The New York Court of Appeals’ Vigilant Decision: A Welcome Return to Enforcing Insurance Contracts as Written

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In a much-anticipated decision, New York’s highest court, the New York Court of Appeals, on June 11, 2013, unanimously rejected a group of insurers’ attempt to invoke purported “public policy” considerations to avoid covering a settlement between a former broker-dealer and clearing firm and the Securities and Exchange Commission (“SEC”). The opinion in J.P. Morgan Securities Inc. v. Vigilant Insurance Co., No. 113 (N.Y. Ct. App. June 11, 2013), is welcome news for policyholders forced to deal with the insurance industry’s increasingly aggressive assertions of purported “public policy” principles to disavow obligations imposed under insurance contracts, especially when seeking coverage for “disgorgement” claims asserted by government authorities and private parties.

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The underlying claims giving rise to the coverage dispute involved allegations that a former broker-dealer and clearing firm (the “Insureds”) improperly facilitated “late trading” and “market timing” on behalf of certain of their customers. The SEC’s investigation into these matters was resolved through an Order pursuant to which the Insureds agreed to...

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