New York-based satellite radio services company Sirius XM Radio Inc. filed a lawsuit against two directors and officers insurers last week. Sirius XM alleges XL Specialty Insurance Co. and U.S. Specialty Insurance Co. (USSIC) breached their contract by failing to provide full defense costs for underlying class action and shareholder lawsuits following the company’s 2008 merger transaction.

The lawsuit was filed at the Supreme Court of the New York, County of New York, on March 8.

Sirius XM Radio is seeking declaratory relief and damages for the alleged breach of contract against XL Specialty Insurance and U.S. Specialty Insurance, with respect to the underlying lawsuits filed after the 2008 merger of a subsidiary of Sirius Satellite Radio and XM Satellite Radio Holdings.

“This action concerns the insurance company defendants’ refusal to provide coverage to Sirius XM for the insurable loss it incurred as a result of those merger-related claims—namely, the corporate indemnification and advancement of defense expenses and costs afforded by Sirius XM to its directors and officers in responding to the underlying lawsuits,” according to the complaint.

In the underlying lawsuits, the plaintiffs alleged wrongful acts committed by the directors and officers of Sirius Satellite Radio Inc., XM Satellite Radio Holdings Inc., and Sirius XM—first in connection with their efforts to have the merger approved by the Federal Communications Commission, the U.S. Department of Justice, and the stockholders; and then with respect to the alleged mismanagement of Sirius XM once the merger was consummated.

Sirius XM said in its complaint that the company indemnified its directors and officers and paid more than $5 million for their legal fees in response to merger-related claims. Sirius XM also said that across the board, the global defense mounted by Sirius XM against the merger-related claims has been successful. The company said all such claims against Sirius XM and its directors and officers were resolved prior to a final adjudication of wrongdoing—with no liability established.

Sirius XM’s complaint states that the insurance company defendants sold D&O policies covering Sirius XM and its directors and officers for certain types of losses they could incur in response to covered claims. All of the potentially applicable policies include either “Defense Expenses” or “Defense Costs” within the definition of insurable “Loss” and obligate the two insurers to advance defense expenses and costs on a contemporaneous basis with the defense of the underlying litigation, according to Sirius XM.

Prior to the merger, XL underwrote D&O insurance for Sirius Satellite Radio Inc. for the policy period from August 2007 to August 2008, according to the complaint. After the merger, XL amended this D&O policy to reflect that Sirius XM was covered as the insured “Parent Company.”

XL remained Sirius XM’s primary D&O insurer for the next consecutive, annual policy period from August 2008 and August 2009. For the following two periods, from August 29, 2009 to August 2010 and from August 2010 to August 2011, USSIC was Sirius XM’s primary D&O insurance company.

Sirius XM said it is seeking a declaration that XL must cover its entire loss—i.e., the more than $5 million in defense expenses paid on behalf of the individual defendants to respond to the underlying lawsuits — less a $1 million retention exhausted by Sirius XM’s payments. Alternatively, if it is determined that XL is not responsible for the loss, Sirius XM argues the court should then declare that USSIC must cover the entire loss stemming from the merger-related claims, subject to a $1 million retention.

Both U.S. Specialty Insurance Co., part of HCC Insurance Holdings Inc., and XL Specialty Insurance Co. declined to comment on pending litigation.

The case is Sirius XM Radio Inc., plaintiff, against XL Specialty Insurance Company; and U.S. Specialty Insurance Company, defendants, Supreme Court of the New York, County of New York, March 8, 2013.

This article was originally published on Insurance Journal by IJ’s East Coast Editor Young Ha