A New Jersey appeals court panel said Tuesday that a capacity exclusion in a directors and officers liability policy exempted a unit of WR Berkley Corp. from covering a $12 million settlement to resolve claims against a pharmaceutical company and one of its executives.
A three-judge panel of the Appellate Division of New Jersey Superior Court ruled in Mist Pharmaceuticals v. Berkley Insurance Co. that a trial judge erred in determining that the insurer’s refusal to consent to the settlement required it to provide a defense to Cranford, New Jersey-based Mist Pharmaceuticals.
The appeals panel said the Berkley unit’s refusal to consent to the settlement was not unreasonable because the deal involved numerous parties who were not covered by a policy the insurer issued to Mist Pharmaceuticals and Chairman Joseph Krivulka, who owned more than 90% of Mist as well as other companies involved in an alleged self-dealing scheme.
Berkley Insurance, a unit of Greenwich, Conn.-based Berkley Corp., issued a $2 million D&O policy to Mist Pharmaceuticals that also provided coverage to Mr. Krivulka. In November 2015, CelestialRX Investments sued Mist Pharmaceuticals, Mr. Krivulka, Akrimax Pharmaceuticals and others, alleging that Mr. Krivulka, also a member of Akrimax’s board of directors, engaged in a self-dealing business scheme that defrauded the investment company, according to court records.
Following Mr. Krivulka’s death in 2018, CelestialRX Investments filed lawsuits in Connecticut and New Jersey seeking, respectively, to reform business arrangements and halt distributions of his estate.
Mist Pharmaceuticals applied for coverage with Berkley Insurance, which denied it because the allegations were based on Krivulka’s roles as a board member of companies not covered by its policy.
The pharmaceutical company sued Berkley Insurance in July 2017, and the trial court entered six rulings in favor of the insured, including an April 2019 decision ordering the insurer to reimburse Mist Pharmaceuticals’ law firm for defense costs it incurred.
Representatives for the parties did not respond to requests for comment.
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