The Delaware Superior Court has granted summary judgment to Clear Channel Outdoor Holdings, Inc. in their years-long multi-million dollar million insurance coverage dispute against Illinois National Insurance Company (AIG).

At issue was the question of whether amounts paid to resolve an SEC enforcement action (specifically payments characterized as “disgorgement” and “prejudgment interest”) qualify as covered loss under policy language that expressly includes settlements. In oral arguments in January, Thomas  E. Redburn Jr., partner and Chair of the firm’s Securities Litigation practice, sought indemnification from AIG for Clear Channel for amounts arising from an SEC settlement related to alleged compliance violations by an international subsidiary, arguing that “disgorgement” and “civil penalties” are distinct legal concepts and that the insurer improperly tried to recharacterize the settlement to avoid coverage.

The Court’s opinion rejected AIG's defenses, calling AIG's attempt to recharacterize the disgorgement as a disguised penalty contrary to the policy's plain language, the context of SEC enforcement, and the contract as a whole. The Court further rejected AIG's public policy argument, reaffirming Delaware's strong deference to freedom of contract and holding that no legislative pronouncement rendered disgorgement uninsurable. AIG's own motion for summary judgment on indemnity was denied.

This ruling is expected to influence how insurers and policyholders nationwide interpret coverage for SEC settlements under D&O policies.

In addition to Redburn, the Lowenstein team also included Rasmeet K. Chahil.

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