Lawsuit against Chubb’s Executive Risk Indemnity involved the carrier's attempt to rescind D&O liability policy for 2003

A federal court in Atlanta has returned a favorable decision in a lawsuit against AFC Enterprises' former insurance carrier that provided liability coverage for its directors and officers.

The lawsuit, against Chubb’s Executive Risk Indemnity, involved the carrier's attempt to rescind the directors and officers liability policy for the 2003 policy year in which AFC announced a restatement of its prior years' financial statements.

The company was awarded $20m in damages representing the full limits of liability of the policy and approximately $4m in pre-judgment interest.

A portion of the award will be paid to the plaintiff class as part of the settlement of the shareholder litigation arising after the announcement of the financial restatement in 2003 as previously disclosed by AFC in its filings with the Securities and Exchange Commission.

After payment of settlement amounts to the plaintiff class, legal expenses and fees, the company expects to receive net proceeds of $9-$10m. However, the decision may be appealed, and therefore the timing of the company's receipt of damages, if any, is uncertain.

Given the inherent risks and uncertainties in litigation, the company has not recognized any income related to this matter at this time.