Private company management liability insurance policies typically contain certain policy exclusions, including, for example, the Insured v. Insured Exclusion and the Contractual Liability Exclusion. These exclusions often include carve-backs preserving coverage for otherwise excluded claims. While the exclusions and even the carve-backs may be familiar, the way they operate in practice may not be as familiar, particularly the carve-backs. In a recent insurance coverage decision from the District of Massachusetts, applying Massachusetts law, the court considered how common coverage carve-backs operate and interact. Readers may find the way the carve-backs did or did not apply to provide some interesting lessons. A copy of the Court’s November 9, 2023, opinion can be found here.


Bay Club Members. LLC is a Massachusetts limited liability company. In 2006, its unit holders entered into an Operating Agreement to govern management and operation of Bay Club. Walter Uihlein was an initial board member and served as Managing Director of Bay Club from 2006 to 2007. Under the Operating Agreement internal disputes relating to the Operating Agreement are to be resolved through arbitration.

In 2019, Bay Club proposed a financial transaction to address Bay Club’s obligations called “The Way Forward.” In May 2020, Trust III commenced an arbitration proceeding against Bay Club relating to The Way Forward plan, asserting claims for breach of fiduciary duty against the club’s board. Trust III’s arbitration action asserted claims on both a direct and derivative basis. In September 2020, Uihlein joined the arbitration by filing an additional demand for arbitration that incorporated the Trust III claims and added an additional count for breach of contract. Uihlein’s action asserted claims on both a direct and derivative basis. The arbitration ultimately resulted in awards in favor of both Uilein and Trust III.

At relevant times, Bay Club maintained a private company management liability insurance policy. Bay Club submitted the Uilein and Trust III claims to its insurer. The insurer denied coverage for the claims, including on the basis of the policy’s Insured v. Insured Exclusion and of the policy’s Contractual Liability Exclusion. Bay Club initiated an insurance coverage action against the insurer. The parties cross-moved for summary judgment.

The Relevant Policy Provisions

The policy defines a “Shareholder Derivative Action” to mean “a civil proceeding in a court of law brought by one or more of the ‘company’s’ shareholders against any ‘insured person’ for a ‘wrong act.’

The policy’s Insured v. Insured Exclusion excludes coverage for loss arising from a claim “made by or made on behalf of the ‘company,’ or any security holder of the ‘company’ or any ‘insured person.’”

The Insured v. Insured exclusion provides further that the exclusion does not apply to “a ‘shareholder derivative action’, but only if brought and maintained without the solicitation, approval, assistance, active participation or intervention of any ‘insured’ and only if independent of the actions of any ‘insured’ or party affiliated with that ‘insured’” or “any ‘claim’ brought by any former director or officer who has not served as director, officer, trustee, governor, management board, general counsel or risk manager (or equivalent position) or consultant for the ‘company for at least three (3) years prior to the commencement of such ‘claim,’ if the former directors or officer bringing such ‘claim’ is acting totally independent of, and without the solicitation, assistance, active participation or intervention of any Directors or Officers or the ’company.’”

The Contractual Liability Exclusion provides that the insurer is not liable for loss from any claim “for any actual or alleged liability assumed under the terms, conditions, or warranties of any oral, electronic, or written contract or agreement. However, this exclusion does not apply: 1. to liability the ‘insured’ would have in the absence of such contract or agreement; 2. to ‘insureds’ under Section I.A and I.B.”

The November 9, 2023, Order

In a November 9, 2023, Memorandum of Decision and Order, District of Massachusetts Judge William Young, applying Massachusetts law, granted in part and denied in part the parties’ respective summary judgment motions.

Judge Young first considered the insurer’s contention that coverage for the claims was barred by the policy’s Insured v. Insured exclusion. He noted that the exclusion contains two potentially relevant exceptions, the Shareholder Derivative Action Exception and the Former Director and Officer Exception. The Shareholder Derivative Action Exception preserves coverage for shareholder derivative suits except those brought and maintained with any activity or coordination with an insured. The Former Director and Officer exception preserves coverage for any claim brought by a former director or officer more than three years after their services as a director or officer and brought independently of directors and officers of the club.

With respect to Uihlein’s claims, Judge Young determined that the Former Director and Officer Exception to the Insured v. Insured Exclusion applied, because Uihlein had not been a director or officer of the club for well over a decade and his claims were brought independently of any directors or officer. The insurer, Judge Young concluded, breached its contract by not defending or indemnifying the defendants in the Uihlein’s arbitration claims.

With respect to Trust III’s claims, Judge Young concluded that the Shareholder Derivative Action Exception to the Insured v. Insured Exclusion did not apply because Trust III had presented its claims in an arbitration, and had not, as the policy’s definition of Shareholder Derivative Action requires, presented them in a “court of law.” In addition, the September 2020 addition of Uihlein to the arbitration proceeding meant that the proceeding was no longer “brought and maintained” without the “participation” of an “insured” – as Uihlein was a former director, he was an insured under the policy. On these two bases, Judge Young concluded that the Trust III Claims were excluded from coverage.

Finally, in a very terse section of his opinion, Judge Young concluded that no claims were precluded by the policy’s Contractual Liability Exclusion. He said that both Trust III’s and Uihlein’s fiduciary liability claims are encompassed with the exemption to the exclusion preserving coverage for liability that would otherwise exist without a contract. He said that Uihein’s breach of contractual liability claims fall within the exemption to the exclusion preserving coverage for “insureds” under the policy’s insuring agreements.


D&O insurance practitioners likely are familiar with both the exclusions involved here and the coverage carve-backs as well. However, even though the exclusions and carve backs are familiar, the way they operate in practice many not be as familiar. Some readers might have found it unexpected that Uihlein’s board service more than three years prior permitted the Former Board Member exception to the exclusion to preserve coverage for his claims, but the fact that his board service was so far in the past was still not enough to preserve coverage under the Shareholder Derivative Action coverage carve-back. The difference in outcomes is a reflection of the difference in wording in the two coverage carve-backs; one carve-back contains a time limitation regarding prior service, while the other coverage carve-back does not.

In the end, and as a practical matter, it made no ultimate difference either way to the application of the Shareholder Derivative Action carve-back that Uihlein’s board service was so far in the past, since Judge Young concluded that the carve-back also did not apply because Trust III’s fiduciary liability claim was asserted in an arbitration proceeding and not in a “court of law,” as the policy’s definition of “shareholder derivative action” required. Nonetheless, it is interesting to see in practice how the two different carve-backs operated with respect to the issue of prior board service.

Readers may find the restriction in the definition of “shareholder derivative claim” solely to actions in a “court of law” to represent a interesting and perhaps even unexpected limitation to the coverage that would otherwise apply under the policy.

Judge Young’s analysis of the Contractual Liability Exclusion is very brief, but his recognition that the carvebacks make the Contractual Liability Exclusion inapplicable to Trust’s III’s fiduciary liability claims and even for Uihlein’s breach of contract claims is, for policyholder-side representatives anyway, heartening. Readers know that one of my recurring gripes is the way that all to many insurers overbroadly apply the Contractual Liability Exclusion.

There is an important detail about the breach of contract exclusion here that, while not reflected in Judge Young’s analysis, may have played an important role in the outcome of disputes under the Contractual Liability Exclusion. The key detail here may be that this policy’s contractual liability exclusion was written with the “for” preamble wording, rather than the broader (and, unfortunately, much more common) “based upon, arising out of, in any way relating to” wording. Courts interpreting Contractual Liability Exclusion containing the “based upon, arising out of” wording tend to apply the exclusion much more broadly than exclusions with the “for” wording; indeed, I have often been concerned that insurers often seek to apply the exclusion so broadly that it can become the exception that swallows up all of the coverage under the policy, even for matters that should be covered.

Judge Young’s application of the narrowly worded exclusion here shows how that exclusion, properly worded, should apply, particularly given the application of the coverage carve backs.