Full opinion text
OPINION & ORDER PAUL A. ENGELMAYER, District Judge: Defendants Level Global Investors, L.P. (“Level Global”), Michael Alessi, Gregory Brenner, Anthony Chiasson, Joseph Chiasson, and David Ganek (collectively, with Level Global, the “Insureds”) move for a preliminary injunction requiring plaintiff XL Specialty Insurance Company (“XL”) to resume advancing, pursuant to a professional-liability insurance policy, their costs of defending themselves against, inter alia, a federal criminal investigation. For the following reasons, defendants’ motion is granted. I. Background A. November 2010 through March 2012: XL Advances Funds to Cover the Insureds’ Defense Costs Level Global is an investment advisor which manages hedge funds. As of 2010, it had approximately $4 billion in assets under management. SEC Compl. ¶25. Both Chiassons, Alessi, Brenner, and Ganek were or are Level Global directors, officers, or employees. On November 22, 2010, the Federal Bureau of Investigation executed a search warrant on Level Global’s New York offices. Compl. ¶ 18. The same day, the United States Attorney’s Office for the Southern District of New York (the “USAO”) issued a grand jury subpoena duces tecum to Level Global. Id. As publicly reported, these steps were part of a broad criminal investigation— which drew nationwide publicity—into alleged insider trading within the securities industry. As described in news reports, the government was investigating allegations that hedge funds, mutual funds, and other financial firms had obtained material non-public information regarding public issuers, including from so-called “expert networks” or third-party consultants, and traded on this information, in violation of the federal securities laws. Soon thereafter, the Securities and Exchange Commission (“SEC”) subpoenaed Level Global for records in connection with a parallel investigation. Compl. ¶ 18. Level Global promptly notified XL of these claims. It sought coverage from XL under an Investment Fund Management and Professional Liability Coverage Policy (the “Policy”) which Level Global had entered into with XL in April 2010, covering claims made between April 21, 2010 and April 21, 2011. Level Global sought coverage for the fees and costs incurred by the Insureds in defending against the USAO and SEC investigations. XL acknowledged receipt of Level Global’s notice. It began advancing the Insureds’ defense costs in connection with the two investigations. Id. ¶¶ 18-19. On January 17, 2012, Anthony Chiasson, Level Global’s co-founder, was indicted (along with others not party to this litigation) in this District (the “Criminal Action”). The Indictment charges Chiasson with four counts of securities fraud and one count of conspiracy to commit securities fraud. Ind’t ¶¶ 11, 31-32. It alleges that Chiasson received material non-public information regarding technology companies, including from a co-worker at Level Global regarding Dell, Inc. Id. ¶¶ 8, 11, 19. It alleges that Chiasson learned of Dell’s quarterly earnings before they were publicly announced on May 29, 2008, and traded on that information, resulting in a $4 million trading gain. Id. ¶ 19. The Indictment alleges that Chiasson again received material non-public information in advance of Dell’s August 28, 2008 earnings announcement, based on which Level Global shorted 700,000 shares of Dell stock, resulting in an approximately $53 million trading gain. Id. ¶ 22. The following day, January 18, 2012, the SEC sued Anthony Chiasson and Level Global for securities fraud (the “SEC Action”). Compl. ¶ 26. The allegations in the SEC Action are similar to those in the Criminal Action. The Court henceforth uses the term the “Government Actions” to refer, collectively, to (1) the Criminal Action, as against Anthony Chiasson, (2) the SEC Action, as against Anthony Chiasson and Level Global, and (3) the continuing criminal and SEC investigations of all the Insureds. B. March 5, 2012: XL Ceases Advancing the Insureds’ Defense Costs On January 18, 2012, the USAO unsealed an Information against a former Level Global mid-level research analyst, Spyridon Adondakis. Id. ¶ 26. Adondakis had worked at Level Global between 2006 and May 2010. Unbeknownst to XL or the Insureds, the Information had been filed, and Adondakis had pled guilty to it, in a sealed proceeding, nine months earlier, on April 25, 2011. Id. ¶¶ 20, 24 & Ex. B. The Information charged Adondakis with securities fraud and conspiracy to commit securities fraud. Infn ¶¶2, 16. In his guilty plea colloquy, also unsealed on January 18, 2012, Adondakis allocuted to these charges as follows: From 2007 to 2010 I agreed, with others, to commit securities fraud. Namely, I agreed to obtain, directly and indirectly, material non-public information from employees of public companies. I knew that the inside information I received was disclosed by the company employees in violation of duties of trust and confidence. I agreed to share that information with the other individuals at other companies as well as with others at the hedge fund where I worked. When I gave the inside information to the others at the hedge fund where I worked, I knew the information would be used to execute trades. Moreover, I did in fact obtain such information and provide it to others. For example, on August 27, 2008, I spoke with others at the hedge fund where I worked and discussed with them inside information that I obtained indirectly from an employee at [Dell]. Compl. Ex. D at pp. 17-18. By letter sent on March 5, 2012, XL notified the Insureds that—based on Adondakis’s guilty plea allocution—it would no longer advance defense costs relating to the Government Actions. Naunton Decl. Ex. B. Up to that point, XL had advanced nearly three-quarters of the Policy’s $10 million aggregate coverage limit. This included $4,721,677.68 advanced to Level Global, $1,800,408.54 to Ganek, $573,672.26 to Anthony Chiasson, $286,812.72 to Brenner, $48,223.05 to Joseph Chiasson, and $21,022.50 to Alessi. Id. at p. 7. Since March 5, 2012, XL has not reimbursed any such defense costs. These include fees and costs the Insureds had incurred before January 18, 2012, and between January 18, 2012 and March 5, 2012. XL’s basis for denying a duty to cover the Insureds—as explained in its letter—is a provision in the application that Level Global had submitted to XL in seeking the Policy (the “Application”). The Application was completed and signed by Jeremy Bohrer, Level Global’s General Counsel and Chief Operating Officer, on April 16, 2010. Naunton Decl. Ex. C at p. 4. Question 8.b on the Application asks: Is any person(s) or entity(ies) proposed for this insurance aware of any fact, circumstance or situation which might afford valid grounds for any claim such as would fall within the scope of the proposed insurance? (If “Yes,” please explain by attachment to this Application.) Id. at p. 2. Bohrer checked the box corresponding to “No.” Id. Immediately following this question is the following statement: Without prejudice to any other rights and remedies of the Insurer, any Claim arising from any claims, facts, circumstances or situations required to be disclosed in response to 8.a) or 8.b) above is excluded from the proposed insurance. Id. (the “Prior Knowledge Exclusion” or “Exclusion”) (boldface in original). In its letter to the Insureds, XL took the position that the Exclusion applies to the Government Actions. It explained that, based on his plea allocution, Adondakis—a person “proposed for this insurance”—necessarily knew, as of the April 2010 date of the Application, of facts which could give rise to a claim, ie., an investigation, prosecution, or lawsuit, based on his insider trading scheme while at Level Global. Naunton Decl. Ex. B at p. 6. XL demanded that the Insureds repay the funds it had previously advanced. Id. at p. 7. C. XL Files This Lawsuit On March 5, 2012, the same day it terminated coverage, XL commenced this lawsuit. XL seeks (1) a declaration that, under the Prior Knowledge Exclusion, XL has no duty to cover any Insured in connection with the Government Actions, as a result of Adondakis’s admitted crimes while at Level Global between 2007 and 2010; and (2) restitution of all defense costs (more than $7.3 million) that it has advanced to the Insureds. D. The Insureds’ Motion for a Preliminary Injunction On March 28, 2012, the Insureds moved for a preliminary injunction. Dkt. 4. They argue that, in the absence of an injunction compelling XL to resume advances for defense expenses, their ability to defend against the Government Actions will otherwise be irreparably harmed. Insureds’ Br. 13-15. The Insureds argue that they are likely to succeed in demonstrating an entitlement to coverage under the Policy, because, when the Prior Knowledge Exclusion is read in tandem with other provisions in the Application, it is at best ambiguous whether it permits XL to terminate coverage for all Insureds, and, under New York law, ambiguities in an insurance contract are construed to favor the insured. Insureds’ Br. 16-17. The Insureds point, first, to a provision at the end of the Application. It appears immediately before Bohrer’s signature. It states: FOR THE PURPOSE OF THIS APPLICATION, THE UNDERSIGNED AUTHORIZED AGENT OF THE PERSON(S) AND ENTITY(IES) PROPOSED FOR THIS INSURANCE DECLARES THAT TO THE BEST OF THEIR KNOWLEDGE AND BELIEF AFTER REASONABLE INQUIRY, THE STATEMENTS HEREIN ARE TRUE AND COMPLETE. THE INSURER IS AUTHORIZED TO MAKE ANY INQUIRY IN CONNECTION WITH THIS APPLICATION. SIGNING THIS APPLICATION DOES NOT BIND THE INSURER TO COMPLETE THE INSURANCE. Naunton Decl. Ex. C at p. 3 (the “Reasonable Inquiry Provision” or “Provision”) (boldface and capitals in original). The Insureds argue that the Provision qualifies the Prior Knowledge Exclusion, such that when Bohrer answered “no” to Question 8.b, did not—and was not required to— attest omnisciently that no proposed Insured was aware of a basis for a claim. Rather, he was attesting—and was required to attest—only that he, on behalf of Level Global, was unaware, after a reasonable inquiry, that any proposed insured was aware of a basis for a claim. Accordingly, the Insureds argue, Adondakis’ crimes—concealed from Bohrer—did not trigger the Exclusion. Insureds’ Br. 18. The Insureds also point to Condition K (a “Warranty” clause) in the Application, which provides: No knowledge or information possessed by any Insured will be imputed to any other Insured. In the event that any of the particulars or statements in all material respects in the Application are untrue, this Policy will be void with respect to any Insured who had actual knowledge of the untruth in any material respect [sic] knew of such untruth. Naunton Decl. Ex. A at p. 26; Insureds’ Br. 19-20. The Insureds argue that, in excluding them from coverage, XL is, effectively, imputing Adondakis’s criminal knowledge to the Insureds in violation of Condition K. The Insureds separately argue that, regardless of whether they ultimately prevail on the underlying issue of whether the Prior Knowledge Exclusion bars coverage, they are entitled to advancement of defense costs until a court resolves that issue. Insureds’ Br. 20-24; see also id. at 23 (“insurers are required to make contemporaneous interim advances of defense expenses where coverage is disputed, subject to recoupment in the event it is ultimately determined no coverage is afforded.”) (internal quotation marks and citations omitted). They argue that XL does not have the unilateral right to cease advancement in midstream. Id. On April 16, 2012, XL filed its opposition. Dkt. 19. XL argues that neither the Reasonable Inquiry Provision nor Condition K modifies the Prior Knowledge Exclusion, and that the Insureds thus fail to establish a likelihood of success on the merits. XL’s Br. 9-11. XL also denies that it must await a judicial determination that the Exclusion applies before terminating coverage. It distinguishes the cases on which the Insureds rely as arising in the different context of insurer attempts to rescind a policy altogether. Id. at 19-22. XL also asks that, if an injunction is granted, the Insureds be required to post a bond. Id. at 22-24. On April 26, 2012, the Insureds filed a reply brief. Dkt. 23. On May 10, 2012, the Court held a nearly three-hour hearing on the motion. At the end of that hearing, the Court informed the parties that it intended to grant the Insureds’ motion for a preliminary injunction, and that an appropriate opinion and order would follow. II. Discussion A. Applicable Legal Standards A preliminary injunction is an extraordinary remedy never awarded as of right. In each case, courts must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief. In exercising their sound discretion, courts of equity should pay particular regard for the public consequences in employing the extraordinary remedy of injunction. Salinger v. Colting, 607 F.3d 68, 79 (2d Cir.2010) (quoting Winter v. Natural Res. Def. Council, 555 U.S. 7, 24, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008)). Thus, a plaintiff seeking a preliminary injunction must normally “establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.” Litwin v. OceanFreight, Inc., 865 F.Supp.2d 385, 391-92, No. 11-cv-7218, 2011 WL 5223022, at *4, 2011 U.S. Dist. LEXIS 127362, at *13-14 (S.D.N.Y. Nov. 2, 2011) (quoting Psihoyos v. John Wiley & Sons, Inc., No. 11-cv-1416, 2011 WL 4634172, at *1, 2011 U.S. Dist. LEXIS 115835, at *3 (S.D.N.Y. Oct. 4, 2011) (citing Winter, 555 U.S. at 20, 129 S.Ct. 365 (2008))); see also Reckitt Benckiser Inc. v. Motomco Ltd., 760 F.Supp.2d 446, 451-52 (S.D.N.Y.2011). The Second Circuit has repeatedly emphasized that “[a] showing of irreparable harm is ‘the single most important prerequisite for the issuance of a preliminary injunction.’ ” Faiveley Transp. Malmo AB v. Wabtec Corp., 559 F.3d 110, 118 (2d Cir.2009) (quoting Rodriguez v. De-Buono, 175 F.3d 227, 234 (2d Cir.1999)); see also Singas Famous Pizza Brands Corp. v. New York Adver. LLC, 468 Fed. Appx. 43, 45 (2d Cir.2012) (slip op.) (summ. order); Bisnews AFE (Thail.) Ltd. v. Aspen Research Group Ltd., 437 Fed.Appx. 57, 58 (2d Cir.2011) (summ. order); Borey v. Nat’l Union Fire Insur. Co., 934 F.2d 30, 34 (2d Cir.1991). “ ‘To satisfy the irreparable harm requirement, [movants] must demonstrate that absent a preliminary injunction they will suffer an injury that is neither remote nor speculative, but actual and imminent, and one that cannot be remedied if a court waits until the end of trial to resolve the harm.’ ” Faiveley Transp., 559 F.3d at 118 (quoting Grand River Enter. Six Nations, Ltd. v. Pryor, 481 F.3d 60, 66 (2d Cir.2007)). Thus, “ ‘[w]here there is an adequate remedy at law, such as an award of money damages, injunctions are unavailable except in extraordinary circumstances.’ ” Faiveley Transp., 559 F.3d at 118 (quoting Moore v. Consol. Edison Co. of N.Y., 409 F.3d 506, 510 (2d Cir.2005)). “The decision to grant or to deny a preliminary injunction depends in part on a flexible interplay” between the likelihood of success and irreparable harm. Packard Instrument Co. v. ANS, Inc., 416 F.2d 943, 945 (2d Cir.1969) (citing Unicon Mgmt. Corp. v. Koppers Co., 366 F.2d 199 (2d Cir.1966)). Thus, those two factors should not be considered in isolation. See Dopp v. Franklin Nat’l Bank, 461 F.2d 873, 886 (2d Cir.1972) (“The likelihood of success on the merits that a movant for injunctive relief nrust demonstrate varies with the quality and quantum of harm that it will suffer from the denial of an injunction.”); IBM Corp. v. Johnson, 629 F.Supp.2d 321, 329 (S.D.N.Y.2009); Suthers v. Amgen Inc., 372 F.Supp.2d 416, 429 (S.D.N.Y. 2005). The Second Circuit has, further, differentiated between injunctions that propose to alter the status quo (mandatory injunctions) and those that merely seek to maintain it (prohibitory injunctions). A mandatory injunction may “issue only upon a clear showing that the moving party is entitled to the relief requested, or where extreme or very serious damage will result from a denial of preliminary relief.” Cacchillo v. Insmed, Inc., 638 F.3d 401, 406 (2d Cir.2011) (citing Citigroup Global Mkts., Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30, 35 n. 4 (2d Cir.2010)); see also LSSi Data Corp. v. Time Warner Cable, Inc., — F.Supp.2d -, -, No. 11-cv-7780, 2012 WL 1893650, at *8-9, 2012 U.S. Dist. LEXIS 72122, at *27 (S.D.N.Y. May 23, 2012). By contrast, a prohibitory injunction may be granted on a showing of “(a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief.” Citigroup Global Mkts., Inc., 598 F.3d at 35 (citing Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir.1979)) (additional citations omitted). Under the prohibitory injunction standard, the overall burden on a movant to show “sufficiently serious questions going to the merits” and that “the balance of hardships tips ‘decidedly in its favor’” is “no lighter than the one it bears under the ‘likelihood of success’ standard.” Citigroup Global Mkts., Inc., 598 F.3d at 35 (internal citation omitted). The parties differ as to whether the injunction sought here is mandatory or prohibitory. XL argues that, because it ceased to advance defense costs on March 5, 2012, and the Insureds did not move for resumption of advancement until 23 days later, the injunction would alter the status quo and thus is mandatory. See XL’s Br. 4-5 (citing Brewer v. W. Irondequoit Cent. Sch. Dist., 212 F.3d 738, 744 (2d Cir.2000)). The Insureds counter that XL should not be allowed to effectively heighten the Insureds’ burden on this motion, by unilaterally ceasing advancement without warning. They argue that the relevant date for classifying the requested injunction is March 5, 2012, the date XL terminated advancement and filed this lawsuit. Thus, the Insureds argue, they seek a prohibitory injunction. Insureds’ Reply 2-3 & n. 1. To be sure, “ ‘the distinction between mandatory and prohibitory injunctions is not without ambiguities or critics’ ” and often leads to “ ‘distinctions that are more semantic[ ] than substantive.’ ” Mastrovincenzo v. City of New York, 435 F.3d 78, 90 (2d Cir.2006) (quoting Tom Doherty Assocs., Inc. v. Saban Entm’t, Inc., 60 F.3d 27, 34 (2d Cir.1995)) (alteration in original). However, on the facts at hand, the Insureds have far the better of this argument. But for XL’s unilateral decision to terminate advancement and file suit, it would have been XL, not the Insureds, that would have been seeking an injunction (and to alter the status quo). And it is long settled that the “ ‘[sjtatus quo’ to be preserved by a preliminary injunction is the last actual, peaceable uncontested status which preceded the pending controversy.” LaRouche v. Kezer, 20 F.3d 68, 74 n. 7 (2d Cir.1994) (quoting Black’s Law Dictionary 1410 (6th ed. 1990)); see also 0 Centro Espirita Beneficiente Uniao Do Vegetal v. Ashcroft, 389 F.3d 973, 1013 (10th Cir.2004) (“‘Status quo’ does not mean the situation existing at the moment the law suit is filed, but the last peaceable uncontested status existing between the parties before the dispute developed. Thus, courts of equity have long issued preliminary injunctions requiring parties to restore the status quo ante”) (McConnell, J., concurring) (internal quotation omitted), affd and remanded, 546 U.S. 418, 126 S.Ct. 1211, 163 L.Ed.2d 1017 (2006); United Steelworkers of Am., AFL-CIO v. Textron, Inc., 836 F.2d 6, 10 (1st Cir.1987) (construing an injunction requiring payment of insurance premiums “not as mandatory, but as prohibitory” where, immediately before controversy erupted, premiums were being paid) (Breyer, J.); Davis v. Shah, No. 12-cv-6134, 2012 WL 1574944, at *5-6, 2012 U.S. Dist. LEXIS 62295, at *13-15 (W.D.N.Y. May 2, 2012); Blom ASA v. Pictometry Int’l Corp., 757 F.Supp.2d 238, 243 (W.D.N.Y.2010); Stockstill v. Quinnipiac Univ., No. 10-cv-265, 2010 WL 2011152, at *7, 2010 U.S. Dist. LEXIS 49481, at *21 (D.Conn. May 19, 2010). Applied here, that principle requires that the status quo be measured as of March 4, 2012, immediately before XL told the Insureds that it would no longer advance defense costs. The Court, therefore, holds that the injunction sought is prohibitory, not mandatory. B. Irreparable Harm The failure to receive defense costs under a professional liability policy at the time they are incurred “constitutes ‘an immediate and direct injury’ ” sufficient to satisfy the irreparable harm requirement. See In re WorldCom, Inc., Sec. Litig., 354 F.Supp.2d 455, 469 (S.D.N.Y.2005) (quoting Wedtech Corp. v. Fed. Ins. Co., 740 F.Supp. 214, 221 (S.D.N.Y.1990)); see also In re Adelphia Commc’ns Corp., No. 02-41729, 2004 WL 2186582, at *6-7, 2004 U.S. Dist. LEXIS 19478, at *21-22 (S.D.N.Y. Sept. 27, 2004) (upholding, despite asset freeze during bankruptcy proceeding, release of funds to pay for defense of serious criminal charges, because failure to do so would likely result in irreparable harm); In re CyberMedica, Inc., 280 B.R. 12,18-19 (Bankr.Ct.D.Mass.2002) (granting relief from automatic stay in bankruptcy because directors and officers would suffer irreparable harm if prevented from exercising rights to legal defense payments under D & O policy); cf. Flood v. ClearOne Commc’ns, Inc., No. 08-cv-631, 2009 WL 87006, at *6, 2009 U.S. Dist. LEXIS 2145, at *15-16 (D.Utah Jan. 12, 2009), injunction vacated on other grounds at 618 F.3d 1110 (10th Cir.2010) (finding irreparable harm and granting injunctive relief where insured “face[d] a criminal trial in less than three weeks” and “[i]n the absence of continued payment of fees and costs by ClearOne, Ms. Flood’s counsel ha[d] represented to the Court that they cannot continue representation”); Great Am. Ins. Co. v. Gross, No. 05-cv-159, 2005 WL 1048752, at *4, 2005 U.S. Dist. LEXIS 8003, at *13-14 (E.D.Va. May 3, 2005) (granting preliminary injunction compelling insurer to resume advancement of defense costs, because insured faced prospect of “massive civil liability due to ... complex, fact intensive actions” and “[t]he practical effect of Plaintiffs failure to advance costs of defense to Moving Defendants would be to cause [insureds’ counsel] to withdraw”); Emons Indus., Inc. v. Liberty Mutual Ins. Co., 749 F.Supp. 1289, 1293 (S.D.N.Y.1990) (finding irreparable harm where insurer sought to force insured whose policy covered defense costs to replace his attorney of a decade); Nu-Way Envtl., Inc. v. Planet Ins. Co., No. 95-cv-573, 1997 WL 462010, at *2-3, 1997 U.S. Dist. LEXIS 11884, at *7 (S.D.N.Y. Aug. 5,1997). Presumably as a result of this body of authority, XL concedes that, absent an injunction, the Insureds will suffer irreparable harm. But this spare concession is quite inadequate to capture the full extent of the harm and risk to these Insureds presented by XL’s decision to abruptly stop paying their defense costs. For three independent reasons, the Court finds that, if XL is not directed to resume paying those costs, the Insureds are likely to suffer “extreme or very serious damage,” the highest of the standards the Second Circuit uses to measure irreparable harm. Cacchillo, 638 F.3d at 406. First, in the underlying legal actions, the Insureds are confronted by criminal charges, either actual or threatened, and XL’s termination of payment came at a critical juncture for the defense. As of the time that XL ceased paying their legal fees, the Insureds were each either the subject of a broad and ongoing criminal investigation or, in the case of Anthony Chiasson, an indicted defendant awaiting trial. To date, the Department of Justice’s investigation into insider trading on Wall Street has resulted in the indictments of nearly 60 people. The Government Actions thus present a real risk to the Insureds not only of monetary liability, but of prosecution and a loss of liberty. The SEC Action and its investigation present the added risk of serious regulatory sanctions, including a potential bar from the securities industry. XL’s termination of payment of defense costs presents an obvious risk that one or more Insureds, as a result of a sudden inability to pay legal fees, would lose his existing counsel in the middle of (and quite possibly at a key moment in) these sensitive matters. The potential injury to a criminal defendant or an investigative subject of losing counsel in midstream cannot be minimized. Cf. Flood, 2009 WL 87006, at *6, 2009 U.S. Dist. LEXIS 2145, at *16. An Insured’s new counsel, starting from scratch in a highly complex matter, will not have, and may not be able to quickly acquire, predecessor counsel’s familiarity with the evidence, legal principles, strategy, and witnesses. Nor may such counsel be able to quickly replicate prior counsel’s working relationships with the prosecutors, counsel for co-defendants or fellow investigative subjects, or with his or her new client. A defendant without substantial assets to pay for counsel also has no assurance that the new counsel will have the talent and experience of the predecessor, with price now potentially a decisive factor in choosing counsel. See United States v. Stein, 435 F.Supp.2d 330, 362, 371 (S.D.N.Y.2006) (finding that if accounting firm were to cease paying legal fees of former partners who were charged in a complex tax fraud prosecution, these defendants would be inhibited in presenting their defense, and relying on appointed or lower-cost counsel to marshal a comparable defense was “unrealistic”); cf. United States v. Eisenberg, No. 01-cr-210, 2002 WL 483468, at *3-4, 13-14, 2002 U.S. Dist. LEXIS 5354, at *7-10, 38-39 (S.D.N.Y. Mar. 8, 2002); United States v. Rosen, 487 F.Supp.2d 721, 734-35 (E.D.Va.2007). The potential damage from interrupting and destabilizing ongoing defense efforts is multiplied here. That is because XL’s decision extends to all Insureds. It therefore jeopardizes at once every existing representation of persons affiliated with Level Global, and of Level Global itself. It is well known that, where investigative subjects have a common interest—including having worked in the business unit that is the focus of a criminal or regulatory investigation—the subjects’ defense counsel often collaborate and/or pool resources in a “joint defense” or “common interest” group. The work of coordinated defense groups is well known, see, e.g., United States v. Weissman, No. 94-cr-760, 1996 WL 737042, at *6-7, 1996 U.S. Dist. LEXIS 19066, at *16-18 (S.D.N.Y. Dec. 26, 1996), and, as practitioners appreciate, can sometimes be vital to the successful defense of a government investigation. See also United States v. McPartlin, 595 F.2d 1321, 1336 (7th Cir.1979) (communication among co-defendants’ counsel “can be necessary to a fair opportunity to defend” in a multi-defendant case); cf. In re Grand Jury Subpoena Duces Tecum Dated Nov. 16, 1971, 406 F.Supp. 381, 390 (S.D.N.Y. 1975) (noting defense group collaboration in defending against SEC enforcement action). This is particularly true where an investigation probes complex areas of alleged corporate misconduct. As a result of this coordinated work, a criminal defendant or investigative subject may have a real interest in the continuity of fellow subjects’ legal representations. Not surprisingly, collaboration among counsel for the Insureds appears to be underway in this investigation. See Hg. Tr. 18 (statement of counsel for Mr. Brenner). XL’s global termination could, therefore, act as a ten-strike aimed at the entire Level Global defense group. It would create the risk at this key juncture that multiple defense counsel—or, conceivably, counsel for all Insureds—would step aside, because their fees in this costly matter could no longer realistically be paid. Were this to happen, the productive collaborative efforts and the existing body of joint-defense intellectual capital could be substantially impaired, to the detriment of all Insureds. See United States v. Stepney, 246 F.Supp.2d 1069, 1084 (N.D.Cal. 2003) (noting harm to joint defense group presented by one attorney’s disqualification). Second, the government’s charges or potential charges in the complex underlying matters are by their nature unusually costly to defend against. The prosecution of Anthony Chiasson illustrates the point well. Based on counsel’s representations at the hearing, Chiasson’s trial is presently scheduled for October 2012, and is projected to last between six to eight weeks. Hg. Tr. 7. The prosecution has produced between one and two terabytes of electronic discovery to Chiasson’s counsel—equating to between 100 million and 1 billion pages. Id. In addition, although the Indictment charges Chiasson with insider trading in two securities across eight trading days, the prosecution has stated that it may supersede to add charges relating to up to 33 other securities. Id. at 8-9. As to any instance of alleged insider trading, a diligent defense counsel can be expected to investigate numerous potential defenses. These, presumably, include whether information about the security was communicated to his client in advance of the particular trade; whether that information was material; whether it was nonpublic, as opposed to known or fairly ascertainable through legitimate means; whether it had been obtained by the expert network or other third-party intermediaries in breach of a duty; and whether counsel’s client knew the answers to those questions at the time of the trade. Hg. Tr. 8. It is likely that defense counsel will wish to retain expert assistance in connection with these inquiries. Further, because the government alleges that material non-public information was furnished to Level Global and Chiasson not directly by a company insider, but indirectly, including by means of one or more intermediary experts and/or consultants, counsel can also be expected to vigorously investigate these intermediaries. See SEC Compl. ¶¶ 2-7 (alleging that information from “Dell Insider” traveled through two intermediaries before reaching Adondakis). All this defense work will be costly. Without professional liability coverage, these costs are likely beyond the financial reach of some Insureds, if not all. Third, at stake here is not only whether the Insureds can access the $2.7 million left to be paid out on Level Global’s $10 million policy with XL. Also in jeopardy is the Insureds’ ability to access additional layers of excess insurance to which the Insureds are entitled after the XL policy has been exhausted. At argument, Level Global’s counsel explained that it had purchased $15 million in additional layers of excess coverage, atop XL’s Policy, from other carriers. But, counsel explained, the carrier responsible for the next layer of coverage has taken the position that its duty to pay is not triggered until XL, the primary insurer, has paid out the full $10 million on its Policy. See Hg. Tr. 11-12 (next-layer carrier has rejected Insureds’ position that its duty has been triggered by fact that Insureds have incurred more than $10 million in defense costs). Although the duty of the next insurer to advance costs under these circumstances could certainly be litigated if necessary, as a practical matter, XL’s decision to cease payment of the Insureds’ defense fees is blocking the Insureds from accessing not just the remaining $2.7 million under XL’s policy, but an additional $15 million in excess coverage as well. In In re WorldCom, the district court succinctly summarized why the insurer’s refusal to advance fund’s—with civil lawsuits underway and a trial date approaching—confronted the insureds with irreparable harm: Every party ... requires effective representation. It is impossible to predict or quantify the impact on a litigant of a failure to have adequate representation at this critical stage of litigation. The ability to mount a successful defense requires competent and diligent representation. The impact of an adverse judgment will have ramifications beyond the money that will necessarily be involved. There is the damage to reputation, the stress of litigation, and the risk of financial ruin—each of which is an intangible but very real burden. WorldCom, 354 F.Supp.2d at 469. Those considerations apply here, and, for the reasons stated, with special force. The Court, accordingly, finds that the Insureds’ need to access additional legal defense costs from XL under the Policy is immediate and concrete, and that in the absence of the requested injunction, the Insureds would suffer irreparable harm and sustain “extreme or very serious damage.” Cacchillo, 638 F.3d at 406 (citing Citigroup Global Mkts., 598 F.3d at 35 n. 4). C. The Balance of Hardships For many of the same reasons, the balance of hardships tips, not only decisively but lopsidedly, in favor of the Insureds. Absent an injunction, the Insureds would face an increased risk of having to defend against a criminal investigation or prosecution, without their present counsel, and very likely without the funds to mount a fully effective defense against these complex charges. They also face a parallel SEC investigation that may result in serious civil charges. Insured Anthony Chiasson would face the pending criminal Indictment against him (to which may be added expanded insider trading charges) with a risk of losing his existing counsel months before trial, and without the funds to pay for the investigation and preparation such charges merit. All Insureds face the risk that, because of XL’s refusal to complete payout under its Policy, they will be inhibited from accessing the additional layers of coverage—totaling $15 million— for which Level Global contracted. The Insureds thus stand to lose, from a strictly monetary perspective, access to approximately $17.7 million. From a human perspective, they stand to lose much that is far more consequential, including their liberty. XL, by contrast, faces at most the loss of an additional $2.7 million, and then only if a court were to determine that it had no duty to advance or pay out those funds, and in such circumstances, XL could seek to recoup those funds from the Insureds. At argument, XL’s counsel acknowledged that $2.7 million “is not going to tank XL” and that XL “will continue as a viable insurer.” Hg. Tr. 71. XL has not identified any non-monetary adverse consequences to it from granting the injunction. The balance of equities thus, decisively, favors the Insureds. D. Likelihood of Success on the Merit s 1. Authorities Relied on by the Parties As both parties recognize, this is not the first case to address the application of a prior knowledge exclusion or an attempt by an insurer to cease advancement of defense costs based on undisclosed claims or misconduct. For its part, XL relies on three cases enforcing prior knowledge exclusions, which, it claims, defeat the Insureds’ claim of a likelihood of success on the merits. At issue in Gluck v. Executive Risk Indemnity, Inc., 680 F.Supp.2d 406 (E.D.N.Y.2010), was a prior knowledge exclusion worded quite similarly to the one here. The insured had sought a declaratory judgment of coverage for defense costs; the insurer moved for summary judgment, based on the fact that the insured had not disclosed a dispute and settlement agreement with the Federal government. Id. at 407, 411-12. The district court held that because the insured entity had been required to disclose the settlement, had not done so, and the claims for which coverage was sought arose from that settlement, the exclusion barred coverage for the underlying claims for all insureds. Id. at 413-14, 424. In MDL Capital Management, Inc. v. Federal Insurance Company, No. 05-cv-1396, 2008 WL 2944890, 2008 U.S. Dist. LEXIS 57089 (W.D.Pa. Jul. 25, 2008), the insurance application asked the corporate applicant: “Does the applicant or any of its partners, directors, officers, employees or trustees have any knowledge of any fact or circumstances which might give rise to a claim under the proposed policy?” Id. at *6, 2008 U.S. Dist. LEXIS 57089 at *18-19. The application provided: “It is agreed that if such knowledge exists any claim arising from such fact or circumstances will not be covered by the policy.” Id. at *13, 2008 U.S. Dist. LEXIS 57089 at *36. One such insured (Lay, the company’s CEO) was later found guilty of mail and wire fraud. The district court held that that conviction “establishes that [he] knew or should have known of the likelihood of a claim related to his fraudulent conduct.” Id. at *16, 2008 U.S. Dist. LEXIS 57089 at *44—45. The court rejected the other insureds’ claim that their “lack of privity” to Lay precluded application of the exclusion to them. It noted that the application question “inquired about the knowledge of ‘any’ director, officer or employee, and the [Exclusion] providefd] that any such knowledge eliminated] coverage for ‘any claim arising from such fact or circumstances.’ ” Id. at *16, 2008 U.S. Dist. LEXIS 57089 at *46 (emphasis in original). Thus, Lay’s subjective knowledge defeated coverage for all claimants. Id. at *16-17, 2008 U.S. Dist. LEXIS 57089 at *47-48. Finally, in Shapiro v. American Home Assurance Company, 584 F.Supp. 1245 (D.Mass.1984), the application asked the applicant, Giant Stores: “Does any Director or Officer have knowledge or information of any act, error or omission which might give rise to a claim under the proposed policy?” Id. at 1247. It further provided: “It is agreed that if such knowledge or information exists any claim or action arising therefrom is excluded from this proposed coverage.” Id. Shapiro, Giant’s president, completing the application for the company, answered “no”; he was later convicted of securities fraud based on conduct predating the application. Id. On the claim by other officers and directors that they had been unaware of Shapiro’s crimes, the district court held, as a matter of contract interpretation, that the insurer, American Home, was entitled to rescind the agreement, and that the “clear language” of the exclusion also justified denying coverage even to innocent corporate officials, based on Shapiro’s knowledge at the time of the application of a potential claim. Id. at 1252-53. The Insureds, for their part, rely principally on three different cases, in which courts have refused to permit insurers to cease advancement of defense costs. In In re WorldCom, a former director sought a preliminary injunction compelling Worldcom’s D & 0 insurer to advance defense costs in connection with litigation related to the company’s accounting irregularities. 354 F.Supp.2d at 462. The insurer argued that misrepresentations made in Worldcom’s insurance policy application had made that policy void ab initio; it sought to rescind the policy. Id. at 462-63. The district court (Cote, J.) held that, on a motion for a preliminary injunction, the insured need establish a likelihood of success only as to the issue of a duty to advance defense costs while the claim of rescission was sub judice, not a likelihood of success in defeating the rescission claim. Id. at 466-67. The court found such a likelihood, and issued an injunction compelling the insurer to advance defense costs until the underlying claims had been adjudicated. Id. at 471. It explained: “Until the issue of rescission is adjudicated, a contract of insurance remains in effect and the duty to pay defense costs is enforceable.” Id. at 465. In In re HealthSouth Corporation Insurance Litigation, 308 F.Supp.2d 1253 (N.D.Ala.2004), former directors and officers of HealthSouth sought partial summary judgment against a complaint brought by 10 insurers, seeking, as in WorldCom, to void D & 0 policies ab initio-as having been procured by materially false financial information. Id. at 1256-57. The district court granted (in part) the insureds’ motions, on the ground that, under the insurance contract, the knowledge of wrong-doers within the company could not be imputed to innocent fellow employees seeking coverage under the policy. Id. at 1283-85. In so concluding, the court stated, in a passage quoted by the Insureds here: If the companies can rescind coverage because of misstatements or misleading statements in HealthSouth SEC filings, without showing that the individual insured knew of the misstatement, then coverage under the D & 0 policies would be totally illusory. Under the interpretation urged by the excess carriers, officers and directors who have no specific control over or intimate knowledge about statements contained in SEC filings and other financial reports would not have insurance protection in cases of misstatements by the corporation or other insureds. Id. at 1285; Insureds’ Br. 20. Finally, in Associated Electric & Gas Ins. Services, Ltd. v. Rigas, 382 F.Supp.2d 685 (E.D.Pa.2004), a number of former officers and directors of Adelphia Communications sought summary judgment against the complaint of their D & 0 insurer, which sought to disclaim coverage for defense costs based on, inter alia, both rescission and a prior knowledge exclusion. The insurers claimed that they could unilaterally invoke the exclusion, without any judicial determination that it applied, as a basis to cease advancing legal costs. Id. at 685, 690. The district court granted the insureds’ motion. Id. at 702-03. It noted that a bankruptcy stay prevented it “from making any determination at [that] time about whether the Prior Knowledge Exclusion applie[d,]” or whether other language in the application (including a warranty clause not dissimilar from Condition K here), made “only the signatory to the policy application or all of the directors and officers subject to the Prior Knowledge Exclusion.” Id. at 700. However, the Rigas court held that, pending a judicial determination of the exclusion’s applicability, the insurer was required to continue to advance defense costs. The court noted that the policy’s prior knowledge exclusion “does not ... contain any' language to suggest that it operates at the discretion of the insurer,” “does not say that the exclusion precludes the payment of defense costs when the insurer believes the insured had prior knowledge, and it does not say that the insurer can itself determine whether such knowledge was likely to give rise to claims.” Id. at 699. The court therefore held that it was ambiguous whether the contract empowered the insurer to unilaterally invoke a policy exclusion, and to cut off the forwarding of defense costs, without a judicial determination that the exclusion applied. Id. at 699-700. Drawing on Pennsylvania law, the Rigas court noted that an insurer becomes “legally obligated” to advance defense costs as those costs are incurred by the insureds, at least in the absence of contravening language in the relevant policy. Id. at 700. Because the policy was ambiguous whether the insurer had contracted around that background norm, the court construed the ambiguity in favor of the insured, and compelled the insurer to advance defense costs pending a judicial resolution of the exclusion’s applicability. Id. In the Court’s view, although all of these cases are instructive, none is dispositive here. XL’s cases—Gluck, MDL Capital, and Shapiro—all demonstrate that, under an unambiguously drafted insurance contract containing a prior knowledge exclusion, coverage of all insureds can be excluded based on the knowledge of a single insured, as of the application date. The Insureds’ counsel conceded this point at argument. Hg. Tr. 43-44. Gluck particularly assists XL, because the exclusion there is similar to the one here. See XL’s Br. 9-11. However, none of those cases involved the claim here that specific policy language outside the four corners of the prior knowledge exclusion informs its proper construction. That is the Insureds’ primary argument. As discussed supra, they have made a substantial argument that the Reasonable Inquiry Provision narrows the “claims, facts, circumstances or situations” that are “required to be disclosed”—the decisive term in XL’s Prior Knowledge Exclusion—so as not to require disclosure of information, like Adondakis’s crimes, unknown to signatory Bohrer after his due diligence inquiry. Notably, had such a provision existed, it would not have changed the outcomes in Gluck, MDL Capital, or Shapiro. That is because, in each case, the signatory to the insurance application had personally been aware— based on firsthand involvement—of the undisclosed circumstances giving rise to the claim forming the basis for the exclusion. In Gluck, the signatory, CEO Klein, had signed the undisclosed settlement agreement, see 680 F.Supp.2d at 411-12, and in MDL Capital Management and Shapiro, the respective signatories, CEO Lay and President Shapiro, were each later convicted of federal crimes based on their preapplication conduct. See 2008 WL 2944890, at *1-2, 6-7, 9, 2008 U.S. Dist. LEXIS 57089, at *4, 18-19, 26, 584 F.Supp. at 1247. Thus, in each case, the excluding circumstance would have been “required to be disclosed” because the signatory personally knew it. At argument, XL’s counsel agreed that whether the interplay between XL’s Prior Knowledge Provision and its Reasonable Inquiry Provision gives rise to contractual ambiguity presents a question of first impression. See Hg. Tr. 69. The Insureds’ cases, too, are distinguishable. WorldCom and HealthSouth are rescission cases. In each, the insurers sought a declaration that the insurance contract had been void ab initio. This, however, is an exclusion case. XL concedes that a binding Policy exists with Level Global; it seeks a declaration that the Government Actions are excluded under the Policy’s Prior Knowledge Exclusion. XL’s Br. 17. The Insureds note that the impact on them of termination of advancement is the same, whether the legal issue is cast as rescission or exclusion; and that, inasmuch as Level Global did not make any other claims for coverage during the policy period, exclusion of the Covered Claims in substance works a rescission of the agreement (save for the non-return of the insured’s premium). See Insureds’ Br. 22; Hg. Tr. 74. However, under the case law, the contractual defenses of rescission and exclusion are distinct. They must be analyzed pursuant to separate principles. See, e.g., Gluck, 680 F.Supp.2d at 416-17 & n. 8; Home Ins. Co. of Ill. v. Spectrum Info. Techs., Inc., 930 F.Supp. 825, 835-41, 848-49 (E.D.N.Y.1996) (analyzing rescission and exclusion separately); Barkan v. New York Schools Ins. Reciprocal, 65 A.D.3d 1061, 1063-64, 886 N.Y.S.2d 414 (2d Dep’t 2009) (same). Of the Insureds’ cases, Rigas is most closely on point, because it involved a prior knowledge exclusion, not a claim for rescission. But it, too, is distinguishable, for a variety of reasons, discussed infra at 288-90. Accordingly, although the Court is guided by the valuable analyses in these cases, to resolve the pending motion, the Court must independently analyze, under principles of New York insurance law, the specific Policy provisions at issue here. 2. Principles of New York Law Under New York law, “an insurance contract is interpreted to give effect to the intent of the parties as expressed in the clear language of the contract.” Parks Real Estate Purchasing Grp. v. St. Paul Fire & Marine Ins. Co., 472 F.3d 33, 42 (2d Cir.2006); see also Vill. of Sylvan Beach v. Travelers Indem. Co., 55 F.3d 114, 115 (2d Cir.1995); St. Paul Fire & Marine Ins. Co. v. Novus Int’l, Inc., No. 09-cv-1108, 2011 WL 6937593, at *7, 2011 U.S. Dist. LEXIS 150317, at *23 (S.D.N.Y. Dec. 28, 2011). “When the provisions are unambiguous and understandable, courts are to enforce them as written.” Parks Real Estate Purchasing Grp., 472 F.3d at 42 (citing Goldberger v. Paul Revere Life Ins. Co., 165 F.3d 180, 182 (2d Cir.1999)); see also Essex Ins. Co. v. Laruccia Constr., Inc., 71 A.D.3d 818, 819, 898 N.Y.S.2d 558 (2d Dep’t 2010) (under New York law, courts must give “unambiguous provisions of an insurance contract ... their plain and ordinary meaning”). “The initial interpretation of a contract ‘is a matter of law for the court to decide.’ ” 10 Ellicott Square Court Corp. v. Mt. Valley Indem. Co., 634 F.3d 112, 119 n. 8 (2d Cir.2011) (quoting Morgan Stanley Grp. Inc. v. New England Ins. Co., 225 F.3d 270, 275 (2d Cir.2000)); see also White v. Cont’l Cas. Co., 9 N.Y.3d 264, 267, 848 N.Y.S.2d 603, 878 N.E.2d 1019 (2007). “Part of this threshold interpretation is the question of whether the terms of the insurance contract are ambiguous.” Parks Real Estate Purchasing Grp., 472 F.3d at 42 (citing Alexander & Alexander Servs., Inc. v. These Certain Underwriters at Lloyd’s, 136 F.3d 82, 86 (2d Cir.1998)). In resolving that question, a court may not view the particular terms at issue in a vacuum. Rather, it must view these terms from the perspective of one “who has examined the context of the entire integrated agreement.” Bank of N.Y. v. First Millennium, Inc., 607 F.3d 905, 914 (2d Cir. 2010); see also Int’l Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76, 83 (2d Cir.2002). “It is well settled that [a] contract is unambiguous if the language it uses has a definite and precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion.” White, 9 N.Y.3d at 267, 848 N.Y.S.2d 603, 878 N.E.2d 1019 (quoting Greenfield v. Philles Records, 98 N.Y.2d 562, 569, 750 N.Y.S.2d 565, 780 N.E.2d 166 (2002)) (brackets in original, additional citation and internal quotation marks omitted). Conversely, “[a]n ambiguity exists where the terms of an insurance contract could suggest ‘more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.’ ” Parks Real Estate Purchasing Grp., 472 F.3d at 42 (quoting Lightfoot v. Union Carbide Corp., 110 F.3d 898, 906 (2d Cir.1997)) (citation and internal quotation marks omitted); see also U.S. Licensing Assocs. v. Rob Nelson Co., No. 11-cv-4517, 2012 WL 1447165, at *3, 2012 U.S. Dist. LEXIS 58712, at *8 (S.D.N.Y. Apr. 26, 2012). “If the terms of a policy are ambiguous, however, any ambiguity must be construed in favor of the insured and against the insurer.” White, 9 N.Y.3d at 267, 848 N.Y.S.2d 603, 878 N.E.2d 1019 (citing United States Fid. & Guar. Co. v. Annunziata, 67 N.Y.2d 229, 232, 501 N.Y.S.2d 790, 492 N.E.2d 1206 (1986)); see also Woodhams v. Allstate Fire & Cas. Co., 748 F.Supp.2d 211, 218 (S.D.N.Y. 2010); Hunt v. Ciminelli-Cowper Co., Inc., 93 A.D.3d 1152, 1154, 939 N.Y.S.2d 781 (4th Dep’t 2012); Appleby v. Chicago Title Ins. Co., 80 A.D.3d 546, 549, 914 N.Y.S.2d 257 (2d Dep’t 2011); Tower Ins. Co. of N.Y. v. Diaz, 58 A.D.3d 495, 496, 871 N.Y.S.2d 123 (1st Dep’t 2009). Similarly, any ambiguity in the terms of an insurance policy application is also to be construed in favor of the insured. Home Ins. Co. v. Spectrum Info. Techs., 930 F.Supp. 825, 837 (E.D.N.Y.1996) (citing Vella v. Equitable Life Assurance Soc’y, 887 F.2d 388, 392 (2d Cir.1989)); see also Sec. Mut. Ins. Co. v. Perkins, 86 A.D.3d 702, 703, 927 N.Y.S.2d 189 (3d Dep’t 2011); Fanger v. Manhattan Life Ins. Co., 273 A.D.2d 438, 439, 709 N.Y.S.2d 622 (2d Dep’t 2000); Nadel v. Manhattan Life Ins. Co., 211 A.D.2d 900, 901, 621 N.Y.S.2d 180 (3d Dep’t 1995). This principle derives from the common law doctrine of contra proferentem, which holds that, in the case of insurance contracts, “drawn as they ordinarily are by the insurer,” Miller v. Continental Ins. Co., 40 N.Y.2d 675, 678, 389 N.Y.S.2d 565, 358 N.E.2d 258 (1976), “it is the insurance company which has the responsibility of making its intention clearly known.” Stainless, Inc. v. Emp’rs Fire Ins. Co., 69 A.D.2d 27, 33, 418 N.Y.S.2d 76 (1st Dep’t 1979). Where, as here, an insurer “claims that an exclusion in the policy applies to an otherwise covered loss,” the “insurer bears the burden of proof’ to demonstrate that the exclusion applies. Morgan Stanley Group, Inc. v. New Eng. Ins. Co., 225 F.3d 270, 276 n. 1 (2d Cir.2000); see also MBIA Inc. v. Fed. Ins. Co., 652 F.3d 152, 158 (2d Cir.2011) (“[T]he insured bears the burden of showing that an insurance coverage covers the loss, but the insurer bears the burden of showing that an exclusion applies to exempt it from covering a claim.”); Bianchi v. Florists’ Mut. Ins. Co., 422 Fed.Appx. 56, 58 (2d Cir.2011) (summ. order) (citing Critchlow v. First UNUM Life Ins. Co. of Am., 378 F.3d 246, 256-57 (2d Cir.2004)); Town of Massena v. Healthcare Underwriters Mut. Ins. Co., 98 N.Y.2d 435, 444, 749 N.Y.S.2d 456, 779 N.E.2d 167 (2002) (in context of insurer’s duty to defend, “[w]hen an exclusion clause is relied upon to deny coverage, the burden rests upon the insurance company to demonstrate that the allegations of the complaint can be interpreted only to exclude coverage”); Consol. Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 220, 746 N.Y.S.2d 622, 774 N.E.2d 687 (2002) (“Once coverage is established, the insurer bears the burden of proving that an exclusion applies”). “[T]o ‘negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case.’ ” Inc. Vill. of Cedarhurst v. Hanover Ins. Co., 89 N.Y.2d 293, 298, 653 N.Y.S.2d 68, 675 N.E.2d 822 (1996) (quoting Cont’l Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 652, 593 N.Y.S.2d 966, 609 N.E.2d 506 (1993)). “Policy exclusions ‘are not to be extended by interpretation or implication, but are to be accorded a strict and narrow construction.’ ” Inc. Vill. of Cedarhurst, 89 N.Y.2d at 298, 653 N.Y.S.2d 68, 675 N.E.2d 822 (quoting Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 311, 486 N.Y.S.2d 873, 476 N.E.2d 272 (1984)); see also Fed. Ins. Co. v. Int’l Bus. Machs. Corp., 18 N.Y.3d 642, 649, 942 N.Y.S.2d 432, 965 N.E.2d 934 (2012). Finally, an insurer’s “duty to pay ‘arises at the time the insured becomes legally obligated to pay.’ ” Fed. Ins. Co. v. Kozlowski 18 A.D.3d 33, 42, 792 N.Y.S.2d 397 (1st Dep’t 2005) (quoting Little v. MGIC Indem. Corp., 836 F.2d 789, 793 (3d Cir.1987)). Once that duty attaches, “under a directors and officers liability policy calling for the reimbursement of defense expenses ... ‘insurers are required to make contemporaneous interim advances of defense expenses,’ ” while reserving the right to seek recoupment if the facts ultimately show that no coverage was afforded. Kozlowski 18 A.D.3d at 42, 792 N.Y.S.2d 397 (quoting Nat’l Union Fire Ins. Co. v. Ambassador Grp., Inc., 157 A.D.2d 293, 299, 556 N.Y.S.2d 549 (1st Dep’t 1990)); see also Axis Reinsurance Co. v. Bennett, No. 07-cv-7924 et al., 2008 WL 2600034, at *2, 2008 U.S. Dist. LEXIS 53921, at *7 (S.D.N.Y. June 26, 2008) (Lynch, J.); Trs. of Princeton Univ. v. Nat’l Union Fire Ins. Co., 15 Misc.3d 1118(A), 839 N.Y.S.2d 437, 2007 WL 1063870, at *5, 2007 N.Y. Misc. LEXIS 2350, at *16 (Sup.CT.N.Y.Cnty. Apr. 10, 2007), aff'd, 52 A.D.3d. 247, 859 N.Y.S.2d 174 (1st Dep’t 2008). Thus, an insurer may be obligated to fund the criminal defense of an insured, but in the event of a conviction, may have the right to seek recoupment if the conviction establishes a lack of entitlement to coverage (e.g., under a “prior acts” or “intentional acts” exclusion). 3. Does the Prior Knowledge Exclusion Apply ? As noted, Question 8.b on the Application reads: Is any person(s) or entity(ies) proposed for this insurance aware of any fact, circumstance or situation which might afford valid grounds for any claim such as would fall within the scope of the proposed insurance? (If ‘Tes,” please explain by attachment to this Application.) The Prior Knowledge Exclusion, which immediately follows, provides: Without prejudice to any other rights and remedies of the Insurer, any Claim arising from any claims, facts, circumstances or situations required to be disclosed in response to 8.a) or 8.b) above is excluded from the proposed insurance. For purposes of this motion, the parties agree that (1) Adondakis was a “person[ ] ... proposed for this insurance”; (2) Adondakis, at the time of Level Global’s application, was “aware of a[ ] fact, circumstance, or situation which ... afford[ed] valid grounds for a[] claim” under the proposed insurance; and (3) the Government Actions arise from the “claims, facts, circumstances, or situations” known to Adondakis. The dispute between the parties as to whether the Prior Knowledge Exclusion applies here centers on the clause “required to be disclosed.” XL argues that clause is defined solely with reference to the text of Question 8.b, such that, if any prospective insured was aware of a “fact, circumstance or situation” which could give rise to a claim, that claim is excluded. In the absence of other language in the Policy that arguably modified that clause, XL’s argument (like the insurer’s in Gluck) would be strong. However, the Insureds argue that there is modifying language in the Policy: the Reasonable Inquiry Provision. It appears just after the Exclusion, and reads: FOR THE PURPOSE OF THIS APPLICATION, THE UNDERSIGNED AUTHORIZED AGENT OF THE PERSON(S) AND ENTITY(IES) PROPOSED FOR THIS INSURANCE DECLARES THAT TO THE BEST OF THEIR KNOWLEDGE AND BELIEF AFTER REASONABLE INQUIRY, THE STATEMENTS HEREIN ARE TRUE AND COMPLETE. THE INSURER IS AUTHORIZED TO MAKE ANY INQUIRY IN CONNECTION WITH THIS APPLICATION. SIGNING THIS APPLICATION DOES NOT BIND THE INSURER TO COMPLETE THE INSURANCE. The Insureds argue that the Provision informs the Exclusion, such that Level Global was “required to ... disclose” only the information responsive to Question 8.b known to its signatory, Bohrer, after his “reasonable inquiry.” Insureds’ Br. 17-18. On this reading, the Exclusion would not apply, because—as the parties agree for purposes of this motion—Adondakis did not reveal his crimes to Bohrer, and a reasonable inquiry would not have revealed them. The Court has carefully considered the parties’ competing constructions of the Policy, and their respective arguments why those constructions accord with the Policy’s text and yield rational results. In so doing, the Court has been mindful that “the cardinal principle for the construction and interpretation of insurance contracts—as with all contracts—is that the intentions of the parties should control. Unless otherwise indicated, words should be given the meanings ordinarily ascribed to them and absurd results should be avoided.” World Trade Ctr. Props., L.L.C. v. Hartford Fire Ins. Co., 345 F.3d 154, 184 (2d Cir.2003), overruled in part on other grounds by Wachovia Bank, N.A. v. Schmidt, 546 U.S. 303, 126 S.Ct. 941, 163 L.Ed.2d 797 (2006). In the Court’s assessment, both parties have articulated colorable textual arguments as to the interplay (or lack thereof) between the Prior Knowledge Exclusion and the Reasonable Inquiry Provision. Both have cogently explained why their constructions achieve rational ends. The Court is mindful that, at this early stage, it has not yet received in-depth briefing on this point, the parties have not engaged in discovery, and, to the extent extrinsic