Opinion ID: 668606
Heading Depth: 4
Heading Rank: 2

Heading: The Advancement Order

Text: 11 From the inception of the declaratory judgment proceedings, CNA maintained that the D & O policies did not create a duty to pay the Directors/Officers' defense costs. CNA noted that the Option Clause in the policies supported this position: The Insurer may at its option and upon request, advance on behalf of the Directors or Officers ... expenses which they have incurred in connection with claims made against them, prior to disposition of such claims. 12 The Directors/Officers disagreed and sought a declaration requiring CNA to advance defense costs. The district court granted the motion, holding that CNA has a present duty to simultaneously reimburse the insured defendants' defense fees and costs incurred in the underlying action. The court agreed that the D & O policies seemed to make CNA's duty to pay defense expenses optional and therefore not [derivative of] any duty to defend enumerated in the policies. It held, however, that Okada v. MGIC Indemnity Corp., 823 F.2d 276 (9th Cir.1986), compelled a different result. The court interpreted Okada, in which we required an insurer to advance defense costs under a D & O policy with identical language, as holding that the duty to advance defense costs for an underlying action attaches so long as the underlying claims remain potentially covered under the policies. The district court believed that the Directors/Officers' estoppel and reformation claims, of which it had postponed consideration, created a possibility of coverage under the policies and, as a result, required CNA to pay the defense expenses. CNA appealed.