Fox Paine & Co., LLC v. Twin City Fire Insurance Co.

BACKGROUND

The General Setting In 1996 Saul Fox and Dexter Paine formed Fox Paine & Company (FPC), a private equity management firm. Fox was chief executive officer of FPC, Paine the president. In 1998, through FPC, Fox and Paine formed two private equity funds: Fund I, for which Paine was primarily responsible, and Fox Fund II, for which Fox was primarily responsible. By 2006, Fund I was largely wound down, and Paine wanted to form a new fund, but Fox “was not inclined to do so.” So, in 2006, Fox and Paine entered into an agreement under which Paine could start a third fund (Fund III) under a license from FPC to use some of its assets and employees, and Fox would receive an “equity interest” in Fund III. This is the “Newco Agreement.” FPC’S Insurance In December 2006, FPC obtained a Private Equity Professional Liability Policy from Houston Casualty Company (Houston Casualty). The policy covered the period from December 30, 2006 to December 30, 2007, later extended to January 2, 2008, with policy limits of $10 million. The policy provided coverage to “Insured Organizations” as well as “Insured Persons,” including any “director, officer, general partner, manager, . . . . or…