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The New York Appellate Court confirms that insurers must continue with defense costs under D&O policy



An appeals court in New York recently granted a partial summary judgment in favor of the insured and found that the excess of board members and officers, Westchester Fire Insurance Co., Aspen American Insurance Co. and RSUI Indemnity Co., must deepen the defense costs of former heads of the insured entity. The decision is the latest victory for policyholders in connection with D&O insurance claims claimed in the wake of alleged securities violations and accounting fraud at related real estate investment companies, which has resulted in millions of insurance recoveries for the company and its executives and executives.

In the underlying lawsuit, former board members and executives of a real estate company, RCAP Holdings LLC, were sued by the successor unit, the RSC Creditor Trust, which claimed that the executives ran RCAP into bankruptcy. After depleting more than $ 30 million in D&O coverage for settlements in other cases, the former executives looked to the redundant insurers to continue deepening defense costs on their behalf. The insurers rejected the claim and brought an action, requesting an explanation that the exclusion of the insurance's 'insured versus insured' precludes coverage. According to the policy, the insurers agreed that the advance costs advance until the "final disposition" of the underlying measure. The court ruled that if the underlying complaint alleges facts that could potentially lead to a claim within the insurance policy, the insurer has an obligation to deepen defense costs. The Court held that '

The decision highlights the fact that although this very commonly cited exclusion is broad, the many exceptions can be equally broad, especially in bankruptcy contexts. As with the policies of all board members and executives, the coverage depends on the language in question and the facts alleged in the underlying complaint. The opinion also clarifies that when a policy imposes an obligation to shift defense costs, if there is any possibility of coverage based on the allegations, insurers must pay defense costs at least through the final settlement of the underlying measure. In such cases, the issue of coverage cannot be completely resolved until such a final disposition.


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