Yellowstone sues Argonaut over D&O coverage tied to NYAG probe

Michael Davis ; 2025-11-23 05:49:03

Insurer faces lawsuit over D&O response to New York AG case

Legal Insights

By Tez Romero

Dec 02, 2025Share

Yellowstone Capital’s leaders are taking Argonaut Insurance to federal court, accusing the carrier of walking away from a D&O claim after a New York Attorney General probe.

Filed on November 26, 2025, in the US District Court for the District of New Jersey, the suit comes from Yellowstone Capital LLC and its chief executive, Yitzhak Stern. They say Argonaut Insurance Company wrongly refused to cover financial fallout from a multi-year investigation and enforcement action by the New York Attorney General over Yellowstone’s merchant cash advance business.

According to the court papers, Yellowstone bought consecutive private company D&O policies from Argonaut with a maximum aggregate limit of $3 million for all loss. The coverage included three core grants: protection for individual insureds when the company does not indemnify them, reimbursement to the company when it does indemnify directors and officers, and direct coverage for the company itself when it is named in a claim. The filing notes there was no retention for individual non-indemnified claims, and retentions ranging from $50,000 to $75,000 for claims under the reimbursement and company coverage.

The dispute, as described in the suit, begins in late 2018, when the New York Attorney General served a subpoena duces tecum on Yellowstone. The subpoena sought documents for what the Attorney General called “fraudulent, illegal, and deceptive conduct” relating to the company’s sale of merchant cash advances in New York and to New York residents. Yellowstone notified Argonaut, which, the filing says, responded in June 2019 that the subpoena was not a claim but would be accepted as a “notice of circumstances that may give rise to a ‘claim.’” Argonaut allegedly stated that coverage would be “afforded under [the policy] for any Loss incurred in connection with such circumstances” once they resulted in a Claim.

The policy’s “Interrelated claims” language is central to the coverage fight. That provision treats related matters as a single claim first made when the earliest related claim or notice is given. The plaintiffs allege that when the Federal Trade Commission brought an enforcement action in 2020 involving Yellowstone, Stern, and others, Argonaut determined the FTC case was interrelated to the New York subpoena, treated them as a single claim first noticed in December 2018, and defended and indemnified Stern in connection with the FTC action.

The New York Attorney General’s investigation continued. According to the filing, the office served Stern with an individual subpoena in September 2022, followed with a Notice of Intent to Sue on January 8, 2024, and then filed an enforcement action on March 5, 2024, in New York state court. The petition alleged, among other things, civil usury, criminal usury, making high interest loans without a license, fraud, deceptive business acts and practices, and a fraudulent transfer of Yellowstone’s assets.

After motions to dismiss and what the plaintiffs describe as many months of negotiations, they say the parties reached consent orders on January 16, 2025. Yellowstone agreed to pay $3.4 million; Stern agreed to pay $12.7 million. The filing also states that the Yellowstone parties walked away from $534,552,724 in purchased receivables. According to the suit, the consent orders did not attribute the $16.1 million in settlement payments to any particular claim or form of relief and allowed the Attorney General, “in its sole discretion,” to apply the funds to restitution, penalties, investigation costs, or administration costs.

Yellowstone and Stern say they formally tendered the New York Attorney General’s Verified Petition to Argonaut on September 9, 2024, and later notified the carrier in February 2025 that the matter had settled, enclosing the consent orders. Argonaut ultimately acknowledged that the New York enforcement action was a claim, the suit says, but denied coverage.

According to the filing, Argonaut relied on several provisions: a business practices exclusion aimed at unfair competition and unfair business or trade practices; the policy’s consent requirements for incurring defense costs and settlements; and a definition of Loss that excludes civil fines, penalties, disgorgement, restitution, and sums paid in connection with injunctive relief. The plaintiffs counter that defense costs are expressly included in Loss, that those costs alone totaled approximately $9 million - about three times the policy limit—and that the business practices exclusion applies only to the company coverage, not to Stern’s individual protection.

They allege nearly $6 million in fees paid to Proskauer Rose LLP for work from September 2022 until early 2024 for Yellowstone and four individual officers, more than $1 million in defense costs for Stern and another officer through Harris St. Laurent & Wechsler LLP, and more than $1.8 million for Yellowstone’s own defense by Calcagni & Kanefsky LLP. Taking into account defense costs, the $16.1 million paid under the consent orders, and the abandoned receivables, the suit claims aggregate Loss is approximately 180 times greater than the $3 million policy limit.

The plaintiffs also accuse Argonaut of bad faith, pointing to what they call delay in issuing a coverage determination, inconsistent treatment of the FTC and New York matters, and improper reliance on notice, exclusion, consent, and Loss provisions. They say they have complied with the policy’s requirement to attempt non-binding mediation and now seek damages, including up to the policy limits, along with a declaration that the New York Attorney General enforcement action is a covered claim.

These are allegations at an early stage of the case. The court has not yet made any findings on coverage, bad faith, or damages.