D&O Insurer Has Duty to Defend Where Allegations Arguably Implicate Insured Capacity

A Massachusetts intermediate appellate court has held that a D&O insurer was required to defend a suit that at least arguably made allegations against an insured in his capacity as such.  Fodera v. Arbella Prot. Ins. Co., 2018 WL 632125 (Mass. Dist. Ct. Jan. 25, 2018).

Several entities built a condominium development.  Following the completion of the construction, the current trustees of the condominium development sued the builders alleging that they had defectively constructed and designed the development.  The current trustees alleged that one of the defendants, acting as “developer/trustee” of the development, was liable for “acts of [the development].”  On that basis, the current trustees asserted a count against the former trustee for negligent misrepresentation.  The former trustee’s D&O insurer denied both defense and indemnity coverage for the suit.

In the ensuing coverage litigation, the court held that the allegations in the complaint created at least a potential for coverage, triggering the insurer’s duty to defend.  The D&O policy afforded specified coverage only for alleged acts committed by current or former trustees “while acting solely in their capacity as such.”  The negligent misrepresentation count asserted that the former trustee acted as a “developer/trustee.”  Citing this phrasing, the court held that this count was “reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms,” triggering the insurer’s duty to defend the complaint.