US Corporate Law News: US Second Circuit federal court holds that professional services exclusion precludes D&O coverage for NASDAQ's Facebook IPO claims

4 February 2018 | Applicable law: US

On January 22, 2018, the Second Circuit issued an opinion regarding claims related to NASDAQ's Directors and Officers (D&O) insurance policy in connection with NASDAQ's Facebook IPO. 

The opinion stated that the professional services exclusion in the D&O insurance policy precluded the claims. The claims arose out of issues connected to the Facebook IPO, including multiple technical failures of the NASDAQ trading platform which led to errors in processing orders of the shares. NASDAQ ultimately settled to pay out $26.5 million for the Facebook investor claims which was paid out by the errors and omissions (E&O) insurer pursuant to an agreement where NASDAQ assigned the rights under the D&O insurance policies to the E&O insurer. The E&O insurer sued the D&O insurers to pay the cost of the settlement. The lower level court ruled that the D&O insurance policies were precluded by the professional services exception which stated that the insurer would not be liable for a loss on behalf of a customer or client of the company that was attributable to the rendering or failure to render professional services. On appeal, the E&O insurer argued that the investor claimants were not "customers" within the meaning of the exception and the claims did not involve the rendering of professional services. The Court rejected these claims and affirmed the lower court's decision stating that the retail investors would be considered "customers" of the stock exchange and the failure to properly execute orders constituted provision of professional services.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.


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