Allocation Disputes Under D&O Policies: Mediation is Wise Alternative to Litigation Morass

On December 13, 2021, a federal court handed down yet another decision exemplifying why a commitment to mediation for resolving allocation disputes under D&O Policies is often superior from the standpoint of cost, time, and results. In Twin City Fire Ins. Co. v. Alcast Co. et al, No. 20-cv-1065 (C.D. Ill. Dec. 13, 2021), the court concluded, as have many courts who’ve been asked to determine allocation between covered and non-covered claims, that “myriad factual disputes” (including which portions of the defense invoices were attributable to each of the jointly represented defendants in the underlying litigation) precluded granting summary judgment for either party. Equally revealing, the judge isn’t eager to adjudicate the facts in a bench trial scheduled for February 2022, instead advising the parties they’d be “best served by attempting to settle their dispute with the assistance of a neutral mediator.”

In fruitlessly seeking adjudication by the court, the Alcast parties exchanged motions and briefing in excess of 120 pages over more than a year of wrangling, including motions to file under seal, motions to strike prior motions as “untimely,” and motions to “supplement responses” set forth in prior responses to motions. (Incidentally, such ancillary motions practice is one reason why initial litigation budgets can prove inadequate – the usual budget template rarely foresees a need to file motions "to strike prior motions as untimely"!)

Consider how much time and expense can be conserved by resolving an allocation dispute, not through protracted motions practice, but in mediation before a mediator who, unlike many judges, is fluent concerning D&O policies, can devote the time and individual focus necessary to carefully consider all the facts and law, and who is skilled in closing gaps between settlement positions. While many D&O policies do require mediation prior to the institution of any legal action, one or both parties may be looking past preliminary mediation in the expectation of a quick summary adjudication in court. Doing so may be inadvisable, for decisions such as Alcast teach that expecting the court to rule on allocation may be too optimistic, and that a determination by the parties to resolve the matter before a skilled mediator often is the wiser approach.