Priority Dispute Among Former Directors
An interesting legal dispute is taking shape among different groups of former directors and officers associated with Lehman Brothers Holdings Inc. and its affiliates.
Seven former directors – from Structured Asset Securities Corp, Lehman’s mortgage-backed securities issuer – are objecting to a proposed settlement of $90 million to settle a class action investor lawsuit against Lehman’s former CEO and 13 other executives, to be funded by a directors’ and officers’ liability insurance policy. The objecting directors are concerned that the settlement may not leave sufficient insurance proceeds to settle a separate class action lawsuit brought against them. The insurance policy reportedly has limits of US $250 million.
The dispute will come before a U.S. Bankruptcy Court Judge, who has been asked to authorize the release of the funds (In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555).
The case gives rise to difficult priority and equity issues among insured directors and officers given that there may well not be sufficient insurance limits under the policy to defend and settle all the outstanding claims. For this reason, it will be interesting to see how the Court resolves these conflicting claims to the available insurance proceeds.
For further information, see: http://www.reuters.com/article/2011/09/09/us-lehman-idUSTRE78801420110909