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Insured vs. insured exclusion shields AIG

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An American International Group Inc. unit is not obligated to provide a former medical equipment firm officer with indemnification and defense costs in connection with litigation filed against him by his former firm and its executives under the insured-versus-insured exclusion in the company’s directors and officers liability coverage, says a New Jersey appeals court.

Michael Abboud, a former CEO and 40% owner of Staten Island, New York-based Monarch Medical PET Services L.L.C., which provides diagnostic imaging equipment, had first sued Monarch, four firm members and managers and a company officer, stating they had breached their fiduciary duty, among other charges, according to Wednesday’s ruling by the New Jersey Superior Court’s appellate division in Trenton in Michael Abboud v. National Union Fire Insurance Company of Pittsburgh, Pa.

Counterclaims filed by defendants against Mr. Abboud included that he had engaged in self-dealing.

Mr. Abboud sought indemnity and defense costs for the counterclaims under the D&O section of Monarch’s multicoverage policy, according to the ruling.

National Union, a unit of New York-based American International Group Inc., denied Mr. Abboud coverage based on an insured vs. insured exclusion within the coverage’s D&O section.

On appeal, a three-judge panel of the state appeals court unanimously upheld the lower court’s ruling. “There is nothing ambiguous, convoluted, or opaque about this exclusion when interpreted in accord with the (policy’s) definitional provisions,” said the ruling.

“The claims raised against Abboud were brought by Monarch and five of its executives (whose status within the company Abboud does not contest). Therefore, the insured vs. insured exclusion bars these claims.”

Earlier this week, a federal appeals court also ruled that an XL Group Ltd. unit is not obligated to indemnify a bankrupt banking corporation’s liquidation trust under the insured-versus-insured exclusion in its directors and officers liability policy.