Insuring Disgorgement and Restitution Claims After Liu v. SEC; Liu's Effect on Kokesh, TIAA-CREF, and J.P. Morgan

Description

Whether coverage exists for disgorgement or restitution of purported "ill-gotten gains" under D&O and other professional liability policies has been a pervasive issue in jurisdictions across the country. The increased filings of consumer and securities class actions, breach of fiduciary duty actions, SEC enforcement actions, and appraisal actions have fueled this judicial debate.

The Supreme Court's 2019 decision Kokesh v. SEC held that disgorgement qualifies as a "penalty" for purposes of the applicable statute of limitations and has had far-reaching implications for insurance practitioners. In Liu, the Court decided in the affirmative the issue left unresolved in Kokesh, whether the SEC could even request disgorgement under its authority to seek "equitable relief." Liu holds that it can subject to certain limits.

Although some lower courts have followed Kokesh and found disgorgement and restitution uninsurable, the Delaware Supreme Court held in In re TIAA-CREF Insurance Appeals that settlement of a civil lawsuit involving claims for disgorgement was an insurable loss under New York law. These cases provide valuable guidance on how counsel--and courts--should approach coverage disputes over disgorgement claims.

Listen as Justin F. Lavella, Partner at Blank Rome, provides practical guidance gleaned from the recent seminal decisions and explains the most compelling arguments for and against these claims--ranging from broad public policy considerations to close reading of exclusions.