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Ambiguous directors and officers liability language did not exclude a defense

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An Illinois appellate court has ruled that an exclusion in directors and officers coverage for foundations that once were major shareholders of the Tribune Co. is ambiguous and did not exclude them from being provided a defense in creditor litigation.

Creditors accused the Robert R. McCormick Foundation and the Cantigny Foundation of breaching their fiduciary duty when a highly leveraged 2007 buyout of the Tribune Co., in which the foundations sold all their shares, was questioned after the Tribune filed for bankruptcy reorganization in 2008.

However, when the foundations sought a defense under coverage provided by Chartis Insurance Co., an exclusion in that policy rejected a defense for “any claim related in any way to any purchase or sale of securities,” a three-judge panel of the 2nd District Illinois Appellate Court ruled March 31.

The ruling by the Elgin, Illinois-based appellate court overturned a ruling by a DuPage County judge.

Before the leveraged buyout, broker Arthur J. Gallagher Risk Management Services Inc. had advised the foundations to change their insurance provider from Chubb Corp. to Chartis, saying they could get the same $25 million in coverage at a cheaper price, according to the ruling.

After Chartis rejected providing a defense for the foundations, they sued Gallagher alleging malpractice, according to the court ruling. They also sued seeking coverage under the earlier Chubb policy.

While Gallagher argued the foundations were not due a defense under either the Chubb or the Chartis insurance and won summary judgment at the lower court level, the appellate court disagreed.

“Because the trial court erred in interpreting the exclusion by failing to see it as ambiguous,” the appellate court said it reversed the lower court ruling and returned the case for further action, including whether the Chubb coverage was actually triggered.