Insurers win lawsuit with PBM over D&O, E&O protection – business insurance

A federal appeals court on Wednesday upheld a lower court ruling in favor of units of Allied World Assurance Company Holdings Ltd., Intact Insurance Group USA LLC and Travelers Cos. Inc Errors & Omissions and Directors & Officers Liability Insurance.

Benecard Services Inc., headquartered in Clifton, New Jersey, was sued in 2015 by a former business partner for breach of contract and fraudulent misrepresentation in Specialty Insurance Co. et. al. The lawsuit was settled in 2016 for an amount not specified in the judgment.

Benecard sought coverage for its defense and settlement costs under its E&O and D&O coverage and then filed a lawsuit against multiple insurers when coverage was denied. The US District Court in Trenton, New Jersey, ruled in favor of the insurers and was upheld by a unanimous appeals court with three judges.

In terms of E&O coverage, Allied World Specialty Insurance Co., a unit of Allied World Assurance Co. Holdings Ltd., paid $ 3.8 million in defense costs but refused to reimburse any part of the settlement.

The district court found compensation unnecessary as Benecard had settled the underlying lawsuit without obtaining Allied World's prior written consent, "an express condition of coverage under the policy's consent clause," the ruling said Appeals court.

Benecard's arguments included that the coverage limit exhaustion excused Benecard's failure to obtain written consent. "Benecard does not back up this excuse theory with a reference to legal authority, so we refuse to accept it," said the ruling.

Benecard also argued against the District Court's summary judgment being given to Allied World in the lawsuit regarding its D&O policy.

The district court ruled that Benecard's claim fell under the policy's exclusions for "third party" and "professional services," the appeals court said. Both provisions "clearly" block coverage, agreed the Appellate Body.

Another issue was Atlantic Specialty Insurance Co.'s refusal to offer D&O coverage to a unit of Intact Insurance Group USA LLC. The district court ruled that the action fell under the exclusion of the policy for "managed care activities", which Benecard cited as an error.

The panel of the lower court also agreed on this question. "Benecard's theory is sealed off by the plain text of politics," it said.

The panel also upheld the district court's summary judgment for the Travelers unit Travelers Property Casualty Co. of America in the D&O lawsuit, alleging the insurer interpreted the policy correctly.

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