FREEDOM SPECIALTY INSURANCE COMPANY VS. STEEL PARTNERS HOLDING L.P.
June 16, 2021
In this New York decision, the Hon. Barry R. Ostrager held against Freedom Specialty Company and XL Specialty Insurance Company as excess D&O insurers for policyholder Steel Partners Holdings, L.P. in their attempt to exclude the so-called bump-up arising out of Steel Partner’s going private transaction of its 70% owned subsidiary Handy & Harman. Despite the lack of a any bump-up exclusion in the primary D&O policy (which also happened to be an XL D&O policy), the excess carriers argued that bump-ups were excluded anyway based on the “intentional wrongful conduct” exclusion and other provisions of the policy. Alternatively, the carriers argued that even if not completely excluded, the policy’s Allocation between between covered and uncovered claims/persons would operate to keep covered loss completely within the underlying layers.
The policyholder’s arguments were led by their expert, Ty Sagalow, who argued that given the now 25+ year old history of an expressed bump-up exclusion, an exclusion that he was instrumental in creating at AIG, no carrier should be permitted to argue that there a policy that does not contain such an exclusion can ever exclude M&A bump-ups. As respects allocation between covered and uncovered loss, Mr. Sagalow argued that far from resulting in a loss being kept to the underlying layers, a proper analysis under custom and practice resulted in a limits loss to the excess layers.
After a careful analysis found here, the Court concluded the carrier’s theory its policy excludes M&A bump-ups as an “intentional wrongful conduct” regardless of the absence of an expressed exclusion “contradicts industry custom and practice by attempting to create a ‘silent exclusion’”. The Court further sustained Mr. Sagalow’s analysis of the policy’s Allocation provision concluding that it resulted in a full limits loss under both policies in opposition to the carriers’ expert’s analysis.
In its decision, the Court specifically cited Ty Sagalow as someone with “extensive, if not almost unique, experience in underwriting D&O insurance and handling claims under D&O insurance policies”.