Delaware Federal Court Clarifies No Coverage Available for Director and Officer Sued in Capacity as Controlling Stockholder

The United States District Court for the District of Delaware, applying Delaware law, has held that, because coverage was not available under a directors and officers liability policy for a claim against a director and officer involving acts undertaken in his capacity as a controlling stockholder, damages recoverable at the trial of the coverage action would be limited to amounts allocable under the relative exposure rule to claims based on acts undertaken in an Insured capacity.  Calamos Asset Mgmt., Inc. v. Travelers Cas. & Sur. Co. of Am., 2021 WL 4902450 (D. Del. Oct. 21, 2021).

Plaintiffs in a stockholder action alleged that an individual breached his fiduciary duties to stockholders by means of acts undertaken by him in two capacities: (1) as a director and officer of the insured asset management firm, and (2) as a controlling stockholder of that firm.  In an ensuing dispute over coverage for the stockholder action, the court held on summary judgment that the policy provided coverage “when [the individual] is sued based on his acts as an officer and director of [the insured entity] but not when he is sued based on his acts as a controlling stockholder.”  The court reasoned that acting as a stockholder was outside of the individual’s capacity as an “Insured Person,” which the policy defined to include directors and officers, but not stockholders. 

In response to the insured’s motion for clarification, the court clarified that, at trial, the insured could seek damages for amounts allocable under the relative exposure rule to the settlement and defense of that portion of the stockholder action based on acts in the individual’s capacity as a director and officer.  However, it could not seek damages or amounts allocable to the settlement and defense of the “controlling stockholder claim.”



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