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Abstract

In the Southern District of New York, Pepsico, Inc. v. Continental Casualty Co. held that the D & O insurance carrier was obligated to pay the insured's costs as they accrue, subject to reimbursement should adjudication show that there were no grounds for coverage. This Note proposes that the Pepsico rule favoring the insured is the more judicious view regarding interim payments. This Note discusses the differing interpretations of D & O policy defense cost clauses, and then analyzes the Pepsico rule from the standpoints of reasonable expectations, contract interpretation and unconscionability. After comparing D & O insurance with standard liability insurance, this Note recommends adoption of the Pepsico rule in other jurisdictions.

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