Jones, Monteleone and LaPorta Win Summary Judgment for D&O Insurer

September 19, 2017 | Directors & Officers Liability | Insurance Coverage

Michael Jones, Joseph Monteleone and Anthony La Porta won summary judgment declaring that the former CEO of a defunct online video management company is not entitled to $5 million in insurance coverage under a D&O insurance policy issued to the company. The court also ruled that Hudson, the insurer, was entitled to reimbursement of the more than $1.2 million in defense expenses paid on behalf of the CEO prior to the granting of summary judgment.

The CEO was seeking coverage in connection with a civil action filed by the SEC against the former CEO and the former CFO alleging that they falsified the financial condition of a public company and misled investors and auditors about the company’s revenues and ability to deliver the products it was touting.

The CFO had signed a Warranty Letter that incorporated a Prior Knowledge Exclusion into the policy for any claims arising from circumstances that any insured was aware might give rise to a claim. The CFO pled guilty in the related criminal action.

We argued that the guilty plea provided the necessary evidence that the CFO, an  insured under the policy, was aware of circumstances that could give rise to the civil action filed by the SEC. The CEO argued that the Warranty Letter was not part of the policy and that, even if it were part of the policy, it was not binding on him as he did not sign it. The CEO further argued that he was entitled to coverage because the underlying policy contained a severability provision. The CEO also argued that not all of the claims in the SEC civil action were known at the time the Warranty Letter was signed.

We successfully argued to the court that the Warranty Letter was part of our client’s policy, that the severability provision in the underlying primary policy was not applicable to the Prior Knowledge Exclusion under the following form language of our client’s policy and that CFO’s guilty plea conclusively showed that an insured had knowledge of circumstances that might give rise to the complaint filed by the SEC.

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