Former directors and officers of real estate investment trust firm RCAP Holdings LLC won a partial summary judgment against Westchester Fire Insurance Co. in a lawsuit over an excess policy issued by the Chubb Ltd. subsidiary.
Westchester Fire had issued to RCAP an excess, follow-form directors and officers policy, which was the seventh level of a tower of policies over the primary policy. The D&O policy offered $5 million in coverage excess of $35 million in coverage provided by the other policies, subject to applicable retention limits. The primary policy covered RCAP and its directors and officers.
RCAP filed for bankruptcy in 2016 and a creditor trust was built to collect and distribute creditor assets under a restructuring agreement. In March 2017, the creditor trust in Delaware's Chancery Court sued parties including Nicholas Schorsch, Edward Weil Jr., William Kahane, Peter Budoko and former RCAP Holdings CFO and Director Brian Block. The parties allegedly committed breach of fiduciary duty to RCAP for the benefit of AR Capital LLC, a company in which the defendants had ownership interests. Block was found guilty of securities fraud, conspiracy to commit securities fraud, and filing false statements in and false certification of SEC filings.
Settlement of an unrelated action in the United States District Court for the Southern District of New York exhausted $31 million in coverage under the primary policy and the first five levels of excess coverage. In March 2018, Westchester Fire denied coverage for the costs suffered by the individuals based on the policy's insured versus insured exclusion and sued RCAP's former directors and officers.
Westchester Fire, along with another excess insurer, RSUI Indemnity Co. Inc., moved to dismiss the defendants' counterclaim for breach of contract. But Justice O. Peter Sherwood of the Supreme Court of the State of New York denied their motion and granted the defendants' motion for partial summary judgment on their breach of contract claim. The justice ordered Westchester Fire and RSUI Indemnity to pay for all the defense and indemnity costs incurred in the Delaware Chancery Court action and the attorney's fees of the defendants.