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In an appeal from a Summary Judgment entered by a United States District Court under Texas Insurance Law, a panel of the Fifth Circuit Court of Appeals affirmed the District Court's holding that the return of funds due to a fraudulent transfer is not a covered "Loss" within the meaning of a Director's and Officer's Liability Insurance Policy: Download In re TransTexas Gas Corp. (Stanley v. U.S. Bank Nat'l Ass'n) (5th Cir. Case Nos. 08.20401, 08.41128, Opinion Filed February 10, 2010); also reported as In re TransTexas Gas Corp. (Stanley v. U.S. Bank Nat'l Ass'n), 2010 WL 447323 (5th Cir. February 10, 2010)(subscription required to access Westlaw).
The D&O Policy at issue in that case provided:
"Loss" means damages, settlements, judgments (including pre/post-judgement interest on a covered judgment), Defense Cost and Crisis Loss; however, "Loss" (other than Defense Costs) shall not include ... (6) matters which may be deemed uninsurable under the law pursuant to which this policy shall be construed.
Download In re TransTexas Gas Corp. (Stanley v. U.S. Bank Nat'l Ass'n) (5th Cir. Case Nos. 08.20401, 08.41128, Opinion Filed February 10, 2010), attached Official Slipsheet Opinion at 15; In re TransTexas Gas Corp. (Stanley v. U.S. Bank Nat'l Ass'n), 2010 WL 447323 *9 (5th Cir. February 10, 2010).
A Bankruptcy Judgment entered against one Stanley in that case, the Chief Executive Officer of the Debtor Corporation, TransTexas Gas Corporation, compelled him to repay amounts of money received and which were held to be avoidable fraudulent transfers. On appeal in pertinent part, the reviewing panel of the Fifth Circuit Court of Appeals held that this 'loss' was in no sense a "Loss" covered under the subject D&O Policy because it was uninsurable, holding "that the return of funds due to a fraudulent transfer is in the nature of restitution." Download In re TransTexas Gas Corp. (Stanley v. U.S. Bank Nat'l Ass'n) (5th Cir. Case Nos. 08.20401, 08.41128, Opinion Filed February 10, 2010), at 16; In re TransTexas Gas Corp. (Stanley v. U.S. Bank Nat'l Ass'n), 2010 WL 447323 * 9 (5th Cir. February 10, 2010). [Emphasis added.]
For "Coverage of the Allegations of a Claim" including under Director's and Officer's Liability Insurance Policies, see generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith'" ยง 3:48 (Second Edition Shepard's/McGraw-Hill; 2009 Supplement West Publishing Company).
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