Federal Ins. Co. v. IBM N.Y. Ct. Apps., Feb. 21, 2012
The Court of Appeals unanimously affirmed the lower court’s decision declaring that the excess insurer was not required to indemnify the insured where the alleged ERISA claims were not covered under the underlying policy. The issue was whether the allegations against the insured included a breach of fiduciary duties imposed under ERISA.
The underlying policy provides coverage only for the insured’s violations when acting in an ERISA fiduciary capacity. The excess policy was a “follow form” policy and thus Federal argued that the insured was not accused of breaching fiduciary duties under ERISA therefore there was no coverage under either policy.
The underlying allegations were that certain amendments to the benefit plans violated ERISA age discrimination provisions by reducing pension benefits up to 50% for some elderly workers. The case was later settled and after the underlying $25 million policy was exhausted, the insured sought indemnity from the excess insurer.
The New York Court of Appeals agreed with the excess insurer, finding that the allegations were comprised of actions by the insured as a settlor of the plan and not a fiduciary. Thus, there was no coverage under the underlying policy and neither Zurich nor Federal was required to indemnify the insured.
For a copy of the decision click here