Applying federal procedural law, the United States District Court for the Eastern District of Louisiana has held that an insurer’s allegation “upon information and belief,” that an insured possessed knowledge or information that a warranty letter signed in connection with a policy application was false, was sufficient to withstand a motion to dismiss. Aaron v. Ill. Nat. Ins. Co., 2023 WL 3737887 (E.D. La. May 31, 2023).

In its application for an excess D&O insurance policy, a director of the insured bank submitted a signed warranty letter stating that there were no “pending [] claim(s), suit(s), or action(s)” and that, after making “inquiry of all the directors and officers of [the insured]” and its subsidiaries, no party covered by the policy had “knowledge or information of any act, error or omission which might give rise to a claim(s), suit(s), or action(s) under” the policy. Regulators subsequently shut down the bank’s operations, and the director sought coverage under the excess D&O policy. The insurer advised that “it will deny in part coverage under its policy due to alleged misrepresentations” in the warranty letter.

The insurer filed coverage litigation and pled “on information and belief” that the director “failed to make inquiry of all of the directors and officers of [the insured] and its subsidiaries (if any) before executing the Warranty” and that he executed the warranty despite “possess[ing] knowledge or information of any act, error or omission which might give rise to a claim(s), suit(s), or action(s) under the” policy. The director filed a motion to dismiss arguing that the complaint did “not allege or describe the ‘knowledge or information’ that was supposedly possessed by [the director], or any defendant, that gave rise to, or supports, its causes of action[,]” nor did it “allege or disclose the ‘knowledge or information,’ which defendant possessed but did not provide in a warranty.”

The court denied the motion to dismiss, stating that “when discoverable information is in the control and possession of a defendant, it is not necessarily the plaintiff’s responsibility to provide that information in her complaint.” The court ruled that the insurer provided “sufficient factual allegations” for the director to respond, including its citations to other criminal and civil matters stemming from the bank’s failure.

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