Demand Made Before Policy Period
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Demand Made Before Policy Period

Plaintiffs sued their D&O insurer following its denial of their claim alleging breach of contract and bad faith under the Illinois Insurance Code. The underlying suit stems from the company’s  2012 sale of interests in another company. A minority investor expressed dissatisfaction with some of the proposed terms, including the purchase price, and threatened litigation if his key terms were not met.  While the terms of the sale were amended and the purchase price and other key terms were modified, the amended agreement included a “reaffirmation” provision of the original agreement. In the midst of this, the company purchased the subject D&O policy on a claims-made basis for the relevant period. However, before the policy period, the insureds had received a demand email but they did not share it with their broker or their new insurer until after binding coverage. The litigation later ensued and the carrier denied coverage citing the allegations in the complaint and the emails that reflected the claims arose prior to the policy period. The Court of Appeals agreed. The denial was not unreasonable or vexatious because the claims against the insureds arose before the policy took effect, thus there was a bona fide coverage dispute.

Nine Group II LLC v Liberty International Underwriters Inc