A federal district court in New York ruled Tuesday that units of American International Group Inc. and Tokio Marine are not obligated to indemnify Hertz Global Holdings Inc. for $27 million in costs incurred in connection with a U.S. Securities and Exchange Commission investigation.

AIG unit National Union Fire Insurance Co. had issued Bonito Springs, Florida-based Hertz a $15 million insurance policy that permitted it to recover for securities claims against the company and for claims made against insured persons, according to the ruling by the U.S. District Court in New York in Hertz Global Holdings Inc. v. National Union Fire Insurance Co. of Pittsburgh, et al.

Tokio Marine provided an additional $15 million of insurance coverage for claims made and paid under the National Union policy.

A securities class action was filed against Hertz in November 2013, and in July 2014 Hertz provided the insurers with notice the SEC was demanding documents related to the company’s financial statements for certain prior years, according to the ruling.

The insurers informed Hertz that while the lawsuit qualified as a securities claim under the policy, the SEC investigation did not.

The SEC subsequently issued an order that authorized its officials to issue subpoenas for witnesses and documents, and Hertz incurred $27 million in fees and costs related to the investigation.

Hertz reached a settlement agreement with the SEC that provided for a $16 million penalty in December 2018.

It then filed suit for breach of contract against the insurers for failing to cover the investigation costs.  The court agreed to the insurers’ motion to dismiss the complaint for failure to state a claim.

The court said it agreed with the insurers’ position that the SEC investigation is “expressly excluded from coverage under the plain terms of the parties’ insurance agreement.”

The policy defines a securities claim as “a Claim other than an investigation of an Organization,” the ruling said.  “This language unambiguously excludes an SEC investigation against Hertz from coverage,” as that phrase “is not susceptible to ‘more than one meaning when viewed objectively,’” the opinion said in citing an earlier case.

“Despite the fact that the policy expressly does not cover investigations into Hertz, plaintiff tries to fit the SEC Formal Order, a square peg, into a number of round holes in the agreement,” but “these attempts fail,” the court said.

Attorneys in the case did not respond to requests for comment.

Experts have stressed the importance of companies obtaining coverage for SEC investigations in their directors and officers policies.