Travelers unit must indemnify county retirement association

A federal appeals court overturned a lower court ruling Thursday and held a Travelers Cos. Inc. unit must indemnify a California county employees’ retirement association under its fiduciary liability insurance coverage in connection with a lawsuit filed against the organization.

Retirees and beneficiaries filed suit against Stockton, California-based San Joaquin County Employees’ Retirement Association in 2017 regarding the maintenance of a contingency reserve fund they claimed was overfunded and should have been used to pay them supplemental benefits, according to the complaint in San Joaquin County Employees’ Retirement Assn. v. Travelers Casualty and Surety Co. of America.

Travelers denied coverage on the basis that the litigation fell under a “prior and pending proceeding” exclusion in its policy. The association filed suit against the insurer, charging it with breach of contract and bad faith.

The lower court ruled in Travelers’ favor, but was overturned by a unanimous three-judge appeals court panel of the 9th U.S. Circuit Court of Appeals in San Francisco.

The district court had ruled in favor of the insurer after determining the lawsuit “has a slight connection with the allegations” in a 1998 lawsuit involving the association and its members, the appellate court ruling said.

“We disagree,” the panel said. The current litigation involves supplemental benefits “which did not exist in 1998,” it said in holding the exclusion did not apply and remanding the case for further proceedings.

Attorneys in the case did not respond to a request for comment.