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Insurer says its D&O insurers acted in bad faith in claim dispute

Wed Apr 4th, 2012 on     Uncategorized,    

A major insurance company, Washington Mutual Inc., filed a lawsuit in March accusing a dozen other insurers of improperly denying it coverage for claims under directors’ and officers’ liability policies issued in 2008 and 2009. Washington Mutual is asserting that it is entitled to $250 million in coverage, and that the other insurers breached their covenants of good faith and fair dealing in denying coverage.

The claims against Washington Mutual, Inc. grow out of an incident on Sept. 28, 2008 in which a number of directors and officers of the company ordered a “downstream capital contribution” of half a billion dollars to its bank unit, Washington Mutual Bank. That bank, however, was seized by thrift regulators just 15 days later.

Unsecured creditors of Washington Mutual Inc. sent a notice of claim to the insurer, which in turn notified the 12 issuers of its directors’ and officers’ insurance of the need for coverage. The claims were subsequently denied, with the dozen insurers pointing to four exclusions in the policies.

These exclusions included an insured versus insured exclusion, an exclusion for interrelated wrongful acts, a prior notice exclusion and a specified claims exclusion. Washington Mutual asserts that the 12 insurers really just sought to evade their obligation in bad faith, leaving the directors and officers of Washington Mutual without adequate insurance coverage for the significant claims involved.

Washington Mutual argues that the insurers tried to force the directors and officers at risk to seek coverage and payment from already exhausted insurance policies covering the 2007-2008 time period. The insurers named include XL Specialty, Washington Mutual’s primary insurer, and 11 other companies that acted as excess insurers.

Washington Mutual has recently completed a Chapter 11 bankruptcy reorganization.

Source: Business Insurance, “Washington Mutual sues directors and officers insurers over coverage denials,” Judy Greenwald, March 22, 2012

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