Chubb unit ordered to pay $24M in D&O dispute

ATLANTA--A judge has ordered Chubb Corp. unit Executive Risk Indemnity Inc. to pay $24 million to directors and officers liability policyholder AFC Enterprises Inc. over a claim related to AFC's settlement of shareholder litigation.

The unit of Warren, N.J.-based Chubb in 2004 sued AFC--owner of the Popeyes Chicken & Biscuits fast-food chain--seeking declaratory judgment that it had no duty to defend or indemnify AFC for losses stemming from shareholder litigation related to its restatement of results for several periods. AFC settled the securities suit in 2005 for $15 million.

In its complaint, filed in U.S. District Court for the Northern District of Georgia, the insurer charged that the information it relied on in underwriting the company's D&O coverage was "fraudulent, materially false, and misleading" and that, among other things, AFC had not informed the insurer of a need to restate results for certain period even though it announced planned restatements only three weeks after the policy's inception.

In a counterclaim, AFC maintained that it had not misled Executive Risk's underwriters and that the need to restate was not known until an audit had been completed.

Yesterday, a judge rejected Executive Risk's claims and ordered the insurer to pay $20 million in damages--representing the full limits of liability of the policy--and approximately $4 million in prejudgment interest.

A Chubb spokesman said the company is evaluating the decision.