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Executive charged by SEC not covered by D&O policy

US Securities and Exchange Commission

A company official who was charged by the U.S. Securities and Exchange Commission with fraudulent activity is not covered by the firm’s directors and officers liability insurer because of a policy exclusion, said a federal appeals court Tuesday in affirming a lower court ruling.

Daniel Imperato was accused by the SEC with orchestrating a scheme to use Imperali Inc., a West Palm Beach, Florida-based company he owned and controlled, to defraud investors by making it appear the firm “was a thriving multinational corporation with several wholly-owned businesses, when in fact it was nothing more than a shell corporation,” according to a 2012 SEC statement.

The U.S. District Court in Miami later entered summary judgment for the SEC against Mr. Imperato and imposed more than $3 million in civil remedies, according to Tuesday’s ruling by the 11th U.S. Circuit Court of Appeals in Atlanta in Daniel Imperato v. Navigators Insurance Co.

In May 2014, Mr. Imperato filed suit in U.S. District Court in West Palm Beach against New York-based Navigators Insurance Co. seeking indemnification under a D&O policy issued to Imperali. The policy expressly excluded from coverage claims related to “deliberately fraudulent or criminal acts,” according to the ruling.

Mr. Imperato alleged Navigators breached the terms of the insurance policy by refusing to indemnify and defend him by training legal counsel for him in the SEC action.

Navigators moved to dismiss the case, which the District Court did. Its ruling was affirmed by a unanimous three-judge appeals court panel. “Because Imperato was found to have engaged in ‘deliberately fraudulent’ conduct in the SEC action, the plain language of the insurance policy does not cover his legal fees incurred in that action or the judgment entered against him as a result of it,” said the ruling, in affirming the lower court’s decision.

Navigators’ attorney had no comment. Contact information for Mr. Imperato, who represented himself, was not readily available.

In May, a federal appeals court upheld a ruling in favor of Axis Reinsurance Co. in a D&O liability coverage dispute with a pharmaceuticals company and a company executive over a claims-made policy. 






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