The Superior Court’s Complex Commercial Litigation Division held in TIAA-CREF Individual & Institutional Services, LLC v. Illinois National Insurance Company, C.A. No. N14C-05-178 (JRJ) (CCLD) that amounts TIAA-CREF paid in settlement of three underlying class action lawsuits did not represent uninsurable disgorgement.  The underlying lawsuits alleged that TIAA-CREF improperly failed to credit the accounts of customers with investment gains that accrued while transfer or withdrawal requests were being processed.  The underlying lawsuits were eventually settled with payouts to the class members.  Pursuant to the settlement agreements, TIAA-CREF specifically stated that it was resolving disputed claims, denied any wrongdoing, and did not admit liability.  TIAA-CREF subsequently sought coverage for the settlement amounts, but the insurance carriers denied coverage on various grounds, including that the amounts TIAA-CREF agreed to pay represented uninsurable disgorgement.

In holding that the settlements did not represent uninsurable disgorgement, the Court distinguished three New York decisions, relied upon by the insurers, where the courts had found that amounts the insured in those cases had paid in regulatory enforcement settlements represented uninsurable disgorgement.  Specifically, unlike the three New York decisions, TIAA-CREF expressly denied any liability and there was no conclusive link between the insured’s misconduct and the payment of monies.  Moreover, neither the SEC nor any other governmental entity was involved in the underlying actions. 

The Court also held that the later class action lawsuits were interrelated with the first lawsuit.  Therefore, therefore the later lawsuits were deemed to have been “first made” during the policy period of the insurance program in place. Although TIAA-CREF was sued in different jurisdictions, by different plaintiffs and asserting different legal claims: “the allegations in the Underlying Actions arise out of, are attributable to, the same type of conduct – TIAA-CREF’s business practice that resulted in failure to pay customers their gains during delays in processing.” 

 Finally, the Court held that TIAA-CREF’s claims were not excluded by the policies’ Commingling Exclusions.  The Court held that there was no commingling here and distinguished two cases where there was a clear mixing of personal and business funds, without a clear identity as to whose funds belonged where.