feature films.”
And that’s the chilling effect for the future, some observers contend:
“If the collateral is in question, how will they get a group of banks to underwrite bigger deals?” asked one financial source.
Lead London plaintiff HIH did not respond to several calls to its London and Sydney branches.