In a case currently scheduled for argument on Oct. 6, 2021, before the New York Court of Appeals, J.P. Morgan Securities v. Vigilant Insurance Company, No. APL-2020-00044, the Court of Appeals has an opportunity to join the majority of states and continue to modernize New York insurance common law.

J.P. Morgan seeks coverage for $140 million that Bear Stearns (later acquired by JPM) paid to the SEC to settle claims related to trading that generated profits for Bear's hedge fund customers. The court agreed to hear the appeal of a First Department panel's September 2018 ruling, which overturned an August 2017 order by Judge Charles Ramos finding coverage. The First Department based its reversal on a U.S. Supreme Court finding in Kokesh v. SEC that for statute of limitations purposes SEC-ordered disgorgement is a penalty under 28 U. S. C. §2462. In its appeal, J.P. Morgan argues that the reversal applied Kokesh too broadly, as that decision addressed the statute of limitations applicable to SEC disgorgement claims.

The proper functioning of the New York liability insurance system requires that D&O liability insurance companies seeking to exclude predictable types of liability use clear and unambiguous policy language. Prominent among these predictable liabilities are settlements with the SEC and other regulators. When faced with such claims, insurance companies should not be seen to expand unwritten exclusions, or to hide within expanded "public policy" exceptions to the terms of the insurance policies they sell.