Overview

• John Davies’ real estate companies were insured under directors’ and officers’ liability policies by AIG.
• Davies and his spouse faced lawsuits alleging they operated a Ponzi scheme.
• The Davies sought coverage from AIG for defense costs, initially provided but later rescinded due to alleged misrepresentation.

Key Issues on Appeal

• Whether there was a misrepresentation in the insurance applications.
• If so, whether the misrepresentation was material.

Lower Court Decision

• Ruled in favor of the Davies, finding no misrepresentation or materiality.

Court of Appeal Findings

• Misrepresentation: Davies failed to disclose the use of syndicated mortgages as financing, which was material.
• Materiality: The misrepresentation influenced AIG’s decision to provide coverage.
• Result: AIG's appeal was allowed. AIG was not required to pay the Davies’ defense costs and was entitled to recover $1,015,418.97 already paid.

Background

• AIG issued D&O policies for 2015-2016, renewed in 2016-2017, containing clauses excluding coverage for misrepresented or undisclosed information.

Fresh Evidence

• Ms. Davies was an undischarged bankrupt when the initial application was made, but this issue was deemed insignificant due to AIG’s commitment to apply the ruling for both Davies.

Conclusion

• AIG had no duty to pay defense costs and was awarded $1,015,418.97, plus interest and costs, payable by the Davies.

Total Monetary Award/Costs/Damages Granted/Ordered:

• Damages: $1,015,418.97 (amount AIG had previously advanced for defense costs)
• Appeal Costs: $30,000
• Oral Hearing Preparation Costs: $3,000
• Fresh Evidence Preparation Costs: $12,000
• Costs of the Applications : To be determined if parties cannot agree.

• Total Specified Costs: $1,015,418.97 + $30,000 + $3,000 + $12,000 = $1,060,418.97 (excluding the costs of the applications).