A Texas intermediate court of appeals has held that an insurer was not entitled to summary judgment where the insurer contended that a claim brought by a bankruptcy plan agent (i) did not allege a wrongful act, and (ii) was not made within the policy period because it did not relate back to claims made during the policy period.  Burks v. XL Spec. Ins. Co., 2014 WL 6949610 (Tex. App. Nov. 10, 2015).

The policyholder, a former CFO of a company reorganized under Chapter 11, was sued by the plan agent to recover property that the company had transferred to him. The D&O insurer denied coverage for the plan agent’s claim, asserting that the claim did not allege a wrongful act and sought only disgorgement, which was not covered “loss” under the policy. The CFO then settled the claim with the plan agent and sued the insurer. The trial court granted—without specifying the grounds—the insurer’s motion for summary judgment, which asserted that the claim was made after the policy period because it was not related to prior claims within the policy period, and that the insurer had no duty to advance defense costs or to indemnify the policyholder for the settlement because the claim sought only disgorgement.

The appellate court held that the insurer was not entitled to summary judgment on the claim-made issue because a question of fact existed as to whether the plan agent’s claim was interrelated with prior shareholder derivative claims made during the policy period. The court rejected the insurer’s contention that the “eight corners rule” precluded the court from considering the complaints in the prior shareholder derivative suits in determining whether the insurer had a duty to advance defense expenses. The court also rejected the insurer’s argument that the plan agent’s claim did not allege a “wrongful act” under the policy, reasoning that the plan agent alleged various acts and omissions—the receipt of money, stock and benefits and the failure to give the company something of reasonably equivalent value—which fell within the broad definition of “any . . . alleged act, error, or omission . . . by any Insured Person while acting in his or her capacity as an . . . Insured Person of the Company.”

The court also held that the exclusion for loss arising from profit or remuneration to which the insured is not legally entitled did not negate the duty to defend because that exclusion specifically applied only to loss other than defense expenses and applied only as determined by a final determination in the underlying action. The court further held that, even if disgorgement was uninsurable under Texas law, the insurer did not establish that the policy precluded the advancement of defense expenses incurred defending a claim for disgorgement.

The court further held that the insurer was not entitled to summary judgment regarding its duty to indemnify the policyholder for the settlement, which the insurer contended represented only uninsurable disgorgement or restitution. The court held that, while an insurer may have no duty to indemnify an insured for a judgment for disgorgement or restitution, a fact issue existed about whether the entire settlement represented disgorgement because the record (which included only a stipulation of dismissal, not the actual settlement) did not show any admission of wrongdoing, and the plan agent sought amounts other than restitution and disgorgement, specifically, a “money judgment” and attorneys’ fees.