The ongoing dispute between LPL Holdings and Pacific Life over who will pay claims against three broker-dealers has heated up again, with a lawsuit filed in a New York state court.

LPL Holdings Inc. filed a complaint against Pacific Life in the Supreme Court of the State of New York, accusing the insurer of reneging on its obligations to cover certain liabilities incurred by the three broker-dealers— Mutual Service Corporation, Associated Securities Corp and Waterstone Financial Group, Inc.— that it sold to LPL in 2007 for approximately $100 million.

In the lawsuit, LPL states that “Pacific Life’s repudiation of its indemnity obligations has serious ramifications” for LPL and the broker-dealer units it bought. “Currently there are pending third party claims against ASC, MSC and WFG seeking millions of dollars in damages. Additional third party claims may be brought in the future.”

Joseph Kuo, a spokesperson for LPL Holdings, says the civil complaint “is based on Pacific Life’s breach of indemnity provisions from its purchase agreement with LPL Holdings relating to these broker-dealers.”

The broker at the center of the latest dispute, Jeffrey A. Forrest, worked for Associated Securities Corp. (ASC), but had left the company before it was acquired by San Diego-based LPL for $100 million in June 2007. LPL also acquired Mutual Service Corp. (MSC), and Waterstone Financial Group. In its complaint, LPL says that Pacific Life agreed to foot the bill for all losses and liabilities, including legal bills, stemming from customer claims against the three broker-dealers based on alleged misconduct that occurred before the sale of the broker-dealers to LPL or within nine months thereafter.

Forrest has been barred from the securities business, but his previous actions have already racked up millions in legal costs. Earlier this year, Forrest lost an arbitration claim of over $8.8 million, according to the complaint.

According to the complaint, last March, Pacific Life told LPL that it “had no obligation to indemnify for losses or liabilities related to customer claims against ASC where the loss of liability is in excess of the ‘value of ASC.” That value, at the time, was $5 million.

But after LPL and ASC challenged that argument, Pacific Life eventually ponied up the $8.4 million settlement of that award. After that, Pacific Life continued to fund settlement and defense costs totaling unspecified millions of dollars related to customer claims against ASC and MSC.

Then, in an Oct. 1 letter, according to the complaint “Pacific Life suddenly advised LPL that no further indemnity would be provided for third party claims against ASC, and that indemnity may or may not be provided for third party claims against MSC.” LPL states that Pacific Life is trying to resurrect the argument that it doesn’t have to indemnify for claims worth more than the broker-dealer units.

On Oct. 20, LPL asked Pacific Life for an indemnity payment of $57,000 to fund ASC’s settlement of an arbitration proceeding against ASC. Ten days later, Pacific Life responded by letter saying it “will not be funding or reimbursing any part of the Jensen settlement [or] any other indemnity requests related to ASC.”

LPL shot back in its own letter a couple of weeks later, saying that under the original March 2, 2007 sale agreement, there is no provision that states that there is a company value or other monetary limit to Pacific Life’s obligation to cover costs related to third-party claims.

For its part, Pacific Life’s assistant vice president of public affairs, Tennyson Oyler said in an emailed statement: “As happens from time to time in the best of business relationships, LPL and Pacific Life disagree on the interpretation of a certain contractual provision.” He added that: “This dispute will now be resolved by the courts, and will not disrupt the ongoing favorable business relationship between LPL, their financial advisors and Pacific Life.”

The Pacific Life-LPL deal added approximately 2,200 advisors to LPL’s roster. “We do not expect this legal matter to impact the business relationship between the LPL Financial and UVEST broker-dealers, which are not parties to this dispute, and Pacific Life Insurance Company and Pacific Select Distributors. LPL Financial and UVEST advisors and their clients continue to have access to Pacific Life’s products and its service teams,” Kuo says.