Jenner & Block

Insurance Law Update: "Sixth Circuit Limits Insurer’s Disgorgement Exclusion and Public Policy Defense, Preserving Coverage for Loss Arising From Alleged Wrongful Retention of Funds"

The Sixth Circuit recently held that Michigan public policy and an Executive Protection Policy’s definition of “Loss,” including its carve-out for disgorgement of unlawful profits, do not preclude insurance coverage for a class action settlement consisting of wages that were allegedly wrongfully retained in violation of the Sherman Act, 15 U.S.C. § 1.  William Beaumont Hosp. v. Federal Ins. Co., __ F. App’x __, 2014 WL 185388, at *5-7 (6th Cir. Jan. 16, 2014) (No. 13-1468).  The Sixth Circuit joins a number of other jurisdictions that have distinguished the Seventh Circuit’s often cited decision in Level 3 Communications, Inc. v. Federal Insurance Co., 272 F.3d 908 (7th Cir. 2001), in which the court held that “loss” in a directors’ and officers’ liability insurance policy does not include the restoration of an ill-gotten gain.  Id. at 910.