Insured v. Insured Exclusion Bars Coverage for Entire Consolidated Action with Multiple Non-Insured Claimants

An Arizona federal court has held that an insured v. insured exclusion barred coverage for the entirety of a consolidated action originally consisting of five lawsuits, only one of which was brought by an insured claimant. Amerco v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 2014 WL 2094198 (D. Ariz. May 20, 2014).

A former director of a holding company brought suit against current directors and officers of the holding company.  Separately, four other claimants brought four separate suits against the holding company.  The former director and the current directors and officers were insureds under the holding company’s D&O policy, but the four other claimants were not.  The five suits were consolidated by the trial court.  Thereafter, the five claimants filed an amended, “merged” complaint in the consolidated action.  The holding company sought coverage for the defendant directors and officers for the portion of the consolidated action involving the four noninsured claimants.  The holding company’s D&O insurer denied coverage for the consolidated action on the basis of an insured v. insured exclusion.

In the ensuing coverage action, the court agreed that the insured v. insured exclusion barred coverage for the consolidated action as a whole.  The insured holding company argued that the consolidation was merely administrative, and the insured claimant did not actually assist with the entirety of the action.  The court disagreed, noting that the insured claimant took a “leading role” in prosecuting the consolidated action and that he therefore participated in the action as a whole, and that the claimants chose to file a single merged complaint after consolidation.  Accordingly, the court found that the action was not continued “totally independent of, and totally without the solicitation of, or assistance of, or active participation of, or intervention of” any insured as required by the exclusion’s carveback.  The court also noted that the policy lacked an express allocation provision, and that the policy thus did not contemplate scenarios where an exclusion could bar coverage for only a portion of loss in connection with a claim.


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