Excess Insurer Seeks Declaration that Certain Sprint D&O “Claims” Are Unrelated

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Old Republic Insurance Company has made a counterclaim against Sprint Nextel Corp. seeking a declaration that no coverage is owed under a 1999-2000 claims made policy for a 2003 securities lawsuit.

According to the counterclaim, in 1999, Sprint announced a proposed merger between it and MCI WorldCom, Inc. Shortly thereafter, it was sued in eight separate class action suits, alleging that Sprint gave preferential treatment to WorldCom, failed to seriously negotiate with other potential merger partners, and failed to use open auction procedures to ensure the highest stock prices. The lawsuits were eventually abandoned and the merger was scrapped.

In 2003, Sprint and several of its officers and directors were sued in several class action lawsuits that were eventually consolidated. The 2003 litigation alleged that Sprint violated the Exchange Act by issuing a series of false statements that artificially inflated Sprint’s stock prices. The false statements were regarding the long-term employment status of key Sprint employees. It is alleged that Sprint indicated that the long-term employment prospects for the employees were good, when it was aware that the employees would likely be forced to leave the company in the near future. That litigation is ongoing.

According to Sprint’s complaint, its insurers are arguing amongst themselves regarding whether policies in effect in 1999-2000 cover the 2003 claims, or whether only policies subsequent to 1999-2000 cover the claim. In its counterclaim, filed June 29, 2009 Old Republic fires the fire arrow by asserting that based on the 1999 and 2003 suits are wholly unrelated.

A copy of Old Republic’s Answer with Counterclaims can be found here

By Sarah J. Delaney