Second Circuit Sides With Liberty Mutual Unit in Shareholder Row

A Liberty Mutual Insurance Co. unit is off the hook for legal defense costs and a settlement in a suit against a gas company it insured under a directors and officers liability policy, a federal appeals court ruled.

Paraco Gas Corp., a family-held propane fuel and equipment company, sued Ironshore Indemnity Inc. after the insurer denied coverage.

The US District Court for the Southern District of New York ruled in 2023 that an exclusion in the insurance policy barred coverage for any claims stemming from contractual liability in the underlying suit, which alleged that Paraco officers Joseph Aramento and Christina Aramento had violated shareholder agreements. Shareholders alleged that Joseph Aramento, the company’s CEO, transferred shares in violation of two shareholder agreements.

Paraco appealed, arguing that the exclusion did not bar all the claims in the underlying suit from coverage. The US Court of Appeals for the Second Circuit Court disagreed, saying each of the claims in the underlying suit wouldn’t exist without the relevant contractual obligations in the shareholder agreement.

“Any legal duty Ironshore had under the D&O Policy to defend and/or indemnify Paraco was not triggered because the entirety of the Underlying Action falls within the Policy’s exclusion clause,” the court said in an unpublished opinion Monday.

Circuit judges Eunice Lee, Sarah Merriam, and Maria Araujo Kahn were on the panel.

Paraco didn’t immediately respond to a request for comment.

The Deiorio Law Group PLLC represents Paraco. Wilson Elser Moskowitz Edelman & Dicker LLP represents Ironshore.

The case is Paraco Gas Corp. v. Ironshore Indemnity Inc., 2d Cir., No. 23-01069, unpublished 6/17/24.