D&O Policy Forum Selection Clause Not Binding on Individual Insured

The United States District Court for the Eastern District of New York, applying international law, has held that a Swiss forum selection clause in a D&O policy issued to the Federacion Internationale de Football Association (FIFA) did not apply to an individual insured because the individual, a FIFA executive, was not a signatory to the policy and was not domiciled in the country of the insurers or the named insured. Li v. Certain Underwriters at Lloyd’s, London, 2016 WL 1706125 (E.D.N.Y. Apr. 27, 2016). Pursuant to its ancillary jurisdiction, which was triggered as a result of the underlying criminal proceedings against the insured executive, the court ordered the insurers to advance the executive’s defense costs.

The executive had held a number of positions within FIFA and its member associations, including serving as a member of several FIFA standing committees. In May 2015, a federal grand jury in the Eastern District of New York returned an indictment charging the executive and other FIFA-connected defendants with participating in an international racketeering conspiracy and related crimes. The executive was arrested in Switzerland and extradited to the United States. The executive sent a letter to FIFA’s insurers, notifying them of his indictment and extradition and requesting payment for the cost of his defense under a D&O policy issued to FIFA.

The insurers denied coverage, and the executive filed suit in New York state court. The insurers removed the case to federal court in the Eastern District of New York, but advised the federal court that subject-matter jurisdiction may not exist. The executive moved for a preliminary injunction directing the insurers to pay his defense costs, and the insurers moved to dismiss based on the policy’s Swiss forum selection clause and on forum non conveniens grounds.

The court first determined that it could decide the coverage dispute pursuant to its ancillary jurisdiction, triggered by the criminal proceedings against the executive pending before the court. The court found that the criminal proceedings and the insurance coverage dispute were factually interdependent and that successful management of the criminal case required preventing any obstacles to a timely, efficient, and fair trial. Although the court acknowledged that the insurers were not parties to the criminal proceedings, it concluded that the exercise of ancillary jurisdiction would not prejudice the insurers because they had voluntarily come before the court by removing the executive’s suit from New York state court.

The insurers argued that the suit should be dismissed pursuant to the D&O policy’s forum selection clause, which provided: “For any disputes arising under this insurance relationship, a Swiss place of Jurisdiction and the application of Swiss Law shall be deemed to be agreed.” In addressing the insurers’ argument, the court first determined that the Lugano Convention, an international treaty to which Switzerland is a party, applied to the dispute. The court then looked to a case decided by the European Court of Justice, which interpreted the relevant portion of the treaty and held that a jurisdiction clause in an insurance policy cannot be relied upon against a beneficiary who has not expressly subscribed to the clause and who is domiciled in a country other than that of the policyholder or insurer. Based on this international jurisprudence, the court held that the policy’s Swiss forum selection clause did not apply to the executive and that the coverage action could proceed in New York federal court.

The court also rejected the insurers’ motion to dismiss on forum non conveniens grounds. While noting that a plaintiff’s choice of forum normally is entitled to less deference where it is not the plaintiff’s home forum, the court observed that the executive chose to sue in New York because it is where he is facing criminal trial. Weighing the relevant factors, the court concluded that it would be more efficient and convenient for the parties and the court to apply Swiss law than for a Swiss court to re-litigate factual issues that would already be resolved by the New York court in the criminal proceedings.

Finally, the court granted the executive’s motion for a preliminary injunction requiring the insurers to advance his defense costs. The court did not apply a heightened standard, as is generally required when an injunction will require a positive act, because it found that the insurers already should have advanced the executive’s legal fees under the terms of the policy, subject to their right to recoup the payments if successful on the merits in the coverage litigation. The court concluded that the failure to advance defense costs would cause irreparable harm to the executive and that the executive had established a clear and substantial likelihood of success on the merits in the coverage dispute. Specifically, the court found that the indictment triggered coverage for defense costs and investigative costs under the policy and that the legal fees incurred in connection with the executive’s extradition triggered coverage for extradition costs. The court further concluded that the balance of hardships favored the executive because, if no injunction were issued, the executive would never receive the benefit of his bargain, would likely be deprived of his chosen counsel, and might sustain a conviction he would otherwise have avoided. Conversely, the insurers faced only monetary loss which might be recouped as provided for in the policy.


Wiley Executive Summary

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