A Texas intermediate appellate court, applying Texas law, has held that an insured-versus-insured (IvI) exclusion did not bar coverage for an arbitration award because the underlying dispute arose from alleged wrongful employment practices, bringing the claim within an exception to the exclusion.  Prophet Equity LP v. Twin City Fire Ins. Co., 2019 WL 3886651 (Tex. App. Aug. 19, 2019).  The court also determined that the insurer had not met its burden of proving that any portion of the arbitration award constituted uncovered loss such that an allocation should be imposed.  Id.

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The United States Court of Appeals for the Eighth Circuit, applying Federal procedural and Minnesota substantive law, affirmed a district court’s conclusion that insured corporate directors failed to carry their burden to establish that their insurer was responsible for 100% of the fees and costs incurred in connection with a suit against the directors, the corporation, and other parties.  Brand v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 2019 WL 3850592 (8th Cir. Aug. 16, 2019).

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The United States District Court for the District of Massachusetts, applying Massachusetts law, has held that a claim asserted against a law firm alleging the failure to transfer client files to former attorneys of the firm constituted a failure to render “Legal Services” as defined by a professional liability policy.  Governo v. Allied World Ins. Co., 2019 WL 4034810 (D. Mass. Aug. 27, 2019).  The court previously denied a motion to dismiss the case, which is described here.

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The United States District Court for the Central District of California, applying California law, has held that an insurer lacked adequate information to deny coverage under an insured vs. insured exclusion in a D&O policy.  MJC Supply, LLC v. Scottsdale Ins. Co., 2019 WL 2372279 (C.D. Cal. June 4, 2019).  The court also held that the insureds’ notice under one policy constituted sufficient notice of the claim under two policies issued to a different named insured.  However, the court held that the insureds were not entitled to recover the difference between a judgment entered in their favor and a subsequent settlement of multiple lawsuits because the insureds did not sustain a “Loss.”

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The United States Court of Appeals for the First Circuit, applying Massachusetts law, has affirmed the district court’s holding that a professional services exclusion in a real estate advisory fund’s D&O policy did not excuse the duty to defend a lawsuit brought by an investor in the fund because the allegations at issue were ambiguous as to the insured’s alleged misconduct aside from investing in the properties at issue.  Scottsdale Ins. Co. v. Byrne, No. 18-1526, 2019 WL 211420 (1st Cir. Jan. 16, 2019).  The court likewise concluded that an ERISA exclusion did not apply because the complaint contained a count for negligence that did not reference ERISA-like fiduciary duties.  Finally, the court concluded that a conduct exclusion did not limit the insurer’s indemnity obligations because the default judgment against the insured encompassed both improper gains and losses resulting from negligence.

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The United States District Court for the Northern District of Alabama has held that alleged constitutional due process violations under 42 U.S.C. § 1983 do not constitute professional services “caused by the negligence” of an insured.  Madison County v. Evanston Ins. Co., 2018 WL 4680213 (N.D. Ala. Sept. 28, 2018).

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The United States District Court for the District of Rhode Island has concluded that a stockholder demand letter for legal expenses in connection with a dispute regarding the rights of different classes of stockholders constitutes a covered claim for a wrongful act.  Twin River Worldwide Holdings, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2018 WL 3640995 (D.R.I. Aug. 1, 2018).

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The Superior Court of the State of Delaware, applying Delaware and Kansas law, has held that an insurer owed a duty to pay defense costs under a directors and officers liability policy for a lawsuit primarily alleging the misappropriation of trade secrets, despite a misappropriation exclusion, on the basis that the underlying complaint asserted a claim alleging computer fraud not excluded by the policy.  WoodSpring Hotels LLC v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, Case No. N17C-09-274 (Del. Super. Ct., May 2, 2018).

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Applying Montana law, the United States District Court for the District of Montana has held that a D&O policy’s personal profit exclusion, which was implicated by a finding of conversion against an insured director, did not relieve the insurer of the duty to advance defense costs for the other remaining causes of action against the director.  Johnson v. Federated Rural Elec. Ins. Exch., 2016 WL 7243526 (D. Mont. Dec. 14, 2016).

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A Delaware trial court has affirmed its ruling that an Insured v. Insured exclusion does not apply to a shareholder derivative demand brought by a director of the company because the demand constitutes a single Claim with an earlier demand made by the same individual before he became a director. Ameritrans Capital Corp. v. XL Specialty Ins. Co., 2016 WL 3475108 (Del. Super. Ct. Jun 15, 2016).  The court also held that the insurer was not entitled to an allocation because the Insured v. Insured exclusion did not apply.
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