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The policyholder wins in the case of insurability for "poorly achieved profits"



Private equity investment funds have been involved in coverage disputes involving the bankruptcy of a fashion company, with a Delaware court holding in a lawsuit that they can claim compensation from their insurers under Delaware law in a case involving "ill-gotten gains". their board members and executives and errors and omissions coverage.

New York-based Sycamore Partners and its subsidiaries acquired Jones Group, a holding company that owned several retail brands including Nine West, and allegedly raided its high-performing assets, leaving the rest as one. " over leverage, ”according to the Delaware Supreme Court's Friday judgment in Sycamore Partners Management LP et al. v. Endurance American Insurance Co.

During bankruptcy proceedings, the company's bankruptcy estate illegal or unfair transfer n of property to another party through a trustee in bankruptcy, breach of administrative obligation and related business guarantees.

The mutual funds settled the claims for $ 1

20 million and then sought coverage from their insurance companies, Starr Indemnity & Liability Co., Markel American Insurance Co., Argonaut Insurance Co., Great American Insurance Co. and Ironshore Indemnity Co. However, the insurers refused to pay, and the funds submitted an application for coverage.

Among the defenses raised by insurers was the defense "insecurity" with insurers. to claim the liquidation of the funds was "uninsurable in terms of public policy, as it represents a meltdown or repayment of, poorly achieved profit," the decision said.

Aws of Delaware, where Sycamore is organized, and New York, where Sycamore is headquartered, differ on whether insurers must pay, with New York law having a general order against general restitution or disgorgement in these cases, and Delaware does not have such a policy

The policies involved had a provision that made it possible to keep disputes in the jurisdiction "most favorable" to policyholders. Insurers argued that the provision could not be enforced "because it frustrates New York's interest in preventing damages from erroneous profits," the decision said.

However, the court agreed that the Delaware Act would apply. "Insurers have not fulfilled their burden to show that the choice of law should not apply," the decision said.

"Consequently, and because the funds have validly nominated Delaware as the" most favorable "jurisdiction for them, Delaware. public order determines the fate of uninsured cover.

Unlike New York, the settlement is insurable under Delaware law. "There is no such Delaware Charter" which claims that restoration or reorganization is uninsured, according to the decision, when Sycamore's request for a partial judgment in the case was granted.

Lawyers in the case did not respond to a request for comment.

Last week, a Delaware court ruled that Verizon Communications Inc. could recover $ 24 million in defense costs in connection with a 2006 spin-off lawsuit.

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