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An American International Group Inc. unit is obligated to pay defense costs under its directors and officers liability insurance policy to executives of a U.S. security company whose Netherlands parent was sold and who were subsequently sued, a New York federal court said.
AIG unit National Union Fire Insurance Co. of Pittsburgh, Pa., provided D&O coverage to executives of McLean, Virginia-based Aegis Defense Services LLC, according to Friday’s ruling by the U.S. District Court in Timothy Simon Spicer et al. v. National Union Fire Insurance Co. of Pittsburgh, P.A.
The coverage did not extend to Aegis U.S.’ parent company, Hoofddorp, Netherlands-based Hestia B.V. The plaintiffs, who were executives of Aegis U.S, were also Hestia shareholders, the ruling by Judge Gregory H. Woods said.
The plaintiffs were involved in Hestia’s 2015 sale to London-based GardaWorld Consulting (UK) Ltd. They sought defense costs coverage from AIG when GardaWorld sued them for alleged misrepresentations made in connection with the sale.
National Union refused to provide the coverage on the basis that the plaintiffs had acted in their capacity as Hestia shareholders in their negotiations to sell that company, rather than as Aegis executives.
The insurer also argued that “at the very least” the plaintiffs had acted in a dual capacity, which triggered a policy provision that excluded coverage for losses arising from acts taken by them in any role other than as executives of Aegis U.S.
The court agreed with the policyholders. It said that from the outset, the claims against the plaintiffs “reveal a focus on the acquisition of the business operated by Aegis U.S. by means of a purchase of Hestia’s shares.”
The claims “describe misrepresentations by the plaintiffs regarding the financial condition of both Hestia in general and Aegis U.S. in particular,” it said.
They “do not expressly limit the liability of the plaintiffs to conduct committed in their roles as executives or shareholders of Hestia,” it said, in holding AIG has a contractual duty to defend them.
Kenneth Frenchman, managing partner at Cohen Ziffer Frenchman & McKenna LLP in New York, who represented the policyholders, said in a statement, “Judge Woods’ recognition of the broad duty to defend for directors and officers will hopefully encourage insurers to step up and defend these sorts of claims in the future instead of forcing policyholders to bring suit.”
AIG’s attorneys did not respond to a request for comment.
A Delaware court ruled last month that National Union and Axa SA units were not obligated to indemnify a solar energy company in D&O litigation under their claims-made coverage.