Hunton Insurance Recovery Blog

A California appeals court recently reversed a trial court’s determination that a D&O insurer had no duty to reimburse legal fees incurred by a company’s former CFO in defending against an SEC civil enforcement action, shareholder derivative claims, and counterclaims by the company asserting that the CFO breached his indemnification agreement. In doing so, the appeals court rejected the insurer’s argument that the defense costs the company advanced to the CFO were “restitutionary” damages excluded from the D&O policy’s definition of loss.

The court explained that its ruling favoring broad executive protection was consistent with the generally understood purpose of D&O liability insurance—to provide protection for individuals whose business decisions, made in their capacity as the management of a corporation, subject them to the risk of personal liability for losses that the corporation or its shareholders may incur.

D&O, E&O, and other professional liability insurers often raise the insurability, or rather “uninsurability” loss defense. Consistent with our prior analysis of the ways the Ohio district court erred in assessing insurability, the Sixth Circuit’s recent decision in Huntington National Bank v. AIG outlines how courts should evaluate insurability defenses, particularly in the absence of public policy rendering a loss uninsurable.