Insurance Coverage for Refunds – Considerations for Private Fund Managers – Finance and Banking


United States: Insurance Coverage for Refunds – Considerations for Private Fund Managers

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On November 23, 2021, the New York Court of Appeals ruled that an investment firm’s $ 140 million remittance payment to the Securities and Exchange Commission (SEC) was not a “sanction imposed by the law ”excluded under the company’s insurance policies because it was used for compensatory purposes. and represented an estimate of profits improperly obtained by the company’s customers (as opposed to a fine payment that “was not derived from any estimate of the harm or gain arising from inappropriate business practices”). The Court noted that its conclusion was specific to the insurance context and was based on the New York Principles of Insurance Policy Interpretation, which require that exclusions be given a “strict and narrow interpretation.”

With the possibility that a wider universe of sanctions may be covered by insurance, it is more important than ever for any fund manager facing an SEC investigation, or other action, to coordinate with his lawyer to know when and how to best disclose the situation. to their insurer. It has always been true that ambiguities or questions about the precise scope of coverage can lead to complex and costly disputes between investment firms and their insurers, but this recent decision only increases the need to preserve all the possibilities of cover within the framework of an insurance contract.

Early discussions with the manager’s attorney can help clarify the insurer’s position regarding the scope of coverage, can preserve the ability to challenge a denial of coverage, and can help avoid unpleasant surprises and costly litigation. a later stage.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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