Real estate investment trust VERIET, Inc. (formerly known as American Realty Capital Properties) announced this week that it agreed to a $765.5 million settlement to resolve shareholder class action and related lawsuits arising from a host of alleged securities violations and accounting fraud at ARCP since the company went public in 2011. Defendants in the class action settlement have agreed to pay more than $1 billion in compensation, including millions from ARCP’s former manager and principals, chief financial officer, and former auditor.

As we have previously reported, the ARCP accounting woes have resulted in many insurance claims and resulting disputes concerning D&O coverage for the company and its individual officers and directors. The policyholders have prevailed in some instances and recovered tens of millions of dollars in defense and indemnity coverage, but certain coverage issues have been hotly contested in light of the underlying fraud claims and losses at issue.

The status of any insurance coverage for the most recent settlement is unclear, but the reported terms of the settlement poses several issues. The memorandum of understanding signed by VEREIT identifies contributions from a variety of sources, only some of which may be covered under typical D&O policies. For example, the $1.025 billion settlement includes the value of operating partnership units and dividends that a former manager surrendered as part of a settlement with the SEC. In addition, the company continues to cooperate with the SEC regarding potential additional charges but has already advised the SEC that it plans to recover more than $34 million paid by former directors and officers for disgorgement and penalties in prior SEC settlements.

Insurers are likely to argue that at least some of those amounts represent uninsurable disgorgement. Thus, coverage will turn on whether disgorgements are insurable and whether the amounts for which the policyholders seek coverage actually constitute disgorgement. As Kevin LaCroix of the D&O Diary reported earlier this summer, a recent Delaware Supreme Court opinion involving TIAA-CREF rejected the insurer’s argument that amounts paid in settlement underlying class action lawsuits constituted uninsurable disgorgement. Applying New York law, the court found that settlement payments only constitute disgorgement if the amounts conclusively represent ill-gotten gains. Because there had been no underlying finding that the amounts at issue represented ill-gotten gains, or any basis for such a finding, the Delaware Supreme Court concluded that the amounts at issue did not represent disgorgement.

According to reports, the parties to the VEREIT settlement are still negotiating key terms and stipulations memorializing the settlement. While those stipulations will not contain any admissions of liability, wrongdoing, or responsibility by any of the settling parties, insurance disputes may arise regarding whether those yet-to-be-negotiated terms trigger any exclusions or other policy limitations, including exclusions for restitution or disgorgement. The wide variety of entities and individuals involved in the settlement may also implicate coverage issues with allocation between covered and potential uncovered claims. Further coverage disputes may arise with respect to coverage for both the cost of defense in such government investigations and for any resulting settlements.

The myriad lawsuits, investigations, and settlements arising from the ARCP accounting irregularities raise many interesting (and common) insurance issues for defense and indemnity coverage under D&O and other types of management liability policies. We will continue to monitor this case for any further noteworthy developments.