KB Home Sues Insurer to Cover Trading Losses

KB Home sued to force its insurer to cover at least $11 million in losses from unauthorized trading by an employee at the third-largest U.S. home builder’s mortgage unit.

KB Home, which recently changed its name from Kaufman & Broad, claims National Union Fire Insurance Co. of Pittsburgh should pay on the comprehensive dishonesty, disappearance and destruction policy it issued to the home builder prior to the discovery of the trades in August 1999.

Los Angeles-based KB Home claims in its suit that National Union instead has offered to pay less than 2% of the $11-million coverage policy. A call to the insurer was not returned.

National Union has “relied on untenable factual and legal positions” to deny coverage for the loss, according to the lawsuit, filed Friday in Los Angeles County Superior Court. The complaint seeks a court order to force National Union to honor the policy, as well as unspecified punitive damages.

KB Home said it learned in August 1999 that an employee in its mortgage trading unit lost about $18 million through unauthorized trades.

KB Home said it submitted its proof of loss to National Union in April 2000 and has repeatedly been denied coverage.

The unauthorized trading forced KB Home in 1999 to reduce third-quarter earnings by 24 cents.

KB Home shares, which hit a 52-week high of $39.72 on Monday, rose 79 cents to close at $39.05 on the New York Stock Exchange.