Specific Litigation Exclusion Bars Coverage When Claim Arises “At Least in Part” From Excluded Litigation

An Illinois district court, applying Delaware law, has held that a specific litigation exclusion in a company’s directors and officers insurance policy bars coverage for a claim arising “at least in part” from the litigation referenced in the exclusion.  RSUI Indem. Co. v. Worldwide Wagering, Inc, 2017 WL 3023748 (N.D. Ill. Jul. 17, 2017).

The exclusion provided that, “[t]he Insurer shall not be liable to make any payment for Loss arising out of or in connection with any Claim made against any Insured alleging, arising out of, based upon or attributable to, directly or indirectly, in whole or in part, the following litigation [.]”  The excluded litigation involved an allegation that an individual had agreed to bribe the governor of Illinois in exchange for his support of certain legislation.  The excluded litigation resulted in a $78 million judgment.  In the underlying case, the company and its directors were alleged to have acted to conceal assets of the company from the creditors in the excluded litigation.  The insureds argued that because the underlying litigation involved “some facts and allegations” relating to the excluded litigation, as well as allegations relating to funds not connected to the excluded matter, that the exclusion should not apply.  The court rejected that argument, holding that the exclusion barred coverage and noting that the underlying matter need only arise out of the excluded matter “in part.”  The court explained that “[t]he exclusion provision . . . did not require that litigation be identical to the [excluded matter] to be excluded from coverage, litigation merely had to arise from or be based in part on the [excluded matter.]”

Wiley Executive Summary

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