Financial services firm secures $40 million coverage win from three insurance companies

Where the opposition went wrong and lessons learned for the industry, straight from one of the defense lawyers

Financial services firm secures $40 million coverage win from three insurance companies

Insurance News

By Alicja Grzadkowska

The verdict on a significant coverage case is finally in, and it doesn’t bode well for three insurance companies on the opposite side of the courtroom.

On July 30, the Delaware Supreme Court issued a unanimous win for Teachers Insurance and Annuity Association of America (TIAA), securing more than $40 million in coverage for the financial services organization from Illinois National Insurance Company, Arch Insurance Company, and ACE Insurance Company.

The case began several years ago when TIAA was sued in a series of class actions in which it adamantly defended its practices and procedures and denied any wrongdoing, eventually entering into successful settlements. However, the company’s insurers didn’t want to pay out the defense costs, hinging their case on the argument that a settlement of a civil lawsuit involving claims for disgorgement was not necessarily an insurable loss under New York law.

Adam Ziffer, a principal at McKool Smith and part of TIAA’s representation, explained the opposition’s argument further: “Because New York law happened to apply, we think that there are some rules in New York which say that this is uninsurable, so yes, we agreed to sell you coverage for these types of claims, but now we’re going to say that New York law prevents us from giving you the insurance that you purchased.”

Though there was concern that the courts wouldn’t appreciate a distinction between TIAA’s case and previous suits with some similarities that also involved the SEC, the Delaware Supreme Court ultimately didn’t think much of the opposition’s case, said Ziffer.

“To then have the insurance, that they paid lots of money to, to deny coverage on the basis that there was some ill-gotten gains or wrongly withheld funds was very contrary to the nature of TIAA, and its defense and view as to the business practices that were challenged,” explained the principal.

There are a few takeaways for the insurance industry from this lawsuit, namely that companies should be clear with respect to what’s covered in a policy and what’s not so that policyholders know what they’re getting into.

“Insurance companies who are watching this should really focus on what they agreed to buy and sell, and if they want to not cover settlements of civil claims for disgorgement, they should include those provisions expressly in their policies so that the policyholder can make a decision on whether they want to spend money on coverage that doesn’t include those claims, instead of in hindsight using arguments to extend applicable law to otherwise undo the agreements that they made initially,” said Ziffer.


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