Ruling for CNA unit upheld in dispute with Academy of Country Music

A federal appeals court on Monday affirmed a lower court ruling in favor of a CNA Financial Corp. unit in a dispute over coverage for an arbitration award won by the Academy of Country Music’s former CEO.

The Los Angeles-based academy entered into a separation agreement with CEO Robert Romeo to facilitate his termination from employment without cause in 2016, according to the ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Academy of Country Music v. Continental Casualty Co.

The agreement provided he be paid the remainder of his base salary and car and phone allowances on regularly scheduled paydays, as well as a lump sum settlement of $170,000.

Shortly after the parties entered into the separation agreement, the academy discovered Mr. Romeo may have breached his employment contract while CEO, and the Academy’s board unanimously voted to stop making payments under the separation agreement.

Mr. Romeo claimed the academy had breached the separation agreement and sought arbitration.  An arbitrator awarded Mr. Romeo more than $1.2 million in damages and fees.

The academy had an insurance policy with CNA unit Continental that included employment practices and directors and officers liability coverage.  It filed a claim under the policy for coverage of the arbitration award.

Continental covered the academy’s legal fees for the arbitration proceeding but refused to indemnify it for the arbitrator’s award.

The academy filed suit in U.S. District Court in Pasadena, California, charging breach of contract and tortious breach of the duty of good faith and fair dealing.

The district court granted summary judgment for Continental and was affirmed by a three-judge appeals court panel.

Exclusions under both the EPL and the D&O coverage precluded coverage, the panel said.

Under the EPL coverage exclusion, a loss is not covered if it arose out of the academy’s knowing violation of a written employment contract, it said. 

“Academy knowingly violated the separation agreement because it consciously decided to cease making payments to Romeo, without any reasonable basis for concluding that its performance under the separation agreement was excused,” it said.

The D&O coverage, it said, excludes any loss “arising out of Academy’s knowing violation of any oral or written contract or agreement,”  it said.