A New Jersey appeals court panel said Tuesday that a capacity exclusion in a directors and officers liability policy relieved a W.R. Berkley Corp. unit from covering a $12 million settlement resolving claims against a pharmaceutical company and one of its executives.
A three-judge panel of the Superior Court of New Jersey, Appellate Division, ruled in Mist Pharmaceuticals LLC v. Berkley Insurance Co. that a trial judge erred when finding the insurer’s refusal to consent to settle required it to provide a defense to Cranford, New Jersey-based Mist Pharmaceuticals.
The appellate panel said the Berkley unit’s refusal to consent to the settlement was not unreasonable because the agreement involved numerous parties that were not covered under a policy the insurer issued to Mist Pharmaceuticals and Chairman Joseph Krivulka, who held more than a 90% interest in Mist as well as other companies involved in an alleged self-dealing scheme.
Berkley Insurance, a Greenwich, Connecticut-based unit of Berkley Corp., issued a $2 million D&O policy to Mist Pharmaceuticals that also provided coverage to Mr. Krivulka. In November 2015, CelestialRX Investments LLC sued Mist Pharmaceuticals, Mr. Krivulka, Akrimax Pharmaceuticals LLC and others, alleging that Mr. Krivulka, also a board member at Akrimax, engaged in a self-dealing scheme that defrauded the investment company, court records show.
After Mr. Krivulka died in 2018, CelestialRX Investments filed lawsuits in Connecticut and New Jersey to, respectively, reform business agreements and stay distribution of his estate.
Mist Pharmaceuticals sought coverage from Berkley Insurance, which declined because the allegations were based on Mr. Krivulka’s roles as a board member for companies not covered by its policy.
The pharmaceutical company sued Berkley Insurance in July 2017, and the trial court handed down six rulings in favor of the policyholder, including an April 2019 decision that ordered the insurer to reimburse Mist Pharmaceuticals’ law firm for defense costs it incurred.
Representatives for the parties did not respond to requests for comment.
