We tend generally to think of insurance cases as state law cases, because contractual disputes are governed by state law. In truth, however, there are numerous federal court decisions that resolve insurance disputes by interpreting state law. Earlier this summer, the New York State Court of Appeals and the U.S. Court of Appeals for the Second Circuit each issued equally important rulings in cases concerning claims submitted under directors and officers (D&O) insurance policies.
In the first case, J.P. Morgan Securities v. Vigilant Insurance,1 the state Court of Appeals addressed coverage questions concerning an insured’s claim for recovery of disgorgement payments made as part of an SEC settlement. In the second case, Ali v. Federal Insurance,2 the Second Circuit addressed the issue of whether underlying layers of insurance must be exhausted by actual payment as a condition to triggering excess insurance. Both of these cases established precedent but, because of the facts presented and the nature of the rulings, also raised issues likely to be litigated in subsequent cases.
