Locke Lord secured a significant court ruling on behalf of client, Arch Insurance Company (“Arch”), in a coverage and “bad faith” case in the San Francisco, California Superior Court, captioned, Orchard Brands Topco LLC, et al., v. Twin City Fire Ins. Co., et al.
. The Insured, Golden Gate Private Equity, Inc., and a portfolio company, Orchard Brands, sued Golden Gate’s primary carrier, Twin City, and several excess carriers, including Arch, seeking coverage for its settlement of various claims brought by the trustee for a bankrupt subsidiary, based upon the acquisition of that subsidiary in a leveraged buyout and the subsequent issuance of over $310 million in dividends and fees, which the trustee characterized as fraudulent transfers. The carriers disclaimed coverage for the settlement, arguing, among other things, that the trustee’s claim sought legally uninsurable restitution/disgorgement of the fraudulent transfers, and was also uninsurable pursuant to California insurance Code section 533 (which precludes coverage for willful conduct). Golden Gate argued that restitution/disgorgement was not per se uninsurable, that coverage for ill-gotten gains could not be disclaimed absent a prior adjudication as specified in the policy’s profit exclusion, and that section 533 did not apply. The Court substantially affirmed the carriers’ coverage position and while the Court is allowing the case to proceed to an allocation phase to determine whether any coverage might be available for non-fraudulent transfer claims and non-wilful conduct, its observations in its decision suggest the carriers should (after the presentation of allocation evidence) ultimately prevail in disclaiming coverage for the settlement in its entirety, and the Court’s vindication of the substantive validity of the carriers’ concerns regarding uninsurability appears to eliminate any colorable basis for the purported “bad faith” claim. Locke Lord lawyers Michael Perlis
and Richard Johnson
Posted January 24, 2014