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A Chubb Ltd. unit has won a partial victory in litigation against the Beazley Group P.L.C. over Facebook Inc.'s 2012 botched initial public offering, with a federal court ruling it is not obligated to indemnify Nasdaq under the professional services exclusion in its directors & officers' liability policy.
But in his ruling Tuesday in Beazley Insurance Co. Inc. v. Ace American Insurance Co. et al., Judge Jed Rakoff, of U.S. District Court in New York, also ruled the issue of how much Beazley is entitled to reimbursement of defense courts must still proceed to trial.
In 2015, in a first for a U.S. stock exchange, Nasdaq agreed to pay $26.5 million to settle a class action lawsuit in its bungling of Facebook's $16 billion initial public offering.
According to Judge Rakoff's ruling, during the relevant time period, Nasdaq maintained both errors and omissions and directors and officers liability policies.
American International Group Inc. unit Chartis Specialty Insurance Co., which is not a party to the litigation, was Nasdaq's primary E&O liability insurer at the relevant time, with a $15 million limit of liability, while Beazley was Nasdaq's first-layer excess E&O insurer, with a $15 million limit of liability.
Ace was Nasdaq's primary D&O liability insurer, with a $15 million liability limit, while AIG unit Illinois National Insurance Co. was the first layer excess insurer, with a $15 million limit of liability.
After receiving notice of litigation, Chartis issued a reservation of rights letter and agreed to advance defense costs to Nasdaq under its E&O policy, as did Beazley under its E&O policy, according to the ruling.
Ace, however denied coverage under the professional services exclusion in its policy. After Nasdaq settled the case, Beazley agreed to contribute its full $15 million limit of liability toward the settlement, according to the ruling.
Subsequently, there was litigation between Ace and Beazley on the issue of Ace's professional services exclusion and whether Ace must contribute to Beazley's defense costs under its D&O policy.
Judge Rakoff held in Tuesday's ruling that the professional services exclusion “unambiguously applies.” However, he affirmed an Oct. 21, 2015 order and Dec. 20, 2015, opinion by his court, that Ace breached its duty to advance defense costs to Nasdaq, with Beazley serving as Nasdaq's “assignee.”
Beazley and Ace are directed to contact the judge's chambers no later than Friday about a trial date on the issue of how much Beazley may be entitled to in unreimbursed attorneys fees and costs, Judge Rakoff said.
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