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Freddie Mac has reached a settlement with underwriters at Lloyd's of London, resolving the mortgage lender’s $32 million insurance dispute stemming from federal probes and lawsuits related to its 2008 collapse during the global financial crisis. In a joint stipulation and motion to dismiss filed Wednesday, Freddie Mac and the underwriters asked a D.C. federal court to dismiss the case with prejudice, with each party covering its own legal fees. The settlement marks the final resolution of Freddie Mac’s claims against all four insurers initially named in the suit.

Final Chapter in a Long-Running Dispute

Freddie Mac stated in a separate status report that the case is ready for closure following the settlement. The court had already dismissed with prejudice all claims against Houston Casualty Co., another insurer involved, according to a January 16 order. The case stemmed from Freddie Mac’s collapse during the financial crisis, which led to the U.S. government placing the lender under conservatorship in September 2008.

Background of the Dispute

Amid the crisis, Freddie Mac faced securities class actions and federal investigations, including one by the U.S. Securities and Exchange Commission (SEC). Investors alleged that the lender and its directors misrepresented its exposure to subprime loans. The SEC further investigated claims of misleading disclosures, subpoenaing 36 employees for documents and testimony. Freddie Mac’s directors and officers (D&O) coverage tower initially provided $85 million in policy limits to cover the lender’s defense costs. However, disputes arose over unreimbursed expenses, leading Freddie Mac to sue four excess insurers—Twin City Fire Insurance Co., Axis Reinsurance Co., Houston Casualty, and Lloyd’s underwriters—in June 2023 for $32 million.

Settlements with Insurers

The settlement with Lloyd’s follows resolutions with the other insurers: Twin City Fire Insurance Co.: Dismissed in May 2023 after paying $7.3 million toward Freddie Mac’s defense. Axis Reinsurance Co.: Agreed in October 2023 to pay its full $10 million policy limit. Houston Casualty Co.: Dismissed after a January 2024 settlement.

Legal Representation

Freddie Mac was represented by Matthew J. Schlesinger and Colin P. Watson of Covington & Burling LLP. The underwriters were represented by John R. Gerstein of Clyde & Co. LLP. Houston Casualty was represented by Joseph A. Bailey III of Werner Ahari Mangel LLP.