The United States Court of Appeals for the Eleventh Circuit, applying Florida law, held that the fraud exclusion in a company owner’s D&O policy barred coverage because a Securities & Exchange Commission (SEC) civil action found the owner to have engaged in intentionally fraudulent conduct. Imperato v. Navigators Ins. Co., 2019 WL 2443034 (11th Cir. June 11, 2019).

The SEC filed a civil action against a company and its owner.  In that action, the court held that the company owner had violated numerous securities laws by knowingly making false statements as part of a fraudulent scheme to lure investors to the company and by certifying false forms with the SEC misrepresenting the value of the company.  The company owner sought coverage under the company’s D&O policy, which contained an exclusion for claims “brought about or contributed to by… the deliberately fraudulent or criminal acts of any insureds where it is finally adjudicated that such conduct in fact occurred.” After the conclusion of the SEC civil action, the D&O carrier denied coverage for the company owner based on the fraud exclusion.

In the subsequent coverage litigation, the district court ruled for the insurer and the appellate court affirmed.  The appellate court held that the court in the SEC civil action found the insured company owner to have engaged in deliberately fraudulent conduct.  Accordingly, the fraud exclusion bars coverage for the SEC civil judgment entered against the company owner and the defense costs in that action.