WASHINGTON, Feb. 26 /PRNewswire/ -- A recent decision issued by the U.S. District Court for the Southern District of New York could have significant implications for the insurance industry. The February 13 ruling from U.S. District Judge Richard J. Holwell clarifies a decision the court entered two months earlier establishing that Texas law requires issuers of directors & officers (D&O) liability policies to advance defense costs incurred in connection with covered and non-covered causes of action interposed in the same lawsuit.
In an opinion dated December 19, 2008, Judge Holwell ruled that a lawsuit against Uncle Julio's restaurant chain contained a covered cause of action ("breach of fiduciary duty") and an excluded cause of action ("breach of contract"). Judge Holwell further ruled that Travelers Insurance, the issuer of Uncle Julio's D&O policy, was not only required to advance defense costs allocable to the covered cause of action, but also any defense costs that might be allocable to the non-covered cause of action. The insurer then moved for clarification of the bases for this latter aspect of the December 2008 ruling.
Judge Holwell clarified his earlier ruling in the February 13 opinion and agreed with the argument put forth by Patton Boggs senior litigation partner, John W. Schryber that the policy required advances of defense costs incurred in connection with a "Claim," and "the policy's definition of Claim ... clearly contemplates the equivalence of the word 'lawsuit' ... ." "Under this interpretation," Judge Holwell held, the insurer's duty to advance extends to "the entire lawsuit."
By operation of these rulings, the insured stands to recover in excess of $1 million for the insurer's breach of its duty to advance defense costs.
Mr. Schryber, who argued the case, stated: "For years, D&O insurers have sought to impose 'allocation' conditions on policyholders who purchased D&O policies without any allocation clause. This ruling should bring an end to the insurers' practice of seeking allocation under a policy that does not contain an allocation clause."
Patton Boggs LLP
Based in Washington DC, Patton Boggs is a national leader in public policy, litigation, and business law, and is well known for its deep bipartisan roots in the national political arena. The firm's core practice areas are Public Policy and Regulatory, Litigation, Business, and Intellectual Property. With offices in Northern Virginia, New Jersey, New York, Dallas, Denver, Anchorage, and internationally in Doha, Qatar and Abu Dhabi, UAE, our more than 600 lawyers and professionals provide comprehensive, practical, and cost-effective legal counsel to clients around the globe. For more information, visit us at www.pattonboggs.com. To receive press releases from Patton Boggs, please contact Rebecca Carr at firstname.lastname@example.org.
|SOURCE Patton Boggs LLP|
Copyright©2009 PR Newswire.
All rights reserved