Chubb is facing a lawsuit alleging it drew $8.7 million from a letter of credit it was supposed to return after accepting replacement collateral.
The suit, filed March 17, 2026, in the United States District Court for the Southern District of New York, was brought by 1970 Group, Inc., a collateral funding provider, against ACE American Insurance Company, part of the Chubb group of insurance companies. The case centers on what the filing describes as an "unjust collateral grab" tied to the insurance program of a now-defunct New York construction company.
According to the filing, 1970 Group arranges letters of credit from NAIC-approved financial institutions to meet the collateral requirements of clients' high-deductible workers' compensation, commercial auto, and general liability programs. It had arranged two letters of credit - one from MUFG Bank and another from East West Bank - totaling roughly $17.88 million to secure the insurance obligations of Commodore Construction Corp., a construction company headquartered in Mount Vernon, New York, and insured by Chubb.
When Commodore shut down in or around October 2025 and the East West Bank letter of credit became ineligible for renewal, 1970 Group says it notified Chubb - through Commodore's insurance broker, Cobbs Allen Capital Holdings, LLC - that it planned to replace the $8,689,509 East West Bank instrument by upsizing the MUFG letter of credit by the same amount. The filing says Chubb acknowledged the plan and raised no objections, in line with what 1970 Group describes as an established practice between the parties - one that had been followed with three different clients that same year.
But instead of returning or allowing the East West Bank letter of credit to expire, Chubb sent a letter on January 8, 2026 - after accepting the upsized MUFG letter of credit on December 29, 2025 - demanding an additional $9,357,632 in collateral. That demand was addressed to Commodore, which by then had ceased to exist as an operating entity.
By February 20, 2026, according to the filing, Chubb had drawn the full $8,689,509 from the East West Bank letter of credit. 1970 Group says it was forced to reimburse the bank and that Chubb now holds more than $26 million in collateral - roughly $8.7 million beyond what was ever intended.
The suit also alleges Chubb had quietly determined in November 2025 that Commodore was under-collateralized but never shared that with anyone - not 1970 Group, not the broker - even after being told the upsized letter of credit was meant as a replacement, not additional security.
For insurers and claims professionals, the case raises pointed questions about how collateral transitions are handled when an insured goes dark. It also underscores why clear, documented communication between carriers, collateral providers, and brokers matters whenever replacement instruments are in play.
1970 Group is seeking damages, return of the drawn funds, and punitive damages. No determination has been made on the merits of the case. It is docketed as Civil No. 7:26-cv-02201.
