Insurance Commissioner’s Suit Brought in his Capacity as Receiver of Insolvent Insurer Does Not Constitute A “Governmental Claim”

Wiley Rein LLP

The United States District Court for the District of Connecticut has held that a lawsuit filed by a state insurance commissioner in his capacity as private receiver on behalf of an insolvent insurer was not a “Governmental Claim.”  Trinidad Navarro v. Allied World Surplus Lines Ins. Co., 2021 WL 2530834 (D. Conn. June 21, 2021).

An insured entity served as a manager for a captive insurer risk retention group.  After the risk retention group became insolvent, the Delaware Insurance Commissioner brought suit against the insured management group in his capacity as the receiver for the risk retention group, alleging that the insured caused or contributed to the insolvency.  The insured tendered the complaint to its E&O carrier for defense and indemnity.  The E&O insurer initially accepted the defense. In July 2015, the carrier withdrew its defense, alleging that it satisfied its obligations by tendering the $25,000 limit of liability applicable to a “Governmental Claim,” which the policy defined as a “Claim or investigation brought by any federal, state or municipal agency, insurance department, or other governmental or quasi-governmental authority, in any capacity, whether in its own right, on behalf of an individual or entity, or by an individual or entity on the agency’s or authority’s behalf.”  After settling with the insured and accepting an assignment, the Commissioner filed a coverage action alleging that the E&O insurer breached its duty to defend and indemnify the insured in the underlying litigation.  The insurer moved to dismiss.

The district court denied the insurer’s motion to dismiss, holding that the Commissioner’s action was not indisputably a “Governmental Claim.”  First, the court noted that it was not clear whether “governmental authority” as used in the definition encompassed the Commissioner, an individual rather than a governmental entity.  Second, the court held that, even if the Commissioner constituted a “governmental authority,” he was not acting in his capacity as a governmental official but, rather, in his capacity as a private receiver.  The court held that when the Commissioner acts in his capacity as a private receiver he does so on behalf of the insolvent insurer, not the government.  Thus, the court concluded that the underlying litigation was not unambiguously a “Governmental Claim.”

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