A group of US professional indemnity insurers will pay $US45 million ($43.5 million) to reimburse councils and charities that bought complex debt instruments from Lehman Brothers Australia, under a proposal to end litigation against the failed US investment bank.

However, separate litigation concerning Lehman’s sale of collateralised debt obligations (CDOs) to the investors began last week, with a group of 90 councils, churches and charities filing a $200 million suit against Standard & Poor’s (S&P) over ratings it gave the CDOs.

The investors collectively lost about $210 million when the CDOs plummeted in value during the global financial crisis of 2007 and 2008.

Litigation funder IMF (Australia) has filed the new claim in the Federal Court, alleging ratings were made without reasonable basis.

IMF also funded a $200 million suit against Lehman Brothers by about 70 members of the group. This was decided last September, when the Federal Court ruled CDOs were not suitable for the councils’ conservative investment strategies, and a Lehman subsidiary had engaged in misleading and deceptive conduct.

Under a deal announced last week – negotiated by Lehman’s liquidators and major stakeholders such as IMF – creditors will get a return of 40-49 cents in the dollar once the insurance settlement and other assets are distributed.

The claim against S&P will be for the balance of the group’s losses after they are paid by the liquidator, an amount still to be settled, IMF Executive Director John Walker told insuranceNEWS.com.au.

Lehman Australia liquidators Marcus Ayres and Steve Parbery of PPB Advisory last week announced that creditors can approve the payout deal by voting on a scheme of arrangement to end the complex and costly litigation.