Revealed – court ruling for D&O insurance dispute case

Revealed – court ruling for D&O insurance dispute case | Insurance Business America

Professional Risks

Revealed – court ruling for D&O insurance dispute case

Two insurers were involved in the suit

Professional Risks

By
Terry Gangcuangco

AmTrust International Underwriters DAC and Freedom Specialty Insurance Company have lost in the directors & officers dispute case involving 180 Life Sciences Corp.

According to the court ruling seen by Insurance Business, 180 Life (formerly known as KBL Merger Corp. IV) had advanced subpoena-related expenses to former leaders Marlene Krauss and George Hornig as a result of a merger investigation by the Securities and Exchange Commission (SEC).

The biotechnology company, which pre-merger had a claims-made D&O and public company liability policy with AmTrust and an excess insurance policy with Freedom, demanded coverage under the policies but ended up being a party in Amtrust International Underwriters DAC v. 180 Life Sciences Corp.

“AmTrust… filed the present declaratory relief action, asserting that 180 Life is not an insured under the AmTrust policy issued to the pre-merger entity KBL, and that in any event the subpoena-related expenses are subject to policy exclusions,” United States District Judge Beth Labson Freeman noted in the 13-page court document.

“In response, 180 Life filed a counterclaim against AmTrust and a third-party complaint against Freedom, seeking (as relevant here) coverage for the subpoena-related expenses. Freedom answered, asserting that no coverage is available under the Freedom policy.”

The Northern District Court of California found the insurers’ arguments that the SEC subpoenas must be construed to allege wrongful acts committed or attempted during the post-merger period based solely on the subpoenas’ request for documents relating to that period “unpersuasive”.

Judge Freeman said: “It is the insurers’ burden to show conclusively that the change in control exclusion applies to bar coverage for the SEC subpoenas and related defense costs. They have not done so. The insurers may be able to make this showing at a later date, upon a more factually developed record regarding the SEC investigation. If so, they will be able to recoup any defense costs advanced to 180 Life for claims that turn out not to be covered.

“On the limited record before it, however, the Court finds that there is a potential for coverage for the SEC subpoenas and related defense costs, and thus that 180 Life is entitled to advancement of the subpoena-related defense costs consistent with the policies’ advancement clause.”

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