The 10 Biggest Berkshire Hathaway Lawsuits in Company History
Berkshire Hathaway doesn’t have the best record when it comes to staying out of trouble. This includes the company, plus all of its direct affiliations, constantly finding themselves embroiled in that usually include lawsuits that have been filed against them. The dollar amount of penalties Hathaway has racked up against them is just a fragment of the number of financial liabilities this company has been having to answer to ever since it was originally founded in 1839 by Oliver Chace. Oliver Chace was a businessman from New England that owned a number of textile manufacturing companies among its six states. In 1839, he reorganized all of his companies into one entity, namely Valley Falls Company. Originally, this company was headquartered in Cumberland, Rhode Island, but as of 1929, it merged with the Berkshire Manufacturing Company out of Adams, Massachusetts to become Berkshire Fine Spinning Associates. Then, in 1955, it merged with Hathaway Manufacturing Company out of New Bedford, Massachusetts to become Berkshire Hathaway. Shortly after the merger, an investor known as Warren Buffett began buying stocks in 1962 that ultimately saw him take control of the entire company in 1965. He attempted to buy stocks from Malcolm Chace, Jr., who was a descendent of the late Oliver Chace but was denied. Instead, Chace remained on the board of directors.
Berkshire Hathaway, now under Warren Buffett’s control, began to expand its business interests into the insurance industry as of 1967. The first venture was purchasing the National Indemnity Company. In January 1996, Berkshire Hathaway acquired the Government Employees Insurance Company (GEICO). It was already buying stakes into GEICO since the late 1970s that ultimately saw this takeover This formed the core of its insurance operations and has become a major source of capital for Berkshire Hathaway and its investments. By the time 1985 came around, the textile operations of Berkshire Hathaway came to an end, thus shutting down the very core that sprang up Oliver Chace’s dream back in 1839. When interviewed in 2010, Warren Buffett admitted investing in Berkshire Hathaway at the time was the biggest investment mistake he ever made. He has also claimed instead of completely buying out Berkshire Hathaway, he poured investments into insurance businesses, which ultimately became the full replacement of Berkshire Hathaway’s direction as a business.
Now in the insurance game, Berkshire Hathaway has acquired approximately seventy domestic and foreign insurance companies, including General Re, which it obtained in December 1998. It is the largest reinsurer in the world based on net premiums written and capital. All of Berkshire’s major insurance subsidiaries are rated AAA by Standard & Poor’s Corporation, which is the highest financial strength rating assigned. Berkshire Hathaway is also rated A++ by A.M. Best, which is deemed superior with respect to the financial condition and operating performance. In addition to this, Berkshire Hathaway Assurance was created as a government bond insurance company to insure municipal and state bonds, which are issued by local governments to finance public works projects such as hospitals, roads, schools, and sewer systems. In addition to insurance companies, Berkshire Hathaway also have controlling investments in energy companies, flight services, media companies, product manufacturers, and real estate. The amount of assets Berkshire Hathaway owns is extensive, so it is expected to see the company’s name appear in at least a few lawsuits.
10. Mason Kirby
According to Financial Post, David Sokol and the rest of the Berkshire Hathaway Inc’s board of directors were sued by the shareholder, Mason Kirby, over a trading scandal that ultimately saw Sokol lose his job. Up until that point, Sokol was expected to take Warren Buffett’s place as chief executive officer (CEO). However, once evidence revealed his purchase of the Lubrizol Corp. shares before pitching the company to Buffett as a potential acquisition, Sokol resigned from his position. The lawsuit was filed in Delaware’s Chancery Court by Mason Kirby, who called for the disgorgement of Sokol’s unlawful investment actions. Sokol’s unethical practice resulted in Kirby seeking legal action as a means to recover from the damage done to his own company’s reputation. Sokol was chaired with Berkshire’s Mid-American Energy Unit and oversaw Kirby’s NetJets Inc operations. The financials involved was a $9 billion USD acquisition that saw $3 million USD personally go to Sokol’s own pocket illegally.
9. Salomon Brothers
In 1987, Berkshire Hathaway acquired a twelve percent interest in the investment bank of Salomon Brothers. When news came out in 1990 about a rogue trader submitting bids in excess of the Treasury’s rules and that then-CEO, John Gutfreund, had failed to discipline the trader. The United States government threatened to come down hard on Salomon, and Warren Buffett stepped into the breach. He intervened with the Treasury department to quickly and directly reverse a ban on Salomon bidding in government bond auctions. This is a move that would have crippled the investment bank. Buffett also stepped in to run the bank for a time. There was a $290 million fine levied against Salomon Brothers, but Berkshire Hathaway saw its stake more than double when Salomon was bought out by Travelers in 1997. In addition to this, Berkshire Hathaway attracted controversy from its former charitable donation practices as it felt it was not appropriate for a company to direct fundraising efforts to personal pet causes among the board of directors. Buffett established a system where shareholders of the company allocate their proportionate share to whatever charitable organization they saw fit. Some of the shareholders chose to have their contributions sent to pro-choice organizations, which sparked outrage among some Conservatives, which resulted in negative press release campaigns, boycotts, and lawsuits against many Berkshire Hathaway businesses. In order to put an end to the controversy, Buffett ended the charitable giving campaign.
8. Shareholders vs. American International Group Inc. (AIG) (September 2013)
According to Reuters, U.S. judge, Deborah Batts, approved a $72 million settlement that had shareholders claim Berkshire Hathaway’s BRKa.N General Re Corp engaged in a shady deal that helped inflate AIG’s financial reserves. After a nine-year litigation battle that had AIG’s accounting practices in question, the overall amount owing the court-approved settlement sat at over $1 billion USD. This particular legal battle is tied with the additional Berkshire Hathaway-owned and operated AIG businesses that have faced one lawsuit after another due to practices carried out that have been in question for years.
This lawsuit was led by two Ohio state pension funds that accused AIG and Gen Re violated federal securities laws through a $500 million USD reinsurance transaction in 2000 that boosted AIG’s loss reserves, therefore artificially increasing its share price. These events took place prior to AIG receiving $182 billion USD in taxpayer bailouts during the financial crisis of 2008 and 2009. When the settlement was reached, Gen Re refused to admit they were in the wrong with their business practices. This entire matter was brought about when the company belonging to Berkshire Hathaway was facing fraud charges, plus additional criminal offenses, that saw one of the executives convicted in 2008. In 2011, the federal appeals court reversed the decision, but the legal battle revolving around the integrity of AIG and Gen Re continued.
In the meantime, AIG paid out $1.6 billion USD to resolve various regulatory investigations regarding accounting fraud, as well as $16.5 million to resolve related legal claims by the SEC. There are still civil fraud lawsuits pending as two men from AIG are having to answer to New York Attorney General, Eric Schneiderman. As for the 2013 settlement, all of the AIG shareholders who purchased stock between October 1999 to April 2005, as well as stockholders of HSB Group Inc when AIG bought them in 2000. HSB has since become Munich Reinsurance Co., which is technically owned by Berkshire Hathaway. In addition to the $72 million USD settlement of this particular court case, Judge Batts also ordered Berkshire Hathaway’s AIG and Gen Re companies to pay the $6.5 million USD to cover the legal fees the plaintiffs owe the law firms of Labaton Sucharow and Hahn Loeser & Parks.
7. Securities and Exchange Commission (SEC) vs. AIG (2006-2010)
Tied to, but decided separately as a separate court case, a lawsuit was filed by shareholders against Berkshire Hathaway’s AIG and Gen Re companies. In 2006, Berkshire Hathaway’s General Red cooperated with AIG in the engagement of finite reinsurance, which is a practice insurance companies use to spread the risk they assume in writing insurance policies. This accounting gimmick allowed AIG to buff the appearance of its financial reports for a period of time. When the U.S. government pursued AIG at the time, neither Berkshire Hathaway nor Hank Greenburg escape without having to answer for themselves as well. By 2010, Hathaway was ordered to pay a $92.2 million settlement and promised to make changes to corporate governance practices. According to NBC News, the criminal activities that were carried out by four executives from Berkshire Hathaway’s Gen Re firm were indicted by a court-appointed jury.
6. AIG (April 2013)
Also tied to, but treated as a separate case settlement, the shareholders challenged AIG’s CEO, Maurice Greenberg, his two companies, plus three additional executives in what later saw an April 2013 court decision. U.S. judge, Deborah Batts approved a $115 million USD settlement Berkshire Hathaway’s AIG was required to payout.
5. California Controversy
On June 8, 2017, Berkshire Hathaway made an announcement that it had reached an undisclosed settlement with California’s insurance regulators to allow its Applied Underwriters unit to sell a revised version of its controversial compensation insurance policies for workers in the state. Then, come 2019, Berkshire Hathaway sold Applied Underwriters for $920 million USD back to its founder, Steve Menzies. At first, the state of California regulators objected to this sale as they felt this was a violation of making such a sale without the required approval from the California Department of Insurance.
Applied Underwriters had one of its worker compensation insurers relocated from California into New Mexico in 2019, which is where the deal between it and Berkshire Hathaway was signed. The sale between the two companies was approved by Texas regulators, much to California’s objections. This isn’t the first time Berkshire Hathaway has attempted to dodge regulations laid out by the California insurance regulators, which is why there was a 2017 settlement, to begin with. The matter was brought up in 2016 when Shasta Linen challenged Berkshire Hathaway’s Applied Underwriters policies. The regulations were put in place to protect small companies like Shasta Linen from insurance agencies that seek to unfairly take advantage of its market power. While it received the most amount of public attention at the time, Shasta Linen wasn’t the only small business that filed complaints against Berkshire Hathaway’s Applied Underwriters company. This resulted in the state of California’s insurance regulators getting involved that ultimately led to an agreement Warren Buffett’s company honored for only two years. In the eyes of the California Department of Insurance, the manner in which Berkshire Hathaway chose to do business where Applied Underwriters are concerned not only shows blatant disregard for the law, as well as for the people.
4. AIG vs. Pricewaterhouse Coopers (PWC.UL)
A $728 million USD settlement was reached with AIG after U.S. judge, Deborah Batts made her final decision, as well as a $97.5 million USD accord with the accounting firm known as Pricewaterhouse Coopers. According to Insurance Journal, the lawsuit was first filed in 2004, which later expanded in 2005. AIG, whose parent company is Berkshire Hathaway, was sued by Ohio on behalf of the state’s three pension funds, namely the Employee Retirement System, State Teachers Retirement System, and Ohio Police & Fire Pension Fund. This lawsuit also revolves around the AIG shareholder lawsuit from October 1999 to April 2005. Between the misinformation issues and a number of other unethical practices carried out by AIG, resulted in the $97.5 million USD settlement. The pension funds that were victimized by AIG’s
3. M&A Fraud
ASCO Insurance Services, Inc. found themselves facing a $756 million USD lawsuit by Warren Buffett’s Berkshire Hathaway. The fight revolved around Wilhelm Schulz GmbH, a German piping component maker, committing fraud by concealing truths about its financial situation when it was acquired in 2017. The Berkshire unit, Precision Castparts Corp, sued the law firm, Jones Day, who represented Schulz in the $940 million USD acquisition. There has been limited public information shared about the case as legal battles continue between the plaintiff and the defendant over the presentation of documents and financial information.
2. Volkswagen
Currently, there is a battle ensuing between Warren Buffett’s Berkshire Hathaway against the German auto giant, Volkswagen when a settlement deal was rejected in relation to the headlined emissions scandal. According to an investor’s publicized document, in January 2021, Volkswagen took out a first excess liability insurance policy with Berkshire’s internationally-run insurance unit. This policy holds Berkshire Hathaway liable for up to $59 million USD should a claim exceed Volkswagen’s $29.5 million USD’s worth of coverage from Zurich, the company’s primary insurer. For years, Volkswagen has been in talks with the insurers to determine how much is owed under the various insurance policies following its emissions fiasco. This has since reached a settlement with insurers, including AIG and Allianz, that will see a total payout of $305.94 million USD, minus payments that have already been made or scheduled, to the German vehicle manufacturer. This settlement, however, has been rejected by Berkshire Hathaway, which now has Volkswagen seeking to further enforce Berkshire’s insurance obligations.
1. AIG Offloads Asbestos Liability
On April 20, 2011, AIG approved a $3.5 billion USD transfer of asbestos liability to Berkshire Hathaway against the insurer’s Chartis business. AIG paid $1.65 billion to its parent company, Berkshire, in exchange for the liability coverage. Previously, Berkshire agreed to this type of agreement with other companies, including Lloyd’s of London and CNA Financial Corp. According to the Insurance Information Institute, the insurers paid over $30 billion USD in asbestos liability claims between 1991 and 2008. Due to the nature of liability to continually change, consulting a qualified mesothelioma lawyer before undertaking an asbestos-related injury claim with an insurer is highly recommended. On occasion, the original manufacturer of asbestos products may be owned by another company, which can make the litigation process confusing. Due to the long latency period associated with asbestos-related diseases, most victims won’t display symptoms until decades after being exposed to asbestos. Many companies and insurers have been inundated by injury claims from employees because of the latency period. This is described as a long-tail insurance risk by insurers, primarily because claims are usually filed years after the original policy is underwritten. The Berkshire unit, National Indemnity, was ordered by the court to pay out $65 billion USD in insurance claims by the end of 2011.
