Shockwaves went through the reinsurance industry when reports surfaced in July 2023 that employees of the Israeli insurtech Vesttoo Ltd. (Vesttoo) allegedly forged close to USD 3.2 billion in clean irrevocable letters of credit (LCs) to support reinsurance collateral obligations that Vesttoo arranged. Within weeks, Vesttoo filed for bankruptcy in Delaware.
On 13 August 2025, the Vesttoo bankruptcy trustee filed suit against the participants in the fraud alleging that 88 forged LCs and two forged collateral letters amounting to USD 2.8 billion were purportedly issued by China Construction Bank Corporation (CCBC), one of the world’s largest banks, through its New York branch, to support Vesttoo reinsurance arrangements. Under the doctrine of respondeat superior, CCBC and its Asian Subsidiary (CCB Asia) were also named as defendants.
The trustee’s complaint, as well as other complaints filed by injured reinsurers, allege that Chun-Yin Lam (Lam), a Hong Kong employee of CCB Asia, fraudulently authenticated the forged LCs as issued by CCBC’s New York branch (CCBNY). CCBNY is on the National Association of Insurance Commissioners’ (NAIC) list of banks qualified to issue LCs for reinsurance collateral purposes; CCBC Asia is not. See 74-page complaint in In re Vesttoo Ltd. bankruptcy filed by the Liquidating Trustee of Vesttoo against Aon PLC and its affiliates, CCBC, CCB Asia, Yu Po Holdings, Ltd., Lam and several other individuals, Case No. 23-111160 (MFW) (Bankr. Del., Aug. 13, 2025) (Aon Suit).
Other Complaints
Numerous other complaints have been filed by reinsurers against CCBC, CCBNY and CCB Asia for the actions of Lam, the CCB Asia employee believed to have fraudulently authenticated the CCBC reinsurance LCs. On 6 August 2025, the United States District Court for the Southern District of New York (SDNY) dismissed claims brought by two reinsurer groups against CCBC and CCBNY, but allowed limited discovery on jurisdictional motion to dismiss issues against CCB Asia. The two opinions were part of the consolidated case of In Re China Construction Bank Corp., No. 24. Civ. 3591 (VM) (SDNY). A third case consolidated and pending before the same court, Clear Blue Insurance Company, et al. v. CCBC, CCBNY and CCB Asia, contains similar claims, issues, and motions to dismiss as the two already decided.
One reinsurer opinion (the Incline Opinion) deals with claims by Incline Casualty Company (Incline) and Redpoint County Mutual Insurance Company (Redpoint) alleging that CCBC, CCBNY, and CCB Asia failed to honor letters of credit issued in their favor, thereby denying Incline and Redpoint access to reinsurance funds to cover their insurance risk obligations, a UCC Section 5-108 (Issuer’s Rights and Obligations) claim. The reinsurers also claimed under various theories such as respondeat superior, holding out and negligent supervision of the CCB Asia manager Lam, that CCBC, CCBNY and CCB Asia were liable for the damages caused by the fraudulently issued reinsurance LCs.
The "Other Opinion"
The other opinion (the HOA Opinion) deals with claims by reinsurers Homeowners of America Insurance Company (HOA), Homeowners of America Holding Corporation (HOAHC), Porch.com, Inc. (Porch), and Porch Group, Inc. (Porch Group) alleging fraud, negligent supervision, and negligence by CCBC, CCBNY, and CCB Asia, for Lam’s participation in the reinsurance fraud by authenticating fraudulent CCBC and CCBNY LCs to insurance companies and in so doing, falsely guaranteeing access to reinsurance funds to cover the companies’ insurance risk obligations.
In their breach of contract claim, Incline and Redpoint asserted that CCBC/CCBNY breached the LCs when it refused to honor the LCs. CCBC/CCBNY argued that Incline and Redpoint have not sufficiently alleged the existence of an agreement because the LCs bear forged signatures and Relationship Manager Lam lacked both actual and apparent authority to issue them. The court determined it “cannot reasonably infer that Lam had actual authority to issue the [LCs] at issue here … [and] cannot hold CCBC or CCBNY liable for breach of contract on the basis that these entities granted Lam actual authority to issue the [LCs].”
NY UCC 5-108 Tie In
Incline and Redpoint also alleged that the bank violated New York UCC Sections 5-108 and 5-109 (Fraud and Forgery) by refusing to honor the LCs when CCBC and CCBNY refused sight drafts for payment. CCBC and CCBNY disputed this, contending that they had no obligation to comply with the stated UCC provisions because they denied having issued the LCs at the time of presentment and because Incline and Redpoint knew the LCs were fraudulent when they submitted the sight drafts. The court determined that for UCC to apply, it must first establish that the bank made a definite undertaking to honor the presentments. The court stated that “[Incline and Redpoint’s] failure to allege that Lam had authority to bind CCBNY to the [LCs] is fatal to their claim that CCBNY was obligated to comply with Section 5-108 upon presentment of the sight drafts. As a result, [Incline and Redpoint’s] UCC claims against [the banks] are dismissed”.
In their fraud claim against CCBC/CCBNY, HOA and Porch maintained that CCBC/CCBNY was “vicariously liable for Lam’s and other ‘CCB’ employees' conduct in perpetrating the alleged fraud.” HOA and Porch alleged that Lam had both actual and apparent authority to issue the LCs on behalf of CCBC/CCBNY or otherwise that CCBC/CCBNY was liable for Lam's actions under the doctrine of respondeat superior. For each contention, the court determined that HOA and Porch failed “to plead sufficient facts to hold CCBC/CCBNY liable for Lam's fraudulent conduct”.
The Need for Due Diligence
Both opinions illustrate the need for due diligence on, and advice, confirmation or trusted authentication of, foreign bank-issued LCs, especially paper-based LCs not issued through SWIFT and the importance of callbacks to LC departments of issuing banks to ascertain the legitimacy of its instruments. The alternative is to reject use of paper-based foreign LCs. For large foreign issued LCs, beneficiaries should seek review from experienced LC personnel of their own banks and attorneys well versed in international LC law and practice.
A decision in Clear Blue Insurance Company, the third related case pending before the SDNY court is expected in the coming weeks.
The Aon Suit
The Aon Suit filed in the Delaware bankruptcy court against Aon, CCBC, CCB Asia, and others was filed only days after the Incline and HOA Opinions were issued by the SDNY court. The Aon Suit is mainly aimed at Aon for allegedly inflating insurable IP property values for Vesttoo insurance arrangements. Although the Aon Suit claims CCBC is liable largely on the basis of respondeat superior and Lam’s apparent and actual authority to act for CCBC, the complaint also alleges that CCBC personnel in New York said that several of the forged CCBC LCs were issued by CCBC.
It will be interesting to see if additional factual allegations in New York or the Delaware court’s views on the facts pled prove to be enough to overcome a motion to dismiss and the Incline and HOA Opinions dismissing CCBC.
(Carter Klein, Of Counsel at Jenner & Block LLP, contributed to this Update)
