A common issue in directors and officers’ insurance coverage disputes is the allocation of loss between covered and uncovered insureds and/or claims.  In an article for The Recorder, Partner Pamela Woods explains that in the absence of an allocation clause specifying how a court should allocate loss, multiple courts have applied the Larger Settlement Rule, developed by the Ninth Circuit in Nordstrom, Inc. v. Chubb & Son, Inc., 54 F.3d 1424 (9th Cir. 1995).

“The Larger Settlement Rule says that the insurer must pay the full amount of the settlement unless the settlement was increased by the presence of uninsured parties or uncovered claims,” Woods wrote.  She noted that Nordstrom has been followed in multiple cases and in response, many insurers now include allocation provisions in their policies.  However, Woods advised that insureds should not assume that the presence of such a provision means that an insurer can allocate loss as it sees fit.

Read the full article at The Recorder (subscription required).