Insurer Not Required to Advance Defense Costs Under A-Side Policy on Pro Rata Basis with Underlying D&O Policy

In a victory for Wiley Rein's client, a federal district court has held that an insurer is not required to advance defense costs under an A-side policy as long as it is advancing defense costs under a D&O liability policy issued for the same policy period. FDIC v. Gálan-Álvarez, 2015 WL 4887578 (D.P.R. Aug. 17, 2015). Wiley Rein represented the insurer.

The Federal Deposit Insurance Corporation (FDIC) sued the former directors and officers of a bank in connection with the bank’s failure. The insurer agreed to provide a defense under the D&O liability policy and had advanced nearly $11 million to date. The directors and officers sought an order requiring the insurer to reallocate amounts paid to date and to pay defense costs going forward on a pro rata basis between the D&O policy and the A-side policy. The directors and officers argued they were entitled to a defense under the A-side policy if there was even a “remote possibility” of coverage under that policy, asserting that the A-side policy was not a “true excess policy” and that the two policies’ “other insurance” provisions should be treated as mutually repugnant so that costs should be shared between the two policies.

The court held that the language of the A-side policy made its coverage excess to the D&O liability policy, and advancement of defense costs under the A-side policy was therefore not available until the D&O policy was exhausted. In reaching this conclusion, the court noted that the A-side policy expressly stated that it was excess of any Insurance Program, which was defined to include “any existing Management Liability insurance.” The court held that, in light of this plain language, not even a “remote possibility” of coverage under the A-side policy existed at the time. The court also held that the question whether the “other insurance” clauses were mutually repugnant was immaterial because neither had been invoked to deny coverage, and the insurer was advancing defense costs under the D&O liability policy.