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Insurers win suit with PBM over D&O, E&O cover


A federal appeals court Wednesday affirmed a lower court ruling in favor of units of Allied World Assurance Company Holdings Ltd., Intact Insurance Group USA LLC and Travelers Cos. Inc. in litigation filed by a prescription benefit manager over their refusal to indemnify it under their errors & omissions and directors & officers liability insurance coverages.

Clifton, New Jersey-based Benecard Services Inc. was sued in 2015 by a onetime business partner for breach of contract and fraudulent misrepresentation, according to Wednesday’s ruling by the 3rd U.S. Circuit Court of Appeals in Philadelphia in Benecard Services Inc. v. Allied World Specialty Insurance Co. et. al. The suit was settled in 2016 for an amount not disclosed in the ruling.

Benecard sought coverage for its defense and settlement costs under its E&O and D&O coverages, then filed suit against several insurers when coverage was denied. The U.S. District Court in Trenton, New Jersey, ruled in the insurers’ favor, and was affirmed by a unanimous three-judge appeals court panel.

On the E&O coverage, Allied World Specialty Insurance Co., a unit of Allied World Assurance Co. Holdings Ltd., paid $3.8 million in defense costs, but refused to indemnify any portion of the settlement.

The district court held indemnification was not required because Benecard had settled the underlying lawsuit without obtaining Allied World’s prior written consent, “an express condition of coverage under the policy’s consent clause,” the appeals court ruling said.

Among Benecard’ s arguments, the ruling said, was that exhaustion of the coverage limit excused Benecard’s failure to obtain written consent.  “Benecard fails to support this excuse theory with any citation to legal authority, so we decline to accept it,” the ruling said.

Benecard also argued against the district court’s grant of summary judgment to Allied World in the action involving its D&O policy.

The district court held that Benecard’s claim fell within the policy’s “third party” and “professional services” exclusions, the appeals court said. Both provisions “unambiguously” bar coverage, the appeals panel agreed.

Another issue was the refusal of Atlantic Specialty Insurance Co., a unit of Intact Insurance Group USA LLC, to provide D&O coverage. The district court held the suit fell within the policy’s exclusion for “managed care activities,” which Benecard contended was in error. 

The panel also agreed with the lower court on this issue. “Benecard’s theory is foreclosed by the policy’s plain language,” it said. 

The panel also affirmed the district court’s summary judgment for Travelers unit Travelers Property Casualty Co. of America in the D&O action, contending the insurer properly interpreted the policy.




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