Insurance broker Aon Plc is facing a lawsuit over the collapse of Israeli insurance startup Vesttoo Ltd., which once had a valuation of $1 billion before it went bankrupt. Vesttoo filed for Chapter 11 bankruptcy in 2023 and later liquidated after revealing that key documents supporting its business were falsified.
The lawsuit, filed in Delaware bankruptcy court, is led by Lawrence Hirsh, the trustee tasked with recovering money for Vesttoo’s creditors. It claims Aon ignored warning signs about the authenticity of letters of credit and encouraged business dealings with Vesttoo despite having internal concerns about the company’s operations. According to the complaint, Aon was working closely with Vesttoo to grow its Collateral Protection Insurance product, which aims to protect lenders from losses if a borrower’s assets don’t cover their debts.
Aon pushed back strongly in a statement, calling the lawsuit an unfair attempt to shift blame for Vesttoo’s fraudulent actions onto the insurance broker. The company said Vesttoo itself admitted in an internal report that its executives and others were responsible for the fraud and deliberately misled Aon and others. Aon plans to defend itself vigorously and says it continues to focus on recovering funds for its clients and improving industry standards.
Vesttoo’s product, Collateral Protection Insurance, was designed for startups with mostly intellectual property assets. It relied on the accurate valuation of that IP and required reinsurers to ultimately absorb the insurance risk. The complaint notes that for the riskiest deals, Aon depended heavily on Vesttoo’s ability to secure reinsurance through its network of capital market investors.
The lawsuit also points fingers at China Construction Bank Corp., accusing a former employee of colluding with Vesttoo insiders to create fake letters of credit used by Vesttoo. Vesttoo’s bankruptcy followed a temporary restraining order by Aon’s subsidiary White Rock Insurance, which froze most of Vesttoo’s assets. White Rock also flagged certain letters of credit to Bermuda’s financial regulator as likely fraudulent back in 2023 and has filed a civil suit against China Construction Bank.
China Construction Bank has denied the allegations, stating that the implicated former employee, described as low-level and based in Hong Kong, had no authority to issue letters of credit worth billions.
The Vesttoo case highlights how risky and complicated the insurance market can be when dealing with startups and innovative products. It also shows how important it is for financial institutions to thoroughly verify the paperwork backing these deals. For now, the courtroom will decide where the true responsibility lies as Vesttoo’s bankruptcy estate seeks to recover losses.