Ever since the Seventh Circuit’s 2001 decision in Level 3 Communications, Inc. v. Federal Insurance Co., 272 F.3d 908 (7th Cir. 2001), insurance companies have argued that settlements constituting restitution or disgorgement are uninsurable on grounds of public policy. While numerous decisions since 2001 have undercut this defense, two recent decisions out of the New York Court of Appeals and the Northern District of Illinois further confirm that coverage does not depend on how the damages paid are characterized. In both J.P. Morgan Securities Inc. v. Vigilant Insurance Co., No. 61, 2021 N.Y. slip op. 06528 (N.Y. Nov. 23, 2021), and Astellas v. Starr Indemnity, No. 17-cv-8220 (N.D. Ill. Oct. 8, 2021), the courts looked beyond the labels of “restitution” and “disgorgement” affixed to the insureds’ settlement payments to determine whether such payments were covered by each insureds’ respective insurance policies.

Last week’s post on The Policyholder Perspective took an in-depth look at Vigilant Insurance Co.  This week we consider how Vigilant, in tandem with Astellas, demonstrates a trend in how courts interpret labels on payments in an insured’s settlement agreement.

In Astellas, the insured (Astellas) entered a settlement agreement relating to a False Claims Act investigation and agreed to pay $100 million plus interest to the United States, with $50 million of such settlement labeled as “restitution to the United States.” In a similar vein, the insured (Bear Sterns) in Vigilant Insurance Co. entered a settlement agreement with the SEC for alleged illegal trading practices and made a $160 million “disgorgement” payment – $140 million of which was an estimate of the profits gained by Bear Sterns’ clients – and a $90 million payment for “civil money penalties.” Astellas submitted a claim to its insurers for the $50 million “restitution to the United States,” and Bear Sterns submitted a claim for the $140 million “disgorgement” payment reflecting its clients’ profits gained.Continue Reading Labels, Shmabels: Recent Decisions Confirm No “Restitution / Disgorgement” Exclusion in Management Liability Policies