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A federal appeals court has upheld a ruling in favor of Axis Reinsurance Co. in a directors and officers liability coverage dispute with a pharmaceuticals company and a company executive over a claims-made policy.
In May 2011, the U.S Securities and Exchange Commission began an investigation into possible securities violations by John Masiz, president and CEO of Danvers, Massachusetts-based BioChemics Inc., according to Thursday’s ruling by the 1st U.S. Circuit Court of Appeals in Boston in BioChemics Inc.; John Masiz v. Axis Reinsurance Co. et al.
These possible violations included instances of fraud and misrepresentations that were aimed at distorting the value of BioChemics securities, according to the ruling. SEC subpoenas were served on BioChemics in May and September 2011, the ruling said.
In October 2011, BioChemics and Mr. Masiz applied to Axis Reinsurance, a unit of Pembroke, Bermuda-based Axis Capital Holdings Ltd., to assume D&O coverage, in which they represented there were no legal claims pending against them. Axis agreed to provide the coverage.
Additional SEC subpoenas followed, and in December 2012 the SEC began an enforcement action against BioChemics, Mr. Masiz and two other individuals alleging the company and Mr. Masiz had engaged in a “fraudulent scheme” to mislead investors about the company’s value.
Mr. Masiz and the company sought coverage under its D&O policy, which Axis denied on the basis the claim was “first made” prior to its claims-made policy’s inception period. BioChemics and Mr. Masiz filed suit against Axis, charging it had breached its duty to defend.
The U.S. District Court in Boston ruled in Axis’ favor and was upheld by a unanimous three-judge appeals court panel. Among the plaintiffs’ arguments was there was a “mistaken construction” of the policy’s definition of a D&O claim.
The ruling said while “ambiguous contract language should be interpreted in favor of coverage against the drafter, we conclude that the Policy here is simply too clear in the relevant aspect to permit us to do so.”
Attorneys in the case did not immediately respond to requests for comment.
A ruling in favor of Starr Indemnity & Liability Co. in a dispute over a D&O liability insurance policy was affirmed in part and reversed in part by a federal appeals court in April.
Insurer and reinsurer Axis Capital Holdings Ltd. said on Thursday that it expects losses in the range of $100 million to $120 million from Hurricane Michael, which hit the southeastern United States last month.