McKool Smith recently secured a landmark decision for its client Teachers Insurance and Annuity Association of America (“TIAA”), College Retirement Equities Fund (“CREF”) and other related entities (collectively, “TIAA-CREF”), in Delaware Superior Court finding that a civil settlement of a lawsuit involving claims for disgorgement was an insurable loss under New York law.  On October 20, 2016, President Judge Jan Jurden of the Superior Court of Delaware granted summary judgment to TIAA-CREF (available here) on this issue, which was further reaffirmed on November 16, 2016 when she denied the insurers certification of an interlocutory appeal, available here.

TIAA-CREF provides retirement investment products to teachers and other employees of non-profit colleges, universities and other institutions.  TIAA-CREF was sued in three underlying class actions alleging delays in processing account holders’ transfer or withdrawal requests in certain investment accounts.  The class plaintiffs sought the appreciated value in their accounts between the date their transfer or withdrawal request was received in good order and the date on which their transaction was processed.  Plaintiffs ultimately settled these claims without admitting any liability or wrongdoing.  The Defendant Insurers refused to provide coverage under their insurance policies for the costs of defending and settling these lawsuits, claiming they constituted uninsurable disgorgement under New York public policy. 

The Delaware Court disagreed.  The Court distinguished the New York cases cited by the Insurers because they involved SEC orders conclusively linking a government-mandated disgorgement payment with improperly acquired profits of the insured.  As the Court held:  “[Insurer’s cases] all involve conclusive links between the insured’s misconduct and the payment of monies.  Not so here.  TIAA-CREF settled and expressly denied any liability.  The Court finds no conclusive link between the settlements in the Underlying Actions and wrongdoing by TIAA-CREF that would render the settlement agreements uninsurable disgorgement.”    

TIAA-CREF is represented by Robert Manley of McKool Smith.  The case is TIAA-CREF Individual & Institutional Services, LLC, et al., v. Illinois National Insurance Company, et al., C.A. No. N14C-05-178 JRJ CCLD, in the Superior Court of Delaware.  

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