A $45 million insurance fight has landed in North Carolina, with Cornerstone Building Brands taking Berkshire Hathaway and Old Republic to court over directors and officers (D&O) coverage for a shareholder settlement.
On Aug. 25, Cornerstone Building Brands, Inc., a manufacturer of exterior building products, filed a complaint in the United States District Court for the Eastern District of North Carolina against Berkshire Hathaway Specialty Insurance Company and Old Republic Insurance Company. The lawsuit centers on the insurers’ alleged refusal to provide coverage under D&O liability insurance policies after a take-private transaction led by Cornerstone’s controlling stockholder, Clayton, Dubilier & Rice (CD&R).
According to the complaint, Cornerstone purchased D&O liability insurance policies from Berkshire Hathaway and Old Republic. The policies, as described in the complaint, expressly cover “Loss,” defined to include amounts Cornerstone is “legally obligated to pay,” on account of a “Securities Claim” brought by shareholders during the Nov. 16, 2021 to Nov. 16, 2022 policy period. The underlying litigation arose from Cornerstone’s agreement to be taken private by CD&R.
The complaint states that the Special Committee of Cornerstone’s board of directors retained Centerview Partners LLC as its financial advisor for the transaction. Under their agreement, Cornerstone agreed to indemnify and reimburse Centerview for any losses, claims, liabilities, and expenses arising out of its engagement or the transaction. After the transaction closed, former shareholders filed lawsuits against Cornerstone, certain directors and officers, Centerview, and CD&R, challenging the fairness of the transaction.
Cornerstone alleges it tendered the “Take-Private Litigation” to its D&O insurers, seeking coverage for all loss. The complaint states that the D&O insurers, including the defendants, acknowledged their coverage obligations for Cornerstone’s defense costs and settlement payment in the Take-Private Litigation. However, the insurers allegedly denied coverage for certain other amounts Cornerstone is legally obligated to pay on account of the take-private litigation, which Cornerstone claims also qualify as covered loss under their insurance policies.
The complaint describes the relevant policy language, including the Zurich American Insurance Company Directors & Officers Liability Insurance Policy No. DOC 6974704-01, for the policy period of Nov. 16, 2021 to Nov. 16, 2022. The Zurich Policy provides that the underwriter shall pay on behalf of the company all loss for which the company becomes legally obligated to pay on account of a securities claim first made against the company during the policy period. The definition of loss includes damages, judgments, settlements, and defense costs. “Securities claim” is defined as any claim alleging a violation of any statutory or common law brought by one or more securities holders of the company.
Berkshire Hathaway issued a follow-form policy, in excess of the Zurich Policy and other exhausted follow-form excess policies, bearing Policy No. 47-EPC-312958-02, for the policy period Nov. 16, 2021 to Nov. 16, 2022, with a $10,000,000 limit. Old Republic issued a follow-form policy, in excess of the Zurich Policy, other exhausted follow-form excess policies, and the Berkshire Policy, bearing Policy No. ORPRO 12 101512, for the same policy period, also with a $10,000,000 limit. The complaint alleges that all underlying insurance has now been exhausted by the payment of covered loss related to the take-private litigation, triggering the obligations of Berkshire and Old Republic.
The complaint further references a court order in a similar dispute involving Cornerstone’s predecessor, where a Texas court found that legal fees and expenses the insured was obligated to pay on behalf of third-party consultants because of discovery propounded on them in a derivative action were covered Loss as “amounts ... that the Insured is obligated to pay” on account of a securities claim.
Cornerstone claims that the insurers’ denial of coverage for the amounts Cornerstone was legally obligated to pay Centerview on account of the Take-Private Litigation constitutes a breach of contract. The company seeks compensatory damages in an amount to be determined at trial, pre- and post-judgment interest, and other relief as the court deems just and proper.
At this stage, all statements reflect Cornerstone’s claims as set out in the complaint. The insurers have not yet filed their responses. The outcome of the case will depend on the court’s interpretation of the D&O policy language and the facts as they are developed in the litigation.
