Daileader v. Certain Underwriters at Lloyds London Syndicate 1861
96 F.4th 351
| 2d Cir. | 2024Background
- Timothy Daileader was appointed as an independent director and manager of Oaktree, a distressed group of healthcare companies.
- Oaktree and its owner, McCollum, faced federal qui tam and criminal litigation for fraudulent mismanagement and Anti-Kickback Statute violations; McCollum pled guilty.
- After Oaktree defaulted on loans, Daileader was sued by the bankruptcy trustee, alleging breach of fiduciary duty and other claims amounting to substantial damages.
- Oaktree had a primary D&O insurance policy with Landmark, plus excess policies—including with Lloyds Syndicate 1861—which all included a duty to defend insureds in litigation.
- Landmark exhausted its policy defending Daileader; Syndicate 1861 then denied coverage based on a Bankruptcy/Insolvency Exclusion provision.
- Daileader sought a preliminary injunction in SDNY to compel Syndicate 1861 to cover defense costs; the district court denied it, finding no irreparable harm and no clear likelihood of success on the merits. Daileader appealed to the Second Circuit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether preliminary injunction is mandatory | Only seeks to enforce existing contractual obligation; status quo was payment of defense. | Injunction would alter the status quo, as Syndicate 1861 never paid Daileader's defense. | Injunction is mandatory; requires heightened standard. |
| Irreparable harm | Denial of defense costs causes immediate, irreparable injury, impairs defense. | Any harm is monetary, compensable by later damages—no irreparable harm shown. | No strong irreparable harm shown; monetary damages adequate. |
| Likelihood of success on Exclusion | Exclusion does not apply to all claims; duty to defend exists if any claim might be covered. | Policy exclusion is broad, applies to proceeding as a whole if any claim is excluded. | Syndicate 1861's interpretation likely correct—exclusion applies. |
| Exclusion is preempted by Bankruptcy Code | Exclusion is an ipso facto clause barred by 11 U.S.C. §541(c)(1); coverage is estate property. | Proceeds not property of estate unless/until judgment; exclusion valid for now. | Daileader failed to show policy proceeds were estate property at this stage. |
Key Cases Cited
- JTH Tax, LLC v. Agnant, 62 F.4th 658 (2d Cir. 2023) (standards and factors for preliminary injunctions)
- N. Am. Soccer League, LLC v. U.S. Soccer Fed'n, Inc., 883 F.3d 32 (2d Cir. 2018) (distinction between mandatory and prohibitory injunctions)
- Tom Doherty Assocs., Inc. v. Saban Entertainment, Inc., 60 F.3d 27 (2d Cir. 1995) (status quo and standards for issuance of mandatory injunctions)
- Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7 (2008) (requirement that irreparable harm must be likely for a preliminary injunction)