Lazare Kaplan International, a dealer in diamonds and jewelry products through a global distribution network, has filed a federal lawsuit on May 17, 2010 against various Lloyds of London syndicates and European insurers for $640m in damages arising out of the disappearance of diamonds that were insured by the defendants, including consequential damages.

The lawsuit alleges that the insurers breached two ‘all risk’ New York property insurance policies, and an agreement for interim payment under which the insurers made a non-refundable interim payment of $28m to Lazare Kaplan in January of this year. After making the $28m payment, the insurers abruptly reversed course and refused to acknowledge coverage or to pay any covered losses under the policies.

The complaint alleges, among other things, that the insurers, which also issued separate policies to Lazare Kaplan under English law, created a virtual coverage ‘whipsaw’ by denying coverage under the English policies on the ground that Lazare Kaplan does not have an insurable interest in the largest portion of the property at issue while at the very same time asserting under the New York policies that there is no coverage because Lazare Kaplan insured the same property under the English policies. Lazare Kaplan expects to conduct broad-ranging discovery around the world in the course of the lawsuit.