Market Regulation | Business Litigation | Society

Introduction: Flawed AI Valuation Models

In August 2025, Aon Plc, one of the world’s largest insurance brokers, was hit with a major lawsuit in Delaware that alleges it played a critical role in promoting a risky product known as Collateral Protection Insurance (CPI). The suit claims the CPI program, which allowed high-growth firms to leverage intellectual property as loan collateral, was based on flawed valuations and fraudulent letters of credit (LOCs).

The plaintiff, the Vesttoo Creditors Liquidating Trust, argues that these practices helped precipitate the collapse of vesttoo, the insurtech startup, and left insurers, reinsurers, and investors with substantial losses. Aon strongly denies the claims, saying it too was misled and will vigorously defend itself. (insurancebusinessmag.com)

Factual Background

• Vesttoo Ltd. was an insurtech / insurance-linked securities (ILS) platform, once valued near US$1 billion, that arranged deals where insurance risk (and counterparty risk) was transferred to capital market investors. (programbusiness.com)
• The CPI product was designed so that lenders could insure intangible asset‑rich companies (especially those with little in terms of revenues but significant intellectual property) against losses in the event of default. IP assets were used as collateral, with insurance backing, and letters of credit were used to secure reinsurance or other counterparty obligations. (insurancebusinessmag.com)
• The lawsuit alleges that more than US$2.8 billion in LOCs in connection with Vesttoo’s CPI‑backed deals were forged or otherwise not legitimate, and that Aon knew or should have known of serious concerns around the valuation of IP for pre‑revenue entities. Internal communications purportedly raised doubts about how to value IP in such cases, but despite this, the CPI program expanded aggressively. (insurancebusinessmag.com)

Legal Claims & Allegations

Some of the key legal claims raised by the Vesttoo Creditors Trust include:

• Fraud (misrepresentation): Alleging that Aon misrepresented or allowed misrepresentation of the value of IP collateral, and the certainty / legitimacy of the letters of credit supporting deals. (Insurance Journal)
• Negligence / Breach of duty: That Aon failed to conduct sufficient due diligence on the LOCs, on Vesttoo’s counterparty risk, and on the valuation methodologies it used for IP, especially for early-stage, pre‑revenue companies. (insurancebusinessmag.com)
• Misleading Investors / Market Conduct: The claim suggests Aon, through its CPI product, marketed a solution that peddled risk to insurers, reinsurance markets, or capital markets investors on terms that were not transparent or accurate regarding risk, collateral and default probabilities. (insurancebusinessmag.com)

Aon’s Defense

Aon’s public position in response to the lawsuit:

• Aon contends it is one of the victims of Vesttoo’s fraudulent scheme, not its architect; it says executives at Vesttoo, plus others, were responsible for forging the LOCs and misleading counterparties. (Insurance Journal)
• It maintains that internal concerns raised about the riskiness of early‑stage IP collateral were real but were not acted on by Vesttoo’s leadership, and that Aon did not knowingly push fraudulent claims. (insurancebusinessmag.com)
• It asserts it will vigorously defend the claims as “meritless,” arguing that the blame lies with Vesttoo’s executives and those directly involved in the LOC fraud. (insurancebusinessmag.com)

Key Legal and Industry Issues

This case raises a number of significant legal, regulatory, and commercial questions:

1. Valuation of Intangible Assets (IP)
   How reliable must a valuation be when used as collateral? What standards of methodology, governance, and audit are acceptable, especially for pre‑revenue companies whose IP might be speculative? Courts and insurers will look closely at how IP was valued (licensing income, patent strength, market comparables, etc.).
2. Role and Verification of Letters of Credit
   LOCs are often used as guarantees in insurance, reinsurance or risk transfer structures. The allegations of forged LOCs—if proven—point to serious failures in verification protocols, bank counterparty due diligence, institutional controls, and documentary authenticity checks.
3. Broker / Intermediary Liability
   Aon acted as a broker for these CPI deals. The lawsuit tests to what extent brokers can be held liable for due diligence (or lack thereof), misrepresentations, and structuring products that risk systemic losses.
4. Misrepresentation & Disclosure in Product Marketing
   Claims revolve around whether risk was adequately disclosed to insurers, reinsurers, and investors; whether Aon overstated the security provided by the collateral and LOCs; whether internal warnings were suppressed or ignored.
5. Causation & Damages
   Proof of actual defaults, quantification of losses, which transactions were reliant on the allegedly flawed collateral, who suffered losses, what parts of those losses can be legally tied to Aon’s conduct (versus Vesttoo’s or others’ wrongdoing).
6. Regulatory / Reinsurance Market Consequences
   The fallout may trigger reforms: stricter standards for collateralized risk structures, enhanced scrutiny of IP‑backed lending, more rigorous auditing/verification of guarantees, possibly regulatory oversight of products like CPI if they scale.

Stakes

• The trust claims losses in the billions of dollars. Particularly, more than US$2.8 billion in LOCs are alleged to have been fraudulent. (insurancebusinessmag.com)
• For Aon, there’s not just financial liability but reputational risk. The insurance/reinsurance and insurtech markets may become much more cautious about similar IP‑collateralized or LOC‑backed insurance products.
• Investors (reinsurers, capital markets investors) who participated in CPI‑structured deals are likely to face losses; this litigation may also lead to broader loss recovery efforts and more lawsuits involving co‑conspirators, banks, and other counterparties alleged to have been involved.

Possible Outcomes

• A settlement may be possible, depending on what documentary evidence (internal emails, audit trails, valuation reports, LOC verification processes) comes out in discovery.
• If the case goes to trial, the court will need to weigh the evidence of alleged misconduct against Aon’s defenses (that it, too, was misled, that it raised concerns internally).
• The case could result in policy or regulatory changes: enhanced due diligence requirements for LOCs, greater transparency in how IP‑collateral products are structured, stricter oversight or standardization of CPI‑like products.

Conclusion: The Law of Insurance Markets

The lawsuit against Aon over the Vesttoo collapse is one of the most serious challenges yet in the evolving intersection between insurance innovation, intangible asset finance, and capital markets. If proven, the allegations could mark a major turning point: showing that brokers and intermediaries may be held accountable for structural product risks, not just for overt fraud.

For the insurance, reinsurance, and insurtech sectors, the case underscores the risks of scaling complex financial structures built on speculative or unverifiable collateral and guarantees. As the litigation proceeds, both legal precedent and market practice may shift significantly.