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8th Circuit affirms dismissal of D&O coverage suit over demand letters
The court said the receiver’s letters targeted the insurer rather than Empirical, and it also found no “Loss” existed because nothing had made the insured or its officers legally obligated to pay yet.
A U.S. appeals court has affirmed dismissal of a directors and officers coverage lawsuit tied to a receivership at Empirical Prime, underscoring that D&O policies respond to the right kind of demand and only when an insured is legally required to pay, according to Insurance Business.
Insurance Business reports the dispute followed Empirical Prime’s collapse after it borrowed from Enterprise Bank and Trust while it allegedly promised not to take additional loans. The court said Empirical’s officers allegedly violated that promise by borrowing millions elsewhere using allegedly false or inaccurate financial statements, allegedly commingling funds, and distributing money for personal benefit.
After the default, a state court appointed a receiver, who sent two demand letters to Texas Insurance Company (TIC) seeking coverage under Empirical’s Directors, Officers & Organization Liability Policy. When TIC did not pay, the receiver sued for breach of contract and vexatious refusal to pay.
The U.S. Court of Appeals for the Eighth Circuit held the letters were demands against the insurer, not against Empirical, so they did not qualify as a “Claim” under the policy. It also found no “Loss” because no amount had yet made Empirical or its officers legally obligated to pay, leading the coverage claim and related vexatious refusal claim to fail, and the court upheld the lower court’s decision to deny an amendment as futile.