Emmis Communications Corp. has filed breach-of-contract suit against a New York-based insurance company for refusing to cover any of the more than $4 million in legal fees the media company accumulated in a long-running court battle with preferred shareholders.
In a lawsuit filed last week, Indianapolis-based Emmis said Illinois National Insurance Co. refused to pay up on a directors and officers (D&O) liability insurance policy bought by Emmis to cover the period from Oct. 1, 2011, to Oct. 1, 2012. The media company said it has suffered about $3 million in damages due to the insurer's refusal to reimburse the legal costs.
A D&O policy typically provides liability insurance payable to the directors and officers of a company, or to the organization itself, to help cover defense costs in the event the insured parties suffer a loss as a result of a legal action brought for alleged wrongful acts. Such policies often make financial advances to insured parties during ongoing litigation.
In April 2012, a group of Emmis preferred shareholders, unhappy with a company proposal that would strip them of their ability to collect millions of dollars in dividends, filed a lawsuit to try to prevent the proposal.
Preferred shareholders Kevan Fight, Corre Opportunities Fund, Zazove Associates, DJD Group and First Derivative Traders filed a civil action in U.S. District Court alleging Emmis CEO Jeff Smulyan and the company’s board of directors ignored Securities and Exchange Commission rules, failed to file proper documentation, engaged in back-room deals and illegally attempted to squelch their rights.
Emmis emerged victorious in several court battles involving the lawsuit, including a decision by a federal appeals court in July. The company said it has racked up at least $4 million in legal fees to fight the case.
In court papers, Emmis said it notified Illinois National Insurance Co. of the litigation within days to seek coverage on the policy. The insurer, however, declined to provide financial assistance to Emmis while it evaluated the coverage.
Fourteen months later, the insurer sent a letter to Emmis denying coverage under the policy. According to the suit, the sole basis for the denial was the insurer's finding that the lawsuit in question arose from an event that occurred in 2010, prior to the period covered by the policy.
That event was an unsuccessful attempt by Smulyan to take Emmis private. The effort involved some of the preferred shareholders involved in the 2012 lawsuit.
Emmis contends that 2010 and 2012 events were not "interrelated" and the insurer is wrongfully denying its claims for coverage.
It is seeking payment of actual damages, plus interest, and punitive damages and court costs.
Emmis shares were up 1 cent Thursday, to 49 cents each. The stock has fallen about 50 percent since Oct. 22.