Toll Brothers settles investor lawsuit for $25 mln

* Toll accused of overstating ability to weather slump

* Toll says insurers to cover payout

* Largest U.S. luxury home builder

* Shares close 3.75 pct higher

By Jonathan Stempel

NEW YORK, Nov 2 (Reuters) - Toll Brothers Inc TOL.N, the largest U.S. luxury home builder, has agreed to a $25 million settlement of an investor lawsuit accusing it of overstating its ability to manage the nation's housing downturn.

The settlement covers investors who bought Toll shares from Dec. 9, 2004 to Nov. 8, 2005.

Toll denied wrongdoing in agreeing to settle.

The settlement was filed on Oct. 28 with the U.S. District Court in Philadelphia, and requires court approval. Toll spokesman Marty Connor said the company’s insurers will fund the settlement amount.

The lawsuits were led by the City of Hialeah Employees’ Retirement System in Florida and the Laborers Pension Trust Fund for Northern California.

They alleged that Toll executives and directors misled investors by overstating home demand and the company’s ability to maintain its “historically strong” earnings growth after its 2005 fiscal year, court records show.

The investors also said Toll repeatedly and falsely assured them that its focus on “expensive homes for a niche market of high-end buyers” was immune from rising interest rates and other negative macroeconomic developments.

Toll on Aug. 25 posted its first quarterly profit since 2007. [ID:nSGE67O0GI]

According to settlement papers, law firms representing the plaintiffs will seek fees totaling $6.25 million, or 25 percent of the settlement amount, plus up to $750,000 to cover costs.

Shares of Toll rose 67 cents, or 3.75 percent, to $18.52 on the New York Stock Exchange. They began the year at $18.81.

The case is City of Hialeah Employees’ Retirement System et al v. Toll Brothers Inc et al, U.S. District Court, Eastern District of Philadelphia, No. 07-01513. (Reporting by Jonathan Stempel in New York; Additional reporting by Helen Chernikoff; Editing by Richard Chang)