A New York judge has ruled that an American International Group subsidiary must immediately pay for the legal defense of Princeton University trustees who were sued for misusing a foundation endowment.

The decision against National Union Fire Insurance Company of Pittsburgh was handed down Aug. 10 by New York Supreme Court Justice Helen E. Freedman in Manhattan.

A spokesman for parent AIG had no immediate comment.

National Union had contended that it should not have to pay the defense expenses until there was a determination as to which of the claims in question were covered and which were uncovered.

The New York litigation stems from a previous case in New Jersey, in which family-appointed trustees of the Robertson Foundation sued Princeton, Princeton University-appointed trustees of the foundation and the Robertson Foundation.

Princeton and its university-appointed trustees, it was alleged, had abused their majority interest, breached fiduciary duties, and misappropriated more than $100 million by using the foundation's assets to support "Princeton's general interests rather than to advance the foundation's mission."

Princeton filed suit against National Union, seeking coverage in the amount of $15 million--the limit of a directors and officers liability policy issued to Princeton by the insurer--to cover defense expenses.

National Union contended that the underlying action against the university-appointed trustees falls under an "insured versus insured" exclusion in the policy because both the plaintiffs and defendants in that suit involve insureds under the definition of the policy.

The carrier further stated that, with respect to remaining claims that do not fall under the exclusion, the obligations of National Union should be capped at $5 million because an endorsement in the policy sets that limit for defense against claims seeking equitable or injunctive relief, as opposed to those seeking monetary damages.

But, Judge Freedman disposed of that issue on April 10, ruling that the "insured versus insured" exclusion only applies to two out of the 12 claims against Princeton.

The judge found then that the $5 million cap does not apply to the claims against Princeton that seek money damages or return of funds.

Justice Freedman concluded, "Neither the 'insured versus insured' exclusion nor the equitable relief sublimit apply to the claims seeking to recover more than $100 million from Princeton."

Princeton subsequently filed another motion after National Union neglected to pay all of the expenses as ordered in the decision.

Princeton and the insurer disagreed about whether National Union was required to pay the defense costs immediately, or whether it should wait until it is determined which claims in the New Jersey case are covered by the insurance policy.

Justice Freedman, in her latest decision, ruled in favor of Princeton, stating, "An insurer who covers an insured's defense expenses is entitled to distinguish between covered and noncovered claims. However, an insurer must pay all the defense costs as the insured incurs them, unless they can be allocated as incurred.

"Although the policy does not cover some of the claims asserted against Princeton in the underlying action, both the covered and uncovered claims were defended in a single action, and defendants have not made any showing that an apportionment is feasible."

It was also noted that National Union may be liable for interest on the defense expenses that were due when Princeton incurred them; however, Justice Freedman said "interest cannot be calculated at this juncture and a determination is deferred on that amount."

Special Reports /

Pay Princeton Trustees' Defense Cost, Insurer Told

Related Stories

Recommended For You