Last week, California-based automaker - Fisker Automotive,
filed a lawsuit against
XL Group Plc
) 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
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
Overall, Superstorm Sandy is projected to have damaged more
than 10000 vehicles at the New Jersey facility, many of which
Toyota Motor Corporation
). 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
) also share the same Zacks Rank.
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XL GROUP PLC (XL): Free Stock Analysis Report
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