When a judgment or settlement in shareholder derivative or class action litigation results in a corporation or a certified class receiving some or all of the benefit sought or relief on a significant claim, the shareholder who pursued the claim may recover an award of the reasonable expenses of litigation, including attorney’s fees. D&O insurance policies that treat plaintiffs’ attorney’s fees as an afterthought have generated coverage litigation concerning those fees—and the outcomes have surprised some.
A divided panel of the Appellate Division, First Department, recently held that a corporate insured’s payment of shareholder plaintiff attorney’s fees was a covered loss even though the shareholder’s derivative suit arguably benefited the insured well beyond any loss represented by the fees. In the class context, a federal court in Minnesota refused to dismiss claims for coverage of payment of class action plaintiffs’ attorney’s fees, reasoning that, although none of the substantive claims alleged by a plaintiff class against an insured were covered claims, the plaintiff class’ demand for attorney’s fees was itself a separate, covered claim. A review of standard D&O insurance policy terms and relevant case law suggests that insurers may wish to tighten the language of certain policy definitions and that, until they do, insureds have additional avenues to pursue coverage for payment of plaintiffs’ attorney’s fees.
Background
