Guilty plea means private company D&O insurer may recoup defense costs from directors and officers

by Christopher Graham and Joseph Kelly


It was a very busy summer and early fall here at Jones Lemon & Graham. So we didn’t have time for our D&O Digest. As we get back into our blogging routine, we’re posting brief descriptions of some recent D&O decisions we missed in the past few months. Our first post is about Protection Strategies, Inc. v. Starr Indemnity & Liability Co., Case No. 1:13-cv-00763 (E.D. Va. Apr. 23, 2014), a case we wrote about in October 2013 here. We explained then how the court held that, given the policy’s Claim definition, a Private Company D&O insurer had a duty to defend insureds served with a search warrant and subpoena. But in a more recent decision available on PACER, the court held that the insurer could get it’s money back! The policy included wording requiring the insureds to repay the insurer if it was determined that they weren’t entitled to payment. The insureds pled guilty to Federal criminal charges of fraud and conspiracy. And those guilty pleas triggered the policy’s “profit,” “fraud,” and “prior knowledge” exclusions and the insureds’ repayment obligations. What we can’t tell from the decision is whether the insurer was able to collect any of the money it was owed. Winning is one thing; collecting is another!

Tags: D&O, Virginia, personal profit exclusion, dishonesty exclusion, fraud, prior knowledge exclusion, private company directors and officers liability insurance policy, management liability insurance policy, guilty plea, insurer’s ability to recoup defense expenses, duty to defend

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