Shearman & Sterling LLP | M&A and Corporate Governance Litigation Blog | New Jersey Federal Court Extends Coverage of Merged Bank’s D&O Liability Insurance Policy To Surviving Bank <br >  
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  • New Jersey Federal Court Extends Coverage of Merged Bank’s D&O Liability Insurance Policy To Surviving Bank 
     
    09/26/2017
    On September 18, 2017, Judge John Michael Vazquez of the U.S. District Court of New Jersey granted summary judgment in favor of plaintiffs BCB Bancorp, Inc. (“BCB”) and the former directors and officers of Pamrapo Bancorp, Inc. (“Pamrapo”), finding that insurer Progressive Casualty Insurance Co. (“Progressive”) was obligated to indemnify BCB for the legal expenses incurred in defending the Pamrapo directors and officers in shareholder litigation arising from the merger of BCB and Pamrapo.  In so holding, the Court agreed with plaintiffs that the surviving bank, BCB, had inherited Pamrapo’s D&O policy following the merger in accordance with the New Jersey Business Corporation Act (“NJBCA”). 

    Following the June 30, 2009 announcement of the merger of Pamrapo into BCB, two shareholder suits challenging the merger were filed by Pamrapo shareholders that named inter alia the Pamrapo directors and officers.  The merger closed on July 6, 2010, and the suits were settled in September 2015.  Although Progressive indemnified Pamrapo for litigation defense costs incurred on behalf of the directors and officers prior to closing, after closing—when Pamrapo ceased to exist—Progressive argued that its indemnification obligations changed.  According to Progressive, because the directors and officers were indemnified post-merger by BCB, Progressive was liable only for “excess coverage” because its full indemnification obligations only applied if the directors and officers were being indemnified by Pamrapo.

    The Court disagreed, holding that the policy transferred from Pamrapo to BCB because, under the NJBCA, the surviving corporation of a statutory merger “steps into the shoes of the merged entity for purposes of the merged entity’s rights and liabilities,” including rights under insurance policies.  According to the Court, a general anti-assignment provision in an agreement that does not contain “specific exclusionary language” will not preclude a transfer of rights under the NJBCA, especially if the transfer occurs after the insured event, such as the shareholder suits in this case.  Therefore, the Court concluded that BCB was entitled to the same coverage to which Pamrapo was entitled under the policy.  Finding that Progressive’s reasoning would lead to an “untenable result,” the Court granted summary judgment to plaintiffs.  
    CATEGORY: D&O Insurance

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