You Can't Insure What's Not Yours: NY Court Determines SEC Disgorgement Payment Not Insurable Loss as Matter of Public Policy


New York's Appellate Division, First Department   

In J.P. Morgan Securities, Inc. v. Vigilant Ins. Co., ___ N.Y.S.2d ___, 2011 WL 6155586 (N.Y. App. Div. Dec. 13, 2011), New York's Appellate Division, First Department, held that a disgorgement payment made as part of a settlement with the Securities and Exchange Commission (SEC) does not constitute an insurable loss under New York law.

In the underlying action, the SEC had alleged that between 1999 and 2003, Bear Stearns violated securities law by knowingly facilitating deceptive market timing for large, hedge-fund clients, assisting them in evading detection, and enabling them to earn hundreds of millions of dollars at the expense of mutual fund shareholders.  Bear Stearns disputed the SEC's findings, but settled with the SEC and, without admitting or denying SEC's charges, agreed to disgorge $160 million and pay $90 million in civil money penalties.

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Published In: Business Organization Updates, Business Torts Updates, Insurance Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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