Insured v. Insured Exclusion Bars Coverage For Entirety of Suit Brought By Insureds and Non-Insureds

The United States District Court for the District of Utah, applying Utah law, has held that an insured v. insured exclusion barred coverage for the entirety of a “mixed” action brought by both insured and non-insured plaintiffs.  Stoneburner v. RSUI Indem. Co., 2022 WL 1091337 (D. Utah Apr. 12, 2022).

Two insured individuals were sued in state court by the insured entity and a number of individuals, five of whom also constituted “insureds” under a D&O policy because they were “past or present officers, directors, trustees, employees, or committee members of a duly constituted committee of” the insured entity.  The insurer denied coverage for the underlying lawsuit based on the policy’s insured-versus-insured exclusion, which precluded coverage for “Loss in connection with any Claim made against any Insured.”  After the insured individuals filed suit against the insurer for breach of contract and bad faith, the insurer moved for summary judgment.

The court ruled that the insured-versus-insured exclusion barred coverage for the entire underlying lawsuit because it was brought by plaintiffs who also qualified as “insureds” under the policy, notwithstanding the presence of non-insured plaintiffs.  The court concluded that the two insured individuals named as defendants in the underlying lawsuit were both “insureds,” and that the underlying lawsuit was brought by individuals who were also “insureds” under the policy.  Because the claim at issue was brought by other insureds, the court held that the plain language of the insured-versus-insured exclusion unambiguously precluded coverage for the underlying lawsuit in its entirety.

In so holding, the court rejected the insured individuals’ argument that the policy’s definition of “claim” mandated that each separate cause of action in the operative complaint of the underlying lawsuit be considered a separate claim and that the insurer was obligated to defend the causes of action asserted by non-insured plaintiffs.  The court explained that such an interpretation was unsupported by the policy language, as the definition of “claim” plainly defined an entire civil proceeding as a single claim.

The court also rejected the insured individuals’ argument that the policy’s “related acts” provision served as a basis to consider each cause of action as a separate “claim.”  The court distinguished the provision before it from those at issue in other cases, noting that the provision applied to “all purposes under th[e] policy,” and the insurer did not rely on it when it denied coverage because it considered the entire lawsuit to be one claim.

Finally, the court held that the policy’s “allocation” provision did not alter its ultimate conclusion.  The court highlighted that the complaint in the underlying litigation did not include a cause of action brought solely by the non-insured plaintiffs.  Because every cause of action in the underlying lawsuit was brought by insureds, often together with non-insureds, there were no separate covered causes of action that could be said to implicate the policy’s allocation provision.

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