Canada-based Dorel Industries Inc. announced that due to a dispute with one of its insurance carriers over the aggregate amount of insurance available to the company, including one claim that came due this month, Dorel is recording a charge for liability claims in the amount of US$6.5 million pre-tax in the first quarter ended March 31, 2004.
The insurance company’s reported refusal to honour its policy, despite fully paid up premiums, has resulted in a shortfall in Dorel’s planned liability reserves. The US$6.5 million pre-tax expense is equivalent to a US$0.13 per share after-tax impact and will be recorded in the company’s first quarter results.
As a result, Dorel is reducing its guidance for fiscal 2004 by US$0.13 per share, to earnings of between US$3.12 to US$3.22 per share.
Dorel President and CEO Martin Schwartz said the situation with TIG Specialty Insurance Solutions, of Irving Texas is highly irregular and most disappointing. TIG Specialty Insurance Solutions is a subsidiary of Fairfax Financial Holdings Inc.
“We adamantly disagree with the position being asserted by the insurer and have engaged in legal proceedings with the insurance company,” Schwartz said. “We are optimistic that we will be able to prove our position. Should a decision be made in our favour, the recovery will be included in our net income in future periods.”
Schwartz said that Dorel’s 2004 budget has sufficient reserves in place to address liability issues for the balance of the year. “We have routinely budgeted for our liability requirements through a combination of self-insurance and insurance from carriers. TIG Insurance’s refusal to honour its obligations has created a temporary situation which we must fund.”
Dorel is a global consumer products company which designs, manufactures or sources, markets and distributes a diverse portfolio of product brands, marketed through its Juvenile, Home Furnishings, and Recreational/Leisure segments. U.S. operations include the Dorel Juvenile Group USA, which incorporates the Cosco and Safety 1st brands; Ameriwood Industries, Cosco Home & Office; and Pacific Cycle, which includes the Schwinn, Mongoose, GT, InSTEP and Roadmaster brands.
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