Houston Cas. Co. v. Sprint Nextel Corp., Case No. 09-CV-1387 (E.D.Va, November 22, 2010)
This coverage dispute arose out of an underlying securities action. In 2004, Sprint discontinued one line of stock. The shareholders whose stock was converted filed a securities action accusing Sprint of undervaluing their stock. Eventually, a settlement was reached in the amount of $57.5 Million.
At the time of the conversion, Sprint was insured under a number of D&O policies providing $100 Million in coverage, including an excess policy issued by Houston Casualty providing $15Million in coverage. Houston Casualty agreed to contribute to the settlement, but reserved the right to deny coverage and seek reimbursement. Houston Casualty filed the instant action after another insurer (Federal Insurance Company) secured a decision declaring that it was not required to provide coverage for the underlying securities claim.
Initially, the court rejected Houston Casualty’s argument that the underlying settlement was not a “loss” because the settlement merely redistributed assets among different classes of Sprint shareholders. Moreover, the court held that paying the settlement did not violate Kansas public policy.
Turning to Houston Casualty’s effort to recoup the monies provided to fund the settlement, the court held that Houston Casualty could not obtain restitution because there was no basis under the policy for an insurer to make a settlement advance and later seek its return. The court noted that the policy contemplated the return of defense costs, but did not provide for the return of settlement payments. Further, Sprint did not reach an agreement beyond the terms of the policy granting Houston Casualty the right to seek reimbursement.
In the end, the court awarded summary judgment in favor of Sprint and dismissed Houston Casualty’s claim.
For a copy of the decision, click here
Brian Biggie and Sharon Angelino