Articles Posted in D&O

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In Verizon Communications v. Illinois National Insurance Company, a group of D&O insurers essentially asked, “When is a securities claim not a ‘Securities Claim’” (as defined in their policies)? And a Delaware Superior Court judge effectively answered, “Never.” Judge William Carpenter Jr. rejected the insurers’ crabbed reading of the term “securities claim” under their D&O policies, awarding Verizon some $48 million in defense costs the insurers had withheld.

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The case arose from Verizon’s decision in 2006 to spin off its print directory subsidiary, Idearc. After Idearc filed for bankruptcy protection US Bank, as Idearc’s bankruptcy litigation trustee, sued Verizon and a Verizon executive who was Idearc’s sole director at the time of the spin-off, asserting claims of promoter liability and breach of fiduciary duty, payment of an unlawful dividend under Delaware corporation law, and fraudulent transfer under U.S. bankruptcy law and Texas statute.

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Readers of this blog have come to expect from our lawyers incisive and reliable analysis of the most important insurance coverage issues of the day. At least one judge apparently feels the same way.

In a recent decision in the ongoing coverage dispute brought by TIAA-CREF against its various D&O carriers, Judge Jan Jurden cited a piece written by Peter Gillon in Law360 (“Another Blow Dealt to Restitution, Disgorgement Defense”) as legal authority for her conclusion that “the current trend in New York and additional jurisdictions ‘has been for courts to narrow the [disgorgement] defense considerably,’ and in some cases ‘reject[] insurers’ restitution/disgorgement defense outright.’”

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While the fast-paced world of insurance evolves every day, some advice stays golden. Partners Peter Gillon and Alex Hardiman opined on the importance of maximizing the return on your D&O insurance for the Kevin LaCroix-run D&O Diary blog last summer, and the words in their post remain relevant. Click here to read “Maximizing the Return on Your D&O Insurance for Merger Objection Lawsuits.”

 

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Purchasers of D&O and professional liability insurance often are stunned when their carriers deny coverage on the theory that their policies do not cover liabilities characterized as “restitutionary,” i.e., where a judgment or settlement requires the insured to “disgorge” a sum of monies. Insurers contend such damages are “uninsurable.”  The surprise stems from the fact that some insurers attempt to stretch the argument that restitutionary payments are uninsurable to encompass claims for ordinary compensatory damages – such as breach of fiduciary duty claims or consumer class actions – arguing that these claims are asking the insureds to return “ill-gotten gains.”  While it is far too early to administer last rites to the “restitution/disgorgement defense,” recent rulings Beautiful swan reflection while yelling.suggest that the courts have recognized that denying claims based on vague concepts of “insurability” creates too much uncertainty for policyholders and have found several ways to curtail this overreaching practice.

 

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Feeling wired about risks arising from the Telephone Consumer Protection Act? Maybe you should. The TCPA subjects businesses that use text messaging, auto-dialing, and bulk faxing for advertising and marketing to potential class action litigation. Financial institutions, various supermarket chains, and recently Caribou Coffee have all been targeted in TCPA class actions. But policyholders who get static over such claims are not without recourse: several lines of liability insurance may answer the call.

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Many policyholders assume that if an insurer pays to defend a claim against them, the policyholder will never be asked to pay those costs back. And most often they’re right. But sometimes the insurer may demand that the policyholder pay back some or all of the defense costs. Such insurers treat the contractual duty to defend or to indemnify the insured for defense costs as little more than a lending facility.

PrintMost of the time, such insurer demands are unjustified. But companies should understand when and under what circumstances insurers might seek reimbursement or recoupment of defense costs so they can avoid agreeing to do so unnecessarily or at least plan in advance financially.

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