02/10/2010 12:00AM

Bank wants insurance payout from Zayat

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LEXINGTON, Ky. - In the latest salvo in the legal battle between Fifth Third Bank and prominent racehorse owner Ahmed Zayat, the bank has alleged Zayat diverted money from an insurance payout it should have received.

Zayat denies that Fifth Third was entitled to receive proceeds from the insurance claim, a $2.75 million claim on two-time Grade 1 winner Thorn Song that was paid out on Oct. 19, 2009. According to Zayat, the bank never required it be named a loss payee under the stable's equine insurance policy, which paid out after Thorn Song suffered a tendon injury and severe laminitis.

In court documents, Fifth Third says it should have gotten that insurance check because loan documents grant it a security interest in any proceeds derived from Zayat's equine collateral, including "cash that Zayat Stables collects from the sale of horses and from racing purses and insurance proceeds."

The bank said it sent a letter to Zayat on Aug. 28, 2009, notifying him that he was in default on a series of loans totaling about $34 million and demanding all revenue from the equine collateral.

Fifth Third made the allegations as part of its request that a court-appointed receiver take over the stable, a move Zayat is fighting. A hearing on that issue is set for March 8 in Lexington.

North American Specialty Insurance Company, which insured Thorn Song, released a statement on Wednesday describing the events leading to the mortality payout. Zayat Stables made the claim after Thorn Song was discovered to have sustained a partially ruptured deep digital flexor tendon sometime after bolting on the first turn in the July 25 Eddie Read at Del Mar. In its release, the insurance company called that injury "life-threatening."

"After treatments which at first were promising, Thorn Song unfortunately developed severe laminitis," the NAS statement said. "An independent veterinarian appointed by NAS, Dr. Van Snow, determined that Thorn Song's condition met criteria in the policy that authorized NAS to make a claim payment. NAS, therefore, made a full claim payment under the policy."

The insurance company did not address Fifth Third's contention that it should have gotten the check.

Both Zayat and the insurance company said that Thorn Song, 7, is still in the care of Dr. Doug Herthel at the Alamo Pintado Equine Medical Center in Los Olivos, Calif.

The insurance check refers to a "loss date" of Aug. 2, 2009. Zayat said Tuesday he first notified the insurers of Thorn Song's injury on that date. North American Specialty Insurance paid the mortality claim in October, after the horse foundered, he said.

"There was no hanky-panky," said Zayat, who also said he notified Fifth Third of the horse's injury. Zayat said that after the payout Thorn Song was turned over to Herthel, who wanted to continue treating him as part of his research.

"They are not named loss payee. . . . They are just trying to make some stories."

In its release, the insurance company said: "The attending veterinarian for Zayat Stables, Dr. Doug Herthel, concurred with Dr. Snow's general conclusion that Thorn Song's condition was not curable by any proven veterinary treatments. However, Dr. Herthel believed that anew treatment regimen should be attempted rather than resorting to immediate euthanasia. Dr. Herthel agreed to continue with his treatment only so long as Thorn Song was not suffering inhumanely and also agreed that Dr. Snow would serve as an additional consultant on behalf of NAS."

Insurance agents said Tuesday that a company can turn a horse over to a third party, such as a veterinarian, after paying out a mortality claim.

Herthel, Alamo Pintado's founder and a leader in equine stem cell research, did not immediately return a call seeking an update on Thorn Song's progress.

- additional reporting by Steve Andersen