Disgorgement, Directors and Officers Insurance and the Meaning of Loss

Ten, twenty years ago, insurance coverage litigation was predominately about broad issues and big ticket items, about the extent of insurance coverage across decades of policies for long term environmental pollution or for tens of thousands of asbestos related bodily injury claims. The actual coverage issues themselves tended to be of a big picture nature - such as whether years of dumping of pollutants was an accident for purposes of insurance policies, for instance - and were frequently not heavily focused on very narrow and highly technical aspects of policy language. Insurance coverage litigation today is, in contrast, much narrower in its focus, much more technical (see my post here, for example, about the years I once spent litigating the effect on coverage of the absence of the letter “s” from a particular provision in an insurance policy); it’s not necessarily better or worse than the whole forest picture cases of the past, just different.

A perfect example is in this (very good) article on the subject of whether disgorgement or restitution constitutes loss covered by directors and officers insurance. As the article explains, the issue revolves around the question of whether any particular recovery from directors and officers should fall within a policy’s specific definition of loss - these types of policies typically cover “loss” as defined in the policy, rather than damages, as is typically covered under liability policies - and on whether the exact recovery from the directors and officers in the particular claim at issue fits that definition.

For insurance coverage lawyers, it’s the kind of thing that is fun to fight over, but it is definitely the type of dispute where you are really focusing on a particular tree in the forest, and not (to happily and intentionally mix my metaphors) on a bigger picture. It is also the type of issue that shows why directors and officers insurance is often its own little planet when it comes to evaluating insurance coverage, because this particular issue is driven by the fact that the structure of and coverage under directors and officers policies focuses on the defined term loss. Business liability coverages, in contrast, do not center coverage on this concept, and instead are built around coverage for damages, and the question of whether disgorgement or restitution can constitute damages for purposes of such policies is quite different than the question of whether or not they constitute loss for purposes of directors and officers policies.