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tonerKeymasterXerox Secures Landmark Court Decision in Policyholder
Fight Vs. Travelers Insurance Over Failed Merger With Fujifilm.
In a major legal victory for policyholders, Xerox recently secured a key decision in New York’s Appellate Division – First Department, which not only bolstered policyholder protections but also clarified critical aspects of insurance coverage disputes. This ruling comes from Xerox’s ongoing insurance recovery action against Travelers, related to Xerox’s unsuccessful 2018 merger with Fujifilm, and it establishes important precedents for how insurance claims and exclusions should be interpreted under New York law.Key Pro-Policyholder Rulings
The First Department’s decision includes three major points that reinforce policyholder rights and provide a significant win for Xerox:Narrow Interpretation of “Arising From” Exclusions
The court made it clear that insurance policy exclusions using the phrase “arising from” must be interpreted narrowly. This ruling comes in the context of Xerox’s attempt to recover coverage from Travelers, its second excess D&O insurer, after the company was involved in several high-profile lawsuits stemming from the failed merger. Travelers had tried to deny coverage based on a “Prior Acts Exclusion,” arguing that the claims arose from earlier joint venture agreements between Xerox and Fujifilm. However, the court disagreed, explaining that such exclusions should only apply when there is a direct connection to the excluded events and not based on a broader interpretation. The First Department held that the exclusion didn’t apply in this case because the claims were tied to more recent actions related to the merger itself, not to events predating it.Insurers Can Be Liable for Bad Faith
The court also reaffirmed that insurers who show indifference or act in bad faith toward their policyholders could be held liable for breaching their duty of good faith. The ruling highlights the importance of an insurer’s obligation to act fairly and transparently when handling claims. In this case, Xerox alleged that Travelers had acted in bad faith by concealing the Prior Acts Exclusion for months and failing to notify Xerox that it might deny coverage, despite knowing about the settlement and the claim details. The First Department agreed that questions of fact existed about whether Travelers acted with indifference toward Xerox’s rights, meaning the issue should be decided by a jury.Reasonableness of Underlying Settlement Should Go to Jury
The court also found that the reasonableness of the underlying $28 million settlement, which Xerox had reached in the Deason lawsuits, should be evaluated by a jury. Travelers had attempted to argue that the settlement was unreasonable, but the court disagreed, noting that the settlement had resolved a multi-billion-dollar transaction dispute and protected Xerox from further litigation. The First Department rejected Travelers’ attempt to second-guess a settlement it had previously been aware of and failed to object to at the time.The Case Background
Xerox’s lawsuit arose from its failed 2018 merger with Fujifilm, which led to several lawsuits, including high-profile claims from Xerox shareholder Darwin Deason, who was funded in part by investor Carl Icahn. The litigation resulted in a significant settlement and millions in defense costs. Xerox’s primary and first excess insurers, Chubb and XL, paid out a combined $30 million in coverage, but Travelers, as the second excess insurer, refused to contribute its $15 million limit, citing the Prior Acts Exclusion. Despite knowing about the settlement, Travelers didn’t inform Xerox that it might deny coverage based on the exclusion until months later.In response, Xerox filed a lawsuit not only for breach of contract but also for bad faith, accusing Travelers of failing to fulfill its obligations under the policy. After years of legal proceedings, the case reached the Appellate Division, where the court delivered a victory for Xerox.
Implications for Policyholders
This ruling has significant implications for the broader insurance industry, reinforcing the rights of policyholders when facing insurance coverage disputes. The narrow interpretation of exclusions and the court’s emphasis on insurers’ duty to act in good faith are important protections for companies like Xerox, who rely on their insurers to provide coverage in times of crisis.Moreover, the decision signals that insurers cannot simply deny claims based on vague or overly broad exclusions. Instead, insurers must prove that the exclusion clearly applies to the specific facts of the case. For policyholders, this means that insurance policies are more likely to be interpreted in their favor, especially when there are ambiguities about coverage.
Xerox’s victory in the First Department is a strong reminder that policyholders have legal protections when dealing with insurance companies. The court’s decision clarifies that insurers must take a narrow approach to exclusions, act in good faith, and respect the reasonableness of settlements entered into by policyholders. With this ruling, New York courts have set an important precedent for future insurance disputes, offering more assurance to policyholders that their claims will be handled fairly and justly. Following this legal outcome, Travelers has agreed to settle the claims with Xerox, bringing the lengthy legal battle to a close.
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AuthorJanuary 14, 2025 at 3:48 PM
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