Porch files lawsuit against China Construction Bank in US for reinsurance fraud losses

Porch Group, a U.S. insurance and home inspection software provider, has filed a lawsuit against China Construction Bank Corp (CCB), alleging that the Chinese lender played a role in a “massive fraud” that resulted in significant losses for Porch.

According to the complaint filed in the U.S. Southern District Court of New York, Porch and its units accused CCB of colluding with employees of the now bankrupt Israeli insurance firm Vesttoo to issue fake reinsurance letters of credit. These fake letters of credit were used to guarantee insurance companies access to reinsurance funds, leading Porch and its unit, the Homeowners of America Insurance Co, to pay tens of millions of dollars in premiums for non-existent reinsurance.

The fraud came to light in July 2023 when it was discovered that certain letters of credit supporting Vesttoo’s reinsurance transactions were fake. Porch stated that Homeowners of America suffered significant losses due to a false $300 million letter of credit from CCB, which rendered their reinsurance facility worthless.

As a result of the scandal, Homeowners of America had to pay out $80 million to cover insurance claims that should have been reinsured, while Porch had to provide $57 million to stabilize the unit. The company’s stock price also took a hit following the revelation of the fraud.

Porch’s complaint indicated that they would seek monetary damages in an amount to be determined at trial. CCB has not yet responded to the allegations made by Porch.