Officer’s Warranty Statement Sinks Excess Coverage Claim
Investment firm Patriarch Partners, LLC (“Patriarch”) bundles distressed loans to sell to investors as Collateralized Loan Obligations. It was subject to a protracted Securities and Exchange Commission (“SEC”) investigation. Patriarch sued Axis, its excess D&O insurer for breach of contract and declaratory relief to tap into $5 million in excess coverage after three of its D&O insurers agreed to pay $20 million of the more than $25 million in legal bills incurred. The central question on appeal was whether the SEC investigation ripened into a “claim” before the excess policy’s inception date, thereby excluding related defense costs from coverage under the policy terms and a related warranty provided by Patriarch to Axis. The District Court ruled coverage was excluded under the policy’s “prior or pending claims” endorsement but the appellate court didn’t get to this issue because it concluded Patriarch’s claims were foreclosed by the language of the warranty statement signed by its only officer.