Salt Lake-based ClearOne Communications Inc. and its largest shareholder have countersued the company's liability insurance companies, accusing the insurers of breach of contract and wrongfully denying coverage.

In a lawsuit filed Monday in U.S. District Court for Utah, ClearOne and its largest shareholder, Dallin Bagley, alleged that ClearOne's liability insurance companies, National Union Fire Insurance Co. of Pittsburgh and Lumbermens Mutual Casualty Co., should have paid $5 million worth of directors and officers liability insurance coverage. The suit came three days after Lumbermens sued ClearOne, alleging it was not responsible to pay ClearOne's claims.

ClearOne bought $3 million of directors and officers coverage from National Union and $2 million in excess coverage from Lumbermens, effective Oct. 29, 2002, through Oct. 29, 2003. Beginning in January 2003, several lawsuits were filed against ClearOne, alleging that the company misreported financial information to artificially buoy its stock price.

"ClearOne and Bagley timely notified National Union and Lumbermens of the subject claims and, after exhausting any applicable self-insured retentions under the D&O policies, repeatedly demanded that National Union and Lumbermens indemnify ClearOne and its directors and officers for all 'loss' defined by the D&O policies as 'damages, settlements, judgments (and) defense costs' arising out of the subject claims," the lawsuit says. "Both National Union and Lumbermens wrongfully denied coverage for the subject claims on the ground, among others, that they are entitled to rescind the D&O policies because of alleged misstatements and omissions in ClearOne's insurance applications. . . . ClearOne and Bagley denied, and continue to deny, that National Union and Lumbermens have any grounds for denying coverage for the subject claims."