In a new court filing, Madison Square Garden Networks Inc. (MSGN) contends that Chubb and nine other insurance companies have unlawfully failed to honor directors and officers (D&O) liability insurance policies. At issue are shareholder lawsuits stemming from MSGN’s 2021 merger with a subsidiary of Madison Square Garden Entertainment (MSGE) and obligations that MSGN says insurance companies must honor.
The complaint, filed in a Delaware Superior Court on Jan. 12, explains that MSGN “paid significant premiums” to buy policies protecting against third-party claims aimed at MSGN, its subsidiaries and its directors and officers. One policy program reportedly offers $100 million in coverage, with Chubb providing $10 million in total limits under certain circumstances and other companies providing additional millions.
MSGN oversees live events at Madison Square Garden, Radio City Music Hall and the Beacon Theater. Madison Square Garden Sports, meanwhile, manages the New York Knicks, New York Rangers and several other franchises. Both entities are publicly traded and run by James Dolan.
MSGN and MSGE directors and officers were sued by their respective stockholders around the time MSGN became a wholly owned subsidiary of MSGE. The lawsuits have been consolidated into two cases, dubbed the MSGN Action and the MSGE Action, and center on stock structure pre- and post-merger.
Pre-merger, MSGN and MSGE had Class A common stock, where one share provided one vote, and Class B common stock, where one share provided 10 votes. Some stockholders contend that Class B stockholders used this arrangement to wrongfully dictate the merger’s terms in ways unfavorable to minority stockholders—including with respect to the merger’s stock exchange ratio—and that MSGN and MSGE directors breached their fiduciary duties.
The cases maintain that a group of Dolan family members, most of whom are current or former MSGN board members, conspired to benefit themselves at the expense of stockholders.
MSGN has incurred expenses, including those related to pretrial discovery, to defend against the lawsuits. The complaint contends that MSGN is out “more than $2 million” and says Chubb must cover those bills. Chubb, MSGN insists, has declined, raising “a host of excuses.”
One alleged “excuse,” as summarized by MSGN, is that Chubb wants a determination of defense costs allocated between 14 insured director defendants and three non-director defendants who aren’t insured. MSGN doesn’t find that explanation persuasive, writing, “the core liability in the MSGN Action Complaint is predicated on the actions of the MSGN Director Defendants, and the same defense costs would be incurred if the three Non-Director Defendants were dismissed from the Action.”
Chubb, the complaint claims, has also refused to cover MSGN’s payments to two law firms, Sullivan & Cromwell, and Richards, Layton & Finger, “simply because these law firms represent MSGE and MSGN, and MSGN is no longer a party to the Merger- Related Lawsuits.”
MSGN criticizes that reason, saying the applicable costs were “incurred on account of the claims made against the MSGN Director Defendants in the MSGN Action” and that such claims fall under the wording of MSGN’s insurance policies.
MSGN seeks a jury trial. It wants a finding that Chubb is liable for breach of contract and thus must pay compensatory and other damages. MSGN also seeks a court declaration that all 10 insurance companies have a duty to pay defense applicable costs and a duty to indemnify MSGN, as well.
Chubb did not respond to a request for comment. Chubb and the other companies will soon answer the complaint and seek its dismissal. Expect them to argue that MSGN has misinterpreted and misrepresented the contractual language and that they owe no duty to pay at this time. Insurance litigation, like other forms of civil litigation, usually ends in settlement, so an eventual deal between MSGN and the companies is a strong possibility.
Last August, Sportico reported that MSGE is likely to split into two entities, one that includes MSG, other venues and the regional sports network, and the other containing MSG Sphere Las Vegas, a music and entertainment facility set to open later this year.
(This story has been updated in the fourth paragraph to clarify the parties involved in the separate lawsuits.)