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ARTICLE · 14 DECEMBER 2021

Insurance Coverage For Disgorgements—Considerations For Private Fund Managers

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On November 23, 2021, the New York Court of Appeals held that an investment firm's $140 million disgorgement payment to the Securities and Exchange Commission (SEC) was not an excluded "penalty imposed by law"...

United StatesFinance and Banking
Brian T. Daly
Brian T. Daly
Jacqueline Yecies
Jacqueline Yecies
Douglas Rappaport
Douglas Rappaport
Richard D'Amato
Richard D'Amato
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On November 23, 2021, the New York Court of Appeals held that an investment firm's $140 million disgorgement payment to the Securities and Exchange Commission (SEC) was not an excluded "penalty imposed by law" under the firm's insurance policies because it served compensatory purposes and represented an estimate of the firm's clients' wrongfully obtained profits (as distinct from a penalty payment that "was not derived from any estimate of harm or gain flowing from the improper trading practices"). The Court emphasized that its conclusion was specific to the insurance context and was based on New York principles of insurance policy interpretation, which require that exclusions be given a "strict and narrow construction."

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