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Oak Industries' Insurer Sues to Void Coverage

April 09, 1985|BILL RITTER | San Diego County Business Editor

SAN DIEGO — The insurance company that protected Oak Industries' officers and directors from individual liability has filed a civil lawsuit in federal court here asking that its policy be voided because of misrepresentations by Oak management.

The lawsuit makes uncertain the status of a proposed settlement between Oak and the plaintiffs in a class-action shareholders lawsuit.

The settlement, calling for the financially ailing Oak to pay $13.25 million and for the insurance carrier to pay between $30 million and $40 million, was tentatively reached last week. But questions about the liability of the individual officers and directors postponed an announcement of the settlement, and the suit by the insurance company further clouds the status.

Oak officials would not comment Monday on the suit, filed by Federal Insurance Co., a subsidiary of Chubb Corp. of Warren, N.J.

The carrier's suit claims that, between January and October, 1982, Oak "disseminated untrue statements" regarding deficiencies with its TC-56 cable-television converters. In addition, the suit maintains that Oak's plans to begin direct-broadcast-by-satellite service as well as Oak's competitive posture in the subscription-television industry were "highly speculative (and) unrealistic."

Claims Income Inflated

The suit also alleges that Oak's pretax income in the first half of 1982 was "materially overstated by . . . at least $23 million due to Oak's improper deferral or capitalization of . . . development costs."

Had Federal Insurance known Oak's true condition, "it would not have issued the policy" or would have issued it at a "substantially higher premium," the suit claims.

Oak has since revised downward its income from previous years.

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