Most policyholders purchasing directors and officers (D&O) liability insurance never contemplate the possibility that their insurer will one day demand repayment of advanced defense costs, let alone seek interest on top of repayment. Although many D&O policies preserve an insurer’s contractual right to seek reimbursement of defense costs that are ultimately determined not to be covered, insurers rarely exercise that right. Even rarer is a case in which an insurer not only litigates to recoup the advanced defense costs, but then seeks prejudgment interest on top of the amounts repaid. A recent decision by the U.S. District Court for the District of Maryland in Navigators Insurance Co. v. Under Armour, Inc., No. CV RDB-22-2481 (D. Md. July 7, 2026), presents precisely this seldom-litigated scenario. This case serves as a cautionary lesson to policyholders regarding reimbursement provisions and interim funding agreements, which can have significant consequences.
While the parties in Under Armour were litigating coverage, Under Armour’s insurers agreed to advance approximately $90 million pursuant to a series of interim funding agreements which allowed Under Armour to continue funding its defense of the underlying securities litigation while preserving the insurers’ ability to seek reimbursement if it was ultimately determined that the defense costs were not covered. After appellate proceedings in the underlying matter resulted in a determination that there was no coverage, Under Armour repaid the full $90 million to its insurers. For most coverage disputes, that would have ended the matter. For Under Armour, it did not.
Having recovered the advanced amounts in full, eight of Under Armour’s nine insurers sought prejudgment interest on the repaid funds. Their argument rested largely on the language of the interim funding agreements—not the insurance policies—which did not expressly require prejudgment interest but provided that any repayment obligation would “be deemed a debt due and owing as of the date(s) each Insurer’s Payment was made hereunder.” Based on this provision, the insurers argued they were entitled to prejudgment interest as a matter of right because the obligation to repay effectively related back to the original advances.
The district court rejected that position. Central to the court’s analysis was the funding agreements’ recognition that repayment remained contingent on “a final, non-appealable adjudication” that the advances were not covered. Until that determination was made, Under Armour’s obligation to repay was neither fixed nor certain. The court also focused on the parties’ negotiated language that Under Armour would repay the principal plus any interest the court “may” award. Read in context, that language preserved the court’s discretion to determine whether interest was appropriate; it did not create an automatic contractual entitlement to interest.
The insurers also argued that the court should exercise its equitable discretion to award prejudgment interest even if no contractual right existed. That argument was also rejected. The court reasoned in part that the parties had negotiated the interim funding agreements yet chose not to include an express interest provision.
Although the Under Armour court’s treatment of prejudgment interest will undoubtedly attract attention, the more glaring aspect of the decision may be the successful recoupment itself. D&O insurers routinely advance defense costs while reserving their rights, but relatively few coverage disputes culminate in an insured actually repaying those advances. Many disputes resolve through settlement before reimbursement ever becomes an issue, while others conclude without a determination that would permit recoupment.
The Under Armour decision also offers a cautionary tale regarding interim funding agreements. As a threshold point, policyholders should seek to avoid entering into funding agreements which, in the majority of circumstances, heavily favor insurance companies. Such agreements are often negotiated under considerable time pressure, with the policyholder understandably focused on ensuring that defense costs continue to be paid while the coverage litigation proceeds. Yet they become the governing documents once the litigation has concluded. Questions concerning repayment, timing, interest, and the consequences of an adverse coverage determination can prove every bit as important as the underlying coverage issues themselves. As Under Armour illustrates, language that may seem secondary during the negotiation process can later become the focal point of a separate dispute involving substantial sums of money.
For policyholders, the lesson is not that insurers routinely seek reimbursement of advanced defense costs or tack on interest. They do not. Rather, Under Armour illustrates the importance of understanding that reimbursement provisions are not merely theoretical. It also underscores the importance of carefully evaluating whether to enter into an interim funding agreement in the first place. Policyholders should first and foremost seek to avoid entering into any form of interim funding agreement, which favors insurers and may provide them with rights they would otherwise not have. More fundamentally, policyholders should recognize that an insurer’s ability to recoup advanced defense costs may not exist absent the interim funding agreement itself. Depending on the policy language and applicable law, an insurer’s reimbursement rights may be limited or unavailable entirely, and many D&O policies contain provisions that restrict or preclude recoupment of advanced defense costs. By entering into an interim funding agreement, a policyholder may therefore create recoupment rights for an insurer that the insurer might not otherwise possess. For that reason, policyholders should carefully consider whether such an agreement is necessary before agreeing to its terms. If such an agreement is truly necessary, policyholders should carefully consider whether and under what circumstances repayment or recoupment should even be permitted and should narrowly tailor the scope of any repayment obligation to avoid conferring rights on insurers that they would not otherwise have absent the agreement. Policyholders should be mindful that provisions negotiated at the outset of a coverage dispute may ultimately determine the parties’ rights long after the underlying litigation has concluded, and should work carefully with their counsel to ensure such agreements, if necessary, don’t come back to bite the policyholder in the end.