legally obligated to pay

ednyIn order to try to resolve litigation pending against them, policyholders sometimes enter a settlement in which they agree to the entry of a consent judgment against them and to the assignment to the claimants of their rights under their insurance policy, subject to the claimants’ agreement not to execute the judgment against them. The question that often arises is whether, in light of the covenant not to execute, the policyholders have suffered a “Loss” as required to trigger policy coverage.

In a September 16, 2016 ruling in connection with a coverage dispute involving one of these types of settlement arrangements, Eastern District of New York Judge Arthur D. Spatt, applying New York law, rejected a D&O insurer’s argument that because of the assignees’ agreement not to execute on the consent judgment, the insured persons had suffered no “Loss.” The court’s determination of these questions raises some interesting issues. Judge Spratt’s September 16, 2016 opinion can be found here.
Continue Reading D&O Insurance: Consent Judgment Including Covenant Not to Execute Constitutes “Loss”