Nikola D&O liability insurance problems are holding up settlements

Liability insurance - Law

The zero-emission vehicle maker intends to resolve claims, but its insurers aren’t budging with approvals.

Nikola Corp, the electric and hydrogen fuel cell vehicle company, is resorting to a Delaware court with claims that its directors and officers (D&O) liability insurance companies are getting in the way of settlement proposals from being completed in the Court of Chancery, the District of Delaware, and the District of Arizona.

The automaker filed a complaint in the Complex Commercial Litigation Division of the Delaware Superior Court.

In Nikola Corp’s suit, it said that it was ready to offer settlements to resolve the claims made against the company itself as well as D&O defendants named in three shareholder lawsuits, except for former chief executive officer Trevor Milton.

Liability insurance - Image of Nikola Headquarters- PNMC4882 - Image Source - Nikola
Nikola Headquarters – Image Source: Nikola

The company’s complaint accuses the D&O liability insurance companies Hudson Insurance, XL Specialty Insurance, and Union Fire Insurance, of refusing to give the settlement proposals approval without either receiving a release from Milton or confirmation from a court that Milton’s potential for bringing claims on the same proceeds at a later date doesn’t stop them from paying the other named defendants.

The D&O liability insurance payouts became complex when Milton was convicted of fraud.

Milton resigned from the company nearly four years ago and has since been convicted of wire fraud and securities fraud. Last year, the Southern District of New York court sentenced Milton to a $1 million fine and four years in prison.

According to the electric and hydrogen fuel cell vehicle maker’s suit, there isn’t anything in its policy language that would require a release to be provided in order to receive a payout. It also stated that the proceeds from the policy should be distributed on a “first come, first served” basis. The judge who will decide on this liability insurance case is Judge Vivian L. Medinilla.

“A contrary interpretation would mean that the individual insureds could never settle a derivative action with insurance proceeds unless Milton joined in the settlement,” reads the complaint. ““Because settlements of derivative actions are not indemnifiable by the nominal company-defendant in Delaware, this would defeat a key function of D&O insurance. And it would lead to particularly absurd results here, given that Milton’s sentencing on his criminal conviction will likely render him unable to even obtain insurance coverage in connection with the underlying actions.”

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.