OPINION & ORDER
This mоtion addresses the right of a member of a board of directors to receive from his insurer payment of the costs of defending himself against litigation when the insurer contends that the insurance policy has been rescinded due to a submission of allegedly false financial statements with an application for insurance. Bert C. Roberts, Jr. (“Roberts”), a former chairman of the board of directors of World-Com, Inc. (“WorldCom”) seeks an order compelling Continental Casualty Company (“Continental”) to honor an excess directors and officers (“D & 0”) liability policy that it issued and to advance immediately the costs of defending Roberts against claims filed in a host of lawsuits arising from the collapse of WorldCom which allege principally violations of federal securities laws. Continental аsserts that it rescinded the D & 0 policy for fraud, that it is void ab initio, and that as a result, it has no present obligation to pay defense costs. For the reasons stated below, Roberts’ motion is granted. Background
On June 25, 2002, WorldCom announced a massive restatement of its financial statements. The first class action lawsuit to anticipate that announcement had been filed in this district on April 25, 2002. Many more followed. The litigation concerning WorldCom filed in federal court, or successfully removed to federal court, has been consolidated for pretrial purposes in the Southern District of New York by the Judicial Panel on Multi-District Litigation and assigned to this Court. Roberts is named as a defendant in the consolidated WorldCom securities class action as well as in numerous other related lawsuits. The issues in and the history of the consolidated WorldCom securities litigation (“Securities Litigation”) have been described in many previous Opinions. 1
*459 WorldCom and its officers and directors were insured under a D & 0 liability policy issued by National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“National Union”). The National Union policy provided primary coverage.
The first page of the National Union renewal policy for 2002 states in bold letters “NOTICE: ... THE INSURER MUST ADVANCE DEFENSE COSTS PAYMENTS PURSUANT TO THE TERMS HEREIN PRIOR TO THE FINAL DISPOSITION OF A CLAIM.” The National Union policy provision that defines the coverage for directors is contained in Clause 1, entitled “Insuring Agreements. Coverage A: Directors and Officers Insurance,” and provides as follows:
This policy shall pay the Loss of each and every Director or Officer arising from a Claim first made against the Directors or Officers during the Policy Period or the Discovery Period (if applicable) and reported to the Insurer pursuant to the terms of this policy for аny actual or alleged Wrongful Act in their respective capacities as Directors or Officers of the Company, except when and to the extent that Company has indemnified the Directors or Officers. The Insurer shall, in accordance unth and subject to Clause 8, advance Defense Costs of such Claim prior to its final disposition.
(Emphasis supplied.) Clause 8 of the policy provides:
Under both Coverage A and Coverage B of this policy, except as hereinafter stated, the Insurer shall advance, at the written request of the Insured, Defense Costs prior to the final disposition of a Claim. Such advanced payments by the Insurer shall be repaid to the Insurer by the Insureds or the Company severally according to their respective interests, in the event and to the extent that the Insureds or the Company shall not be entitled under the terms and conditions of this policy to paymеnt of such Loss.
(Emphasis supplied.)
The National Union policy provides for limited severability for individual directors in connection with three questions. National Union did not require the questions to be answered since they were included as part of a renewal program, and they were not answered. Of particular interest here, one question stated “9. (a) No Executive has knowledge or information of any act, error or omission that might give rise to a Claim ... under the proposed policy, except as follows:.... ” (Emphasis supplied.) The National Union policy continued with the statement that
[i]t is agreed that with respect to Questions 8, 9 and 10 above, that if such claim, proceeding, action, knowledge, information or involvement exists, then such Claim, proceeding or action and any Claim or action arising from such claim, proceeding, action, knowledge, information or involvement is excluded from the proposed coverage.
(Emphasis supplied.)
Endorsement No. 1 of the policy provides that “[i]f this policy has been in effect for thirty (30) days or morе, the Insurer may cancel this policy only if one or more of the following reasons apply: ... 2) ... a material or willful misstatement or omission of fact ... in connection *460 with any application [ ], or claim...." Such a cancellation occurs thirty days after notification of cancellation.
On July 21, 2002, WorldCom filed for bankruptcy protection. On November 8, 2002, WorldCom filed an Emergency Motion Pursuant to Bankruptcy Rule 9019(a) for Approval of Debtors’ Settlement Agreement with National Union. As part of the terms of this agreement, the National Union D & O policy was rescinded and voided ab initio as to WorldCom only. The agreement provides the following as to directors:
The Policies provide rights and coverage to the directors, officers, and employees of WorldCom as insureds under the Policies severally, and not jointly or with imputation of knowledge or conduct, with respect to the applications for the Policies and the exclusions in the Policies, and the Policies are not rescinded as to any directors, officers, and employees of WorldCom as insureds under the Policies.
(Emphasis supplied.)
On November 26, 2002, the bankruptcy court approved this settlement agreement. National Union acknowledged the coverage obligations of its policy as to the WorldCom directors and officers and its coverage has been paid in full and is exhausted.
This suit concerns the rights of the insureds vis a vis the excess carriers. After being contacted by the New York office of an insurance agent acting on behalf of WorldCom, in December 2001, Continental sold an excess directors, officers, and corporate liability insurance policy to World-Com. Altogether, WorldCom and its officers and directors were insured for D & O liability coverage under seven tiers of excess D & O policies issued by Continental; Twin City Fire Insurance Company (“Twin City”); Associated Electric & Gas Insurance Service Limited (“AEGIS”); Gulf Insurance Company (“Gulf’); SR International Business Insurance Company (“Swiss Re”); Starr Excess Liability Insurance International Limited (“Starr”); and in a final tier, National Union (collectively, the “Excess Insurers”). With one apparent exception that is not relevant to the instant motion, 2 all of the excess D & O policies follow the form, including the terms, conditions, and exclusions, of the underlying National Union D & O policy.
As part of the application for the Continental policy, WorldCom submitted World-Corn’s 10-K for the year ending December 21, 2000; WorldCom’s 10-Qs for the second and third quarter of 2001; World-Com’s annual report for 2000; and various registration statements filed with the Securities and Exchange Commission. Together, the seven tiers of excess insurance provided $85 million in coverage in addition to $15 million in coverage provided under National Union’s primary policy for a total of $100 million in insurance coverage. 3
The first lawsuit arising from the World-Com debacle was apparently filed on March 26, 2002, in Mississippi. World-Com, on behalf of Roberts, timely notified the National Union and the Excess Insurers of the litigation, and complied with all conditions precedent in the excess D & O policies, or is otherwise excused from doing so. WorldCom demanded that the Excess Insurers acknowledge that the D & O policies are required to pay the defense *461 costs incurred in connection with what is now known as the Securities. Litigation.
In a September 12, 2002 letter to World-Com, 4 Continental indicated that based on the material misrepresentations and omissions by WorldCom and its officers and directors, it considered its excess D & 0 policy to be void-ab initio and viewed the policy as rescinded. In the September 12 letter, Continеntal stated that it would “next week return the premium payment of $1,300,000 together with interest required by law.” 5
On January 28, 2003, Continental filed a declaratory judgment action in the Southern District of New York seeking a judicial determination that it had properly rescinded its policy. 6 An August 1, 2003 order (“August 1 Order”) of the Bankruptcy Court stayed that action, captioned Continental Cas. Co. v. Ebbers, No. 03 Civ 652(DLC). The August 1 Order concluded that the action, as well as a parallel action brought by Twin City, No. 03 Civ. 758(DLC), were void ab initio as they should not have been brought without first seeking relief from the automatic stay. 7 Meanwhile, on January 29, 2003, World-Com filed an adversary proceeding in the Bankruptcy Court on behalf of itself and its directors seeking a declaration of rights under the excess D & O policies. Continental opposed WorldCom’s motion for partial summary judgment in the adversary proceeding by arguing that its policy was void ab initio and rescinded. On April 20, 2004, WorldCom emerged from bankruptcy. A May 14, 2004 order of the Bankruptcy Court concluded that it was no longer the proper forum to address disputes about the WorldCom insurance policies and proceeds. Having confirmed a plan which resolved WorldQom’s rights and duties under the insurance, policies, the court concluded that the resolution of the dispute between the Excess Insurers and non-debtor officers and directors “would have a de minimus” effect on the estate ■ and did not warrant its involvement. 8
On May 28, 2004, Roberts filed the instant action, No. 04 Civ. 4089(DLC), seeking a declaration of the rights, duties, and responsibilities of the Excess Insurers. In particular, Roberts seeks a declaration that the purported rescission of the Continental policy and other D & O policies issued to WorldCom was without good or sufficient cause. On June 4, 2004, Roberts made a written demand for coverage of defense costs to Continental. None of the Excess Insurers has advanced defense costs to Roberts or the other director defendants in the Securities Litigation.
On June 30, Roberts submitted an order to show cause why an order should not be entered compelling Continental immediately to advance defense costs to Roberts for the Securities Litigation. At a conference *462 on July 7 a briefing schedule was set. Continental and Twin City have opposed the June 30 application; Gulf and Swiss Re have joined in that opposition. Former WorldCom director Francesco Galesi (“Galesi”) has filed an amicus curiae brief in support of Roberts’ application.
On July 19, oral argument on this application was held. The Court indicated that it would be granting Roberts’ motion. The issuance of this Opinion has been delayed based on the representation of the Excess Insurers and counsel for all of the World-Com director defendants except Roberts and Galesi that a settlement had been negotiated between them and the Lead Plaintiff in the WorldCom securities class action (“Settlement”).
On January 6, 2005, the Settlement was formalized and presented to the Court. A revised Stipulation of Settlement was submitted to the Court on January 18. Various parties to the class action and others objected to the Settlement. An Order of February 2, 2005 advised the parties that the judgment reduction formula in the Settlement violated Subsection 21D(f) of the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4(f)(7)(B)(i). That same day, the Lead Plaintiff gave notice that it was terminating the Stipulation of Settlement on the ground that it refused to risk “a substantial reduction in any judgment against the remaining Defendants.”
Meanwhile, WorldCom had created a $25 million indemnification fund (“Indemnification Fund”), which was approved by the bankruptcy court in January 2004, as part of WoridCom’s plan of bankruptcy, to pay the reasonable legal expenses of current and former directors, officers, and employees. More recently, WorldCom proposed a plan of allocation for the Indemnification Fund in consultation with Roberts. This plan of allocation was approved by the Honorable Jed B. Rakoff of this District on December 21, 2004. Under the plan, any person seeking reimbursement from the Indemnification Fund “must have made good- faith efforts to obtain reimbursement through any potentially available insurance coverage.” Roberts stated recently that he was “optimistic” that his legal expenses would be fully reimbursed by the Indemnification Fund. With the failure of the Settlement, it is now highly improbable that the attorney’s fees and litigation expenses incurred by Roberts will be paid through a limited fund that can now expect substantial claims to be made as well by all of the other WorldCom directors.
Discussion
Roberts seeks a preliminary injunction requiring Continental to advance the costs he has spent and continues to spend defending himself in the Securities Litigation. Roberts contends that under the terms of the National Union and Continental policies and under New York law, 9 he is entitled to these defense costs prior to the adjudication of whether the Excess Insurers have effectively rescinded or are able to rescind their policies аs to him. For its part, Continental does not dispute that the claims against WorldCom and its directors fall within the policies’ definition of covered claims. Nor does it contest that the insurance policies entitle Roberts to defense costs. Continental argues, however, that the policies were issued in reliance on WoridCom’s false financial statements and were therefore properly rescinded and are *463 void ab initio. It contends that New York law demands Roberts to show that he can defeat Continental’s rescission defense before it can be required to provide him with defense costs.
A party seeking a preliminary injunction under Rule 65, Fed.R.Civ.P., is ordinarily required to demonstrate that absent injunctive relief, it will suffer irreparable harm, and that either (a) it is likely to succeed on the merits, or (b) there are sufficiently serious questions going to the merits to make them a fair ground for litigation, and that the balance of hardships tips decidedly in its favor.
Sunward Electronics, Inc. v. McDonald,
Where a preliminary injunction grants only part of the relief to which a movant would be entitled on the merits and requires a party “to do what it should have done earlier,” then it is judged under the standard for prohibiting injunctions, and not the heightened standard for mandatory injunctions.
Johnson v. Kay,
The heightened standard for a preliminary injunction does not apply to Roberts’ motion. He seeks only part of the benefits to which he is entitled under the policy, the policy language strongly , supports his argument that Continental should already have been advancing defense costs, and the injunction will not substantially interfere with Continental’s right to obtain a meaningful remedy if it prevails on the merits. If it succeeds on the merits, Continental will have no obligation to pay any judgments against Roberts, and, as the policy itself recognizes, it has the right to recoup the defense costs. Nevertheless, even if the heightened standard applies, Roberts has established a clear and substantial likelihood of showing that he is entitled to defense costs prior to the adjudication of the rescission issues, and irreparable injury if those costs are not paid as they are incurred. 10
A. Success on the Merits
The starting point for any analysis of the merits must be the text of the insurance agreement. A court must determine if the parties contemplated and resolved the issue. Their contract is the best evidence of their intentions. Seabury Const. Corp. v. Jeffrey Chain Corp., 289
*464
F.3d 63, 68 (2d Cir.2002). Under New York law, “an insurance contract is interpreted to give effect to the intent of the parties as expressed in the clear language of the contract. The initial interpretation of a contract is a matter of law for the court to decide.”
Bowman v. Allstate Ins. Co.,
Under New York law, where a contract of insurance includes the duty to defend or to pay for the defense of its insured, that duty is a “heavy” one.
11
McGinniss v. Employers Reinsurance Corp.,
It is a general principle under insurance law, that the obligation to pay under a liability policy arises as soon as the insured incurs the liability for the loss, in contrast to an indemnity policy where the obligation is to reimburse the insured for a loss that the insured has already satisfied.
See McCuen v. American Cas. Co. Of Reading Pennsylvania,
Under New York law, “[a]n insurer may avoid an insurance contract if the insured made a false statement of fact as an inducement to making the contract and the misrepresentation was material.”
Curanovic v. New York Cent. Mut. Fire Ins. Co.,
New York courts have consistently held that to meet the burden of proof on materiality, an insurer must submit evidence of its underwriting practices with respect to similar applicants. A court may not rely merely on statements by representatives of the insurer that it would not have issued the policy but for the representation.
Id.
(citation omitted). In addition, to effect rescission, the insurer must repudiate the contract and return the insurance premium.
See Assoc. Electric & Gas Ins. Serv. Ltd. v. Rigas,
No. Civ.A.02-7444,
Until the issue of rescission is adjudicated, a contract of insurance remains in effect and the duty to pay defense costs is enforceable. In
Wedtech,
the Honorable Leonard Sand required an insurer to reimburse attorneys’ fees as they were incurred by directors pending litigation of its right to rescind the policy as to each director.
Wedtech,
The law of other jurisdictions is consistent with these principles. In
Rigas,
The National Union policy imposes the obligation upon National Union, and through its follow form policy upon Continental, to pay Roberts the costs of his defense as those costs are incurred. The National Union policy is a liability policy and contains explicit language requiring the insurer to advance costs of the defense and to do so prior to the final disрosition of a claim brought against the insured. 12
Continental contends that it is under no continuing obligation to pay defense costs since it gave notice to WorldCom that it regarded its policy as void ab initio and rescinded, and advised WorldCom that it “would” return the premium. It contends that Roberts has not shown a sufficient likelihood of success in defeating Continental’s rescission argument.
Roberts is not, at this stage of the litigation, required to show that he will succeed in defeating Continental’s rescission argument. 13 What Roberts must show is that, *467 under the terms of the policies, he is entitled to payment of defense costs as they are incurred, and that as a matter of law, that obligation exists until the rescission issues have been litigated and resolved. He has carried that burden. Continental’s effort to avoid payment of defense costs before the legality of the rescission has been litigated must fail. Continental’s preemptive filing of a declaratory judgment action in this district was held to be in violation of the bankruptcy' stay. The adversary proceeding in the bankruptcy court addressed to the rescission issues was never resolved. Despite this Court’s offer, repeated on July 7 and 19, 2004, to resolve the rescission issue on an expedited basis, the Excess Insurers have never requested that discovery in Roberts’ action begin. It bears noting that the agreement between National Union and WorldCom explicitly declared that the policies at issue there were not rescinded as to any director. 14
Anglo-American Insurance Co. v. Molin,
The other cases upon which Continental relies also do not require a différent result. Continental has pointed to no cases that undermine the conclusion that National Union’s policy requires payment of defense costs as they are incurred. Any cases interpreting New York law and arriving at a different conclusion are readily distinguishable based on their specific policy language. In
Stonewall Ins. Co. v. Asbestos Claims Management,
Continental, as does Twin City, relies heavily on
Chicago Ins. Co. v. Kreitzer & Vogelman,
No. 97 Civ. 8619(RWS),
Continental also relies on
Bogatin v. Fed. Ins. Co.,
No. 99-4441,
Finally, Continental relies on a treatise on insurance. According to Continental, Windt states that when an insurer gives notice of rescission, it is not obligated to “provid[e][a] defense [for the insured] while the rescission action is pending.” (Alterations as given by Continental.) The passage from Windt cited by Continental describes two options when an insurer believes a policy was procured by a misrepresentation. The insurer can either unilaterally rescind the policy and risk being sued for breach and additional liability for breaching its duty to settle; or file suit. It explains the adverse consequences of that latter strategy as follows:
The disadvantage of filing a lawsuit and not rescinding absent a favorable judicial determination are: (1) that if the insurer has a duty to defend, it will have to incur the cost of providing that defense while the rescission action is pending, which expense will not be reimbursable even if the policy is later rescinded; (2) that even if the policy has only a cost reimbursement provision, the insured may be able to demand non-reimbursable interim payments to fund his or her defense while the rescission action is pending;....
Windt, § 2:26 at 153 (emphasis supplied). This passage does not opine that insurers can escape the duty to pay defense costs as they are incurred prior to a determination of rescission issues when a D & O liability policy specifically provides for the advancement of defense costs. Indeed, if anything, the passage recognizes that a court may require the payment of defense costs as rescission issues are litigated. Later, in the context of discussing the indemnification of defense costs, Windt states that where a claim is encompassed by the policy, “[c]ourts can be exрected to interpret the policy in a manner favorable to the insured and hold that interim payments [to reimburse defense costs] at reasonable intervals are required.” Windt, § 6:20 at 718-19.
*469 B. Irreparable Harm
“The showing of irreparable harm is perhaps the single most important prerequisite for the issuance of á preliminary injunction.”
Kamerling v. Massanari,
The failure to receive defense costs when they are incurred constitutes “an immediate and direct injury.”'
Wedtech,
Roberts has shown irreparable injury. The Securities Litigation is proceeding apace. The class action trial begins on February 28, 2005. Every party, including each director defendant, requires effective representation. It is impossible to predict or quantify the impact on a litigant of a failure to have adequate reрresentation at this critical stage of litigation. The ability to mount a successful defense requires competent and diligent representation. The impact of an adverse judgment will have ramifications beyond the money that will necessarily be involved. There is the damage to reputation, the stress of litigar tion, and the risk of financial ruin — each of which is an intangible but very real burden.
D & 0 insurance is not only designed to provide financial security for the individual insureds, but also plays an" important role in corporate governance in America. Unless directors can rely on the protections given by D & O policies, good and competent men and women will be reluctant to serve on corporate boards. As the Third Circuit has observed, a primary purpose of Delaware indemnification provisions is “to encourage capable men to serve as corporate directors, secure in the knowledge that expenses incurred by them in upholding their honesty and integrity as directors will be borne by the corporation they serve.”
Witco Corp. v. Beekhuis,
Continental and Twin City argue that Roberts has failed show irreparable injury because he has not shown that he is unable to retain counsel from his own funds. 16 *470 The issues here surmount whether an individual director has or does not have sufficient funds to pay counsel when confronted with litigation stemming from service as a corporate director. In some cases the litigation will be minor; here it is massive. In some cases a director will have great personal wealth; in other cases she will not. The issue here is whether every director protected by a policy equivalent to National Union’s is entitled to ongoing payment of defense costs until there is a judicial determination that that right does not exist. Under the terms of the National Union policy, and for the reasons set forth here, the answer is yes.
Twin City contends that
Mongelli v. Chicago Ins. Co.,
No. 99 Civ. 8149(SJ),
Continental argues that as a policy matter it should not be compelled to reimburse defense costs as they are incurred when it its refusal is based on a right to rescind. It explains that it will be forced to litigate every rescission case to its conclusion instead of giving due consideration to a reasonable settlement of the underlying case. It further argues that while there may be a duty to defend until a decision is reached on the rescission issue, it need not await a judgment determination when there is only a duty to pay defense costs. There is no reasoned basis in law for the distinction advanced by Continental between a duty to defend and to pay defense costs, and absolutely no basis in the National Union policy language. As for its “policy” argument, the existence of leverage with its insureds or its insured’s adversaries premised on a breach of its legal obligations to its insureds is leverage gained improperly, and provides no basis for a ruling in its favor on this motion.
Security Bond
Rule 65(c), Fed.R.Civ.P., provides, in pertinent part, that
No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained.
Rule 65(c), Fed.R.Civ.P. This Rule “thus allows a preliminary injunction to become effective only upon the applicant’s positing of an amount that the district court determines adequate.”
Corning Inc. v. Picvue Electronics, Ltd.,
Continental has requested that, if Roberts is granted defense costs prior to an assessment of its rescission claim, he be compelled to post a security bond for such costs. This request must be denied. Paying Roberts’ defense costs places no undue hardship on the Continental as its liability is capped. In addition, the excess policies require defense costs to be repaid if Roberts is ultimately not entitled to such payments. Finally, the posting of a bond would undermine the very protection the Excess Insurers offered to directors when they followed the National Union form.
*471 Conclusion
The motion by Bert C. Roberts, Jr. in 04 Civ. 4089 for a preliminary injunction against Continental Casualty Company requiring it to pay his costs of defense as they are incurred pursuant to the D & 0 policy it issued to WorldCom is granted. SO ORDERED.
Notes
.
See, e.g., In re WorldCom, Inc. Sec. Litig.,
. At a default judgment hearing on July 19, 2004, Starr asserted that its excess policy differed from the underlying National Union D & O policy in that it contains a provision mandating arbitration in Bermuda.
. The premium for the $15 million Continental policy was just under $2 million.
. Roberts was not copied on the September 12 letter from Continental. Roberts asserts that the first notice he received from Continental indicating its intention to rescind its excess policy was on January 28, 2003, when Continental sought a declaratory judgment in the Southern District of New York.
. Neither Roberts nor Continental have addressed whether the premium was returned.
. On June 18, 2004, the action was transferred to this Court from the Honorable Alvin K. Hellerstein.
. Continental and Twin City appealed the decision of the Bankruptcy Cоurt. These appeals are Nos. 03 Civ. 7927(DLC) and 03 Civ. 9460(DLC), respectively.
. At a conference on July 7, 2004, Continental and Twin City were asked to consider whether they wished to proceed with their January 2003 litigation in light of doubts that would always exist as to the legitimacy of those actions, and the existence of other litigation through which their claims can be resolved. They have not yet indicated what course they wish to pursue in this regard.
. Both Roberts and Continental have relied upon New York law, and by doing so, have adopted it for the determination of these issues.
See Photopaint Technologies, LLC v. Smartlens, Corp.,
. While Roberts has shown that the balance of hardships tips decidedly in his favor and that there are sufficiently serious questions on the merits of the rescission issues to satisfy the ordinary standard for a preliminary injunction, and has shown a substantial likelihood of success on his claim that he is entitled to defense costs in advance of the resolution of the rescission issues, he has not shown yet a substantial likelihood of success on the rescission issues. If the mandatory injunction standard applies here,' and he is required to show a substantial likelihood of success on the rescission issues, then this injunction may not issue.
. In contrast to a duty to pay defense costs, the duty to defend customarily includes an insurer's right to choose the attorney and to control the litigation strategy. Am Jur. Ins. § 1396.
See Continental Oil Co. v. Bonanza Corp.,
. The National Union policy language is an explicit repudiation of prior law that held that director and officer liability policies do not require reimbursement of legal expenses until the legal liability of the insured had been established.
See In re Ambassador Group,
. Roberts proffers that through discovery he will attempt to defeat the rescission argument by showing that under Continental’s underwriting policies and standards, it accepts risks similar to that it contends it now perceives WorldCom's application to have posed. Roberts also argues that while it is conceded that the 2001 WorldCom financial statement was false, there is no such concession for the 2001 quarterly financial statement provided to Continental, and strong arguments to the contrary for the 1999 and 2000 financial statements. He contends that by accepting the policy without an answer to Question 9, National Union waived any representation by a director that the financial statements were accurate. Finally, he contends that Endorsement No. 1 to the National Union policy bars rescission and allows cancellation only for the period beginning thirty days after notice of cancellation. The
Securities Litigation
class action had been filed long before that date. It is now undisputed in the WorldCom class action that WorldCom's financial statement for the first quarter of 2001 contained materially false statements.
In re WorldCom, Inc. Sec. Litig.,
. Many of the cases that have required ongoing payment of defense costs pending resolution of rescission issues have done so by granting the insured’s motion for partial summary judgement. In the unique circumstance of an ongoing duty to pay defense costs, there should be very little difference between the legаl standard imposed on an insured to win a partial motion for summary judgment to obtain such payments, and the burden it carries to succeed on a preliminary injunction to achieve the same end. Neither requires the insured to address the defenses that may allow the insurer ultimately to succeed on its claim that coverage has been rescinded, and if the policy permits, to recoup any defense costs already advanced.
. Irreparable injury has also been found to exist where an insurer sought to force an insured whose policy covers defense costs to substitute his attorney of a decade with other counsel.
Emons Indus., Inc. v. Liberty Mutual Ins. Co.,
. At least one other attorney for a World-Com director has'represented that his client has instructed him to stop participating in depositions and in certain other work because of the cost of legal fees.