A directors and officers coverage decision handed down in March in a favor of D&O insurers highlights a struggle between carriers and policyholders that's been percolating for years, experts say.

“It is a very hot topic,” said Steve Shappell, managing director of Aon Financial Service Group claim practice, Denver, Colo., referring to the insurability of settlements of securities lawsuits that allege violations of Section 11 of Securities Act of 1933. The decision in favor of insurers by a U.S. District Court in Florida (Middle District, Orlando Division), in CNL Hotels & Resorts Inc. v. Houston Casualty Company and Landmark American Insurance Company, holding that a particular Section 11 settlement was not insurable, “refocuses this issue and requires people to solve the [coverage] problem and address the issue via contractual language,” Mr. Shappell advised.

Section 11 of the 1933 Act, which relates to registrations of securities offerings, imposes strict liability for material misrepresentations made in registration statements to everyone involved.

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