The Supreme Court of Arizona agreed on Wednesday with American International Group Inc., in a divided opinion, that a higher education service provider should have received the insurer's okay before ruling on liability for board members and officers.
Apollo Education Group Inc., A higher education provider that operates several universities in different countries, had a D&O policy with the AIG unit National Union Fire Insurance Co. in Pittsburgh, PA which provided up to $ 15 million in coverage, according to the decision of Apollo Education Group, FKA Apollo Group Inc. v. National Union Fire Insurance Co. in Pittsburgh, PA, and Pennsylvania Corporation.
The police said that Apollo could not enter into a settlement agreement without AIG's prior written consent, the majority decided
In October 2006, the company's share fell 22.9%, after a Wall Street Journal article describing an industry practice of updating stock options for business leaders; an investigation into Apollo by the U.S. Attorney & # 39 ;s Office for the Southern District of New York and the Securities and Exchange Commission; and an internal investigation followed by a publication by Apollo that acknowledged "various shortcomings" in the process of granting and documenting stock options.
A class action lawsuit was dismissed by the U.S. District Court in Arizona and appealed to the 9th U.S. Circuit Court of Appeals in San
While the appeal was pending, the plaintiffs and Apollo agreed to settle the disputes for $ 1
The National Union refused to agree to the settlement, but Apollo went into it anyway, paid the plaintiffs out of pocket, and then filed a lawsuit against the insurer.
The U.S. District Court issued a summary judgment to the National Union and Apollo appealed. The 9th Circuit then sought the Arizona Supreme Court's advice on the matter.
“The terms of the contract clearly and directly state whether the insurer's or insured's perspective should guide the decision on an agreement to regulate an insured is reasonable … The provision refers to the insured in this context only in terms of what it may not do: enter into any settlement without the insurer's consent, says the 5-2 decision.
"This interpretation is supported by the overall context of the agreement. "Here, the parties agreed that the defense of each measure would be controlled by the insurer, with any settlement that is subject to the insurer's consent," it said. "We are not convinced of Apollo's argument that we should interpret these terms against the insurance," it said.
"In a D&O policy such as that, there is no reason not to enforce consent to a settlement provision that is clearly written and the parties have agreed, it says.
The dissenting opinion states:" Simply stated politics, according to its terms, not if the reasonableness of National decision is seen from its own perspective or Apollos.
"Yet the majority goes to great lengths to find the answer in politics. It fails. At the bottom, the majority text analysis simply shows an obligation to act reasonably by withholding their consent. "The policy is silent on the issue here, which is" whether National violates the standard of care that applies to this duty. "
Lawyers for Apollo and an AIG spokesman did not return the request for comment