Illinois National Insurance Company is required to honor coverage of $48 million in defense costs for Verizon after a major lawsuit battle made public on March 15.
The legal implications of what insurance companies will now cover following the case is quite broad, meaning all securities claims go before the Federal Securities Exchange Commission even if they relate to criminal or civil matters.
The case originated from Verizon’s spinoff of Idearc, the publisher of Yellow Pages, in late 2006.
Idearc was shouldering considerable debt and filed for Chapter 11 following the 2008 financial crisis, later renaming itself SuperMedia.
The shareholders of Idearc sued Verizon for $14 billion, claiming the company wasn’t worth anything when it was spun off and was done so in bad faith.
Verizon successfully defended itself against Idearc’s shareholders and had taken out a policy with the Illinois National Insurance Company for the defense costs.
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The executive and organizational liability policies then became the subject of a court battle.
The Chicago carrier argued only D&O claims had legal defense coverage under blue sky state laws, because they argued Verizon took fraudulent dividends and avoided its fiduciary duty.
In the end the Superior Court of Delaware agreed with Verizon and its legal team, saying civil or legal cases brought against companies who are alleged to have violated the Securities Exchange must then be held against Securities Exchange rules.
“The Idearc Runoff Policies provide coverage resulting from claims first made during the six year period, which spanned from November 17 2006 to November 17 2012. The policies proclaim to cover “organizations” Idearc, Verizon and their subsidiaries as “insured persons” certain executives and employees of the insureds,” the ruling stated.
“Endorsement number 7 to the policies provided that “notwithstanding any provisions of the policy (not including any endorsement) no coverage would be made against the Organization for its Wrongful Acts. Rather coverage for Organizations would be limited to losses “arising for a claim made against an insured person…for any wrongful act such Insured person but only to the extent such Organization has indemnified such person.”
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