Kingsway Sues US$500 Million Against “Bad Acquisition”

Kingsway Financial Services Inc. (TSX: KFS) has launched a lawsuit against the former directors, auditors and actuaries of a recent U.S. acquisition, American Country Holdings Inc. Kingsway alleges that the directors, along with Pricewaterhouse Coopers LLP and Miller, Herbers, Lehman & Associates Inc., understated the reserves of American Country’s subsidiary American Country Insurance Co. which specializes in underwriting taxicabs in Chicago, Illinois.

The Kingsway court filing, which lists five counts in the suit each valued at US$100 million for compensatory damages, refers to a reserve deficiency of US$57 million incurred over a four year period from 1998 to end 2001, prior to the acquisition date in the Spring of 2002. Kingsway acquired American Country for just over US$40 million, presumably the book value of the operation. A company source confirms that the value of assets held by American Country had allegedly been misstated. The source says the increase in liabilities incurred by Kingsway after the acquisition was in the region of US$26 million. Kingsway says the company has not experienced any material adverse development from American Country’s reserve position and accounted for the deficiency in its 2002 results.