As I have previously noted (for example, here), several of the standard D&O policy exclusions are designed to keep claims in the their proper lanes – that is, to make sure that the D&O policy doesn’t wind up picking up losses more appropriately addressed by another policy in a policyholder’s insurance program. One of these standard exclusions is the bodily injury and property damage exclusion – or, as it is more commonly known, the BI/PD exclusion – which precludes coverage for claims of bodily injury or property damage that are more appropriately addressed by a CGL policy.
A recent federal court decision considered a D&O insurance policy’s BI/PD exclusion in the context of a kind of claim that is becoming increasingly common – a professional athlete’s liability claims for head injuries sustained in competition. In his November 17, 2016 opinion in the case, Eastern District of Louisiana Judge Eldon Fallon concluded that former Arena Football League’s D&O insurance policy’s BI/PD exclusion precluded coverage for Lorenzo Breland’s claims against the league related to head injuries he sustained as a player. However, the specifics of Breland’s claims raise some interesting issues that Judge Fallon’s opinion does not address. These issues in turn raise questions about the exclusion’s appropriate reach. A copy of Judge Fallon’s opinion can be found here.
Breland alleges that while playing for the Tulsa Talons and the New Orleans Voodoo, two Arena Football League teams, he suffered head injuries resulting in concussions. In his Amended Complaint (a copy of which can be found here), Breland alleges further that he received inadequate medical attention after sustaining the head injuries; that his symptoms eventually led his being cut from the team; that the defendants did not provide adequate care or pay for his medical treatments; and that he continues to suffer ongoing and potentially long-term medical problems.
Breland also alleges that the defendants knew of players’ potential head injury risks but intentionally concealed them from the players; fostered an environment of brutality and violence and ignored players’ well-being, in the interest of pursuing profits; failed to take appropriate steps to prevent or mitigate injuries; falsely represented to players (including Breland) that they would receive excellent medical care; and failed to pay medical expenses in bad faith, despite requirements in the players’ collective bargaining agreements.
Breland sought a declaratory judgment that defendants knew or should have known about long-term risks of head trauma, but concealed that risk from players. He also seeks an injunction requiring court-appointed monitoring of players’ brain injury effects; as well as compensatory damages for past and future medical expenses.
In his amended complaint, Breland asserts a number of substantive claims against the defendants, beyond claims of entitlement to damages for his injuries. Among other things, his Amended Complaint asserts claims against the defendants for fraudulent misrepresentation by concealment; fraudulent misrepresentation by nondisclosure; fraud; negligent misrepresentation; negligence; and breach of contract.
In subsequent pleadings, Breland also asserted claims under Louisiana’s direct action statute against the league’s CGL and D&O insurance carriers, seeking coverage for his claims. The D&O insurer filed a motion to dismiss on a number of different grounds, including in particular its contention that its policy’s BI/PD exclusion precluded coverage under the D&O policy for Breland’s claims.
In opposing the D&O insurer’s motion, Breland argued that the application of the exclusion was barred as against public policy, because it would preclude coverage for most probable claims against the league, given the nature of its business activities. Breland also argued that the BI/PD exclusion does not preclude coverage for fraud, fraudulent and negligent misrepresentation claims, negligence claims, or other claims not directly seeking damages for bodily injury.
The D&O insurer argued in response, among other things, that the exclusion was not against public policy because the policyholder’s CGL policy provides coverage for the types of claims for which the D&O policy precludes coverage.
The November 17, 2016 Opinion
In his November 17, 2016 opinion, Judge Fallon granted the D&O insurer’s motion to dismiss, concluding among other things that the BI/PD exclusion precluded coverage under the D&O policy for Breland’s claims.
In reaching this conclusion, Judge Fallon determined that the exclusion was “unambiguous,” adding that Breland’s claims “undoubtedly” represent bodily injury claims and therefore are not covered under the D&O insurance policy.
Judge Fallon rejected Breland’s public policy argument for coverage, stating that Breland had provided no legal support for this claim, adding further that “it is not as though [the defendants] had no insurance coverage for bodily injury claims,” which are, he said, typically covered under CGL policies.
At one level, it is hardly surprising that Judge Fallon concluded that Breland’s claims involving head trauma injuries were precluded by the BI/PD exclusion. Breland is after all seeking damages as a result of his injuries. And there was never going to be much of a chance that Judge Fallon would conclude that the exclusion could not be applied based on public policy arguments.
Just the same, I have concerns with Judge Fallon’s analysis. First of all, he found the exclusion to be “unambiguous” but did not even quote or even consider the specifics of the exclusion’s language. In order to find out what the exclusion actually said, I had to trawl through the online electronic docket to find the specific policy language on which the D&O insurer was relying.
What I discovered upon review of the electronic docket is that the BI/PD exclusion in the D&O insurance policy at issue provides in relevant part that the insurer “shall not be liable for Loss on account of any Claim…for bodily injury, mental anguish, humiliation, emotional distress, sickness, disease or death of any person or damage to or destruction of any tangible property including loss of use thereof whether or not it is damaged or destroyed.”
The key point here is that the BI/PD exclusion at issue used the narrower “for” wording rather than the broader “based upon, arising out of, or in any way relating to” preamble.
The exclusion’s use of the “for” wording in turn underscores another shortcoming in Judge Fallon’s analysis, which is that he neither considers nor discusses that the question of whether the exclusion has any application to the various other claims in Breland’s complaint, including the fraudulent and negligent misrepresentation claims, the fraud claims, and negligence claims. Without discussion or analysis, Judge Fallon’s applied the exclusion’s preclusive effect to these various other claims in which Breland is not seeking damages for his injuries but rather is seeking damages or other relief for various other alleged kinds of misconduct or wrongdoing.
Judge Fallon’s conclusion about the exclusion’s preclusive effect might be easier to understand if the exclusion had used the “based upon, arising out of, or in any way relating to” preamble, as courts broadly interpret the preclusive effect of exclusions with this type of wording. Indeed, the broadly preclusive effect given exclusions with this type of working is precisely the reason that insureds sought the narrower “for” wording, which has for many years been the industry standard for the BI/PD exclusion.
As I noted at the outset, one of the reasons for certain exclusion typically found in D&O insurance policies – including in particular the BI/PD exclusion – is to ensure that claims stay in their proper lanes. For that reason, the BI/PD exclusion clearly precludes coverage for Breland’s claims for damages resulting from his head injuries. There is, however, a difference between Breland’s claims seeking damages for his bodily injuries and his other claims seeking damages and other relief based on alleged misrepresentation and fraud and other alleged wrongdoing. The exclusion’s purpose of keeping claims in their proper lanes is irrelevant to these other claims that do not seek damages for bodily injuries; to the contrary, these kinds of claims are the very kind of claims for which the D&O insurance is designed to provide protection.
Nor is it an adequate response that the policyholder has a CGL policy for these kinds of claims. The CGL may well be there to respond to bodily injury clams, but the D&O policy is there for the other claims based on other types of alleged wrongful acts. It is not uncommon for a single complaint to raise claims that triggers more than one policy. Indeed, that is the reason that an “other insurance” clause is standard in liability insurance policies. Moreover, the football league paid for the D&O insurance policy. While the CGL policy may provide the league with a defense to Breland’s claims, his claims ultimately could provide costly to resolve. The outcome of the case is obviously yet to be determined, but the league might well need all of its potentially available insurance in order to be able to resolve these claims.
Long time readers know that one of my hobby-horse issues is the application by D&O insurers of the standard policy exclusions beyond the exclusions’ intended purpose. One of the measures I have advocated in order for policyholders to try to protect themselves against this penchant of D&O insurers to try to apply their policy exclusions more broadly than is warranted is to insist that upon the “for” wording, as a way to ensure that the exclusions are applied so as to preclude coverage only to those things for which the exclusion was intended to preclude coverage. Policyholders’ efforts to protect themselves are thwarted if courts disregard the language used and the intended scope of the exclusion’s preclusive effect. The result is that coverage is precluded for claims to which the exclusion is not intended to apply.
To be sure, there are other coverage issues involved in this case and there may well be other grounds on which the coverage for these claims may be precluded. However, with respect to the court’s application of the BI/PD exclusion here, I respectfully submit that the court’s analysis swept far too broadly, as if the exclusion had broad wording than actually is the case. In my humble opinion, there is more to the issues than the court considered.
Special thanks to a loyal reader who sent me a copy of the court’s opinion.
‘Tis the Season: Feliz Navidad.