Broad preamble

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Some D&O insurance policy exclusions are written with the broad “based upon, arising out of, in any way relating to” preamble. These exclusions sweep broadly, precluding coverage for a wide range of claims. The ever-present question when insurers seek to rely on these exclusions’ sweeping reach is: how broad of a reach it too broad? What is the outer limit of these exclusions’ preclusive effect?

In a decision that is worth reading closely, the Delaware Supreme Court recently concluded that, despite its broad preamble, a management liability insurance policy’s professional services exclusion did not apply to preclude coverage for the underlying claim. The decision not only explores important questions about the reach of exclusions with the broad preamble, but it also underscores the deeper question about the use of the broad preamble for these types of exclusions in the first place. The Delaware Supreme Court’s September 14, 2023, opinion in the case can be found here.Continue Reading The “Broad Preamble” Problem in D&O Insurance Exclusions

Policy exclusions with the broad “based upon or arising out of” sometimes may be applied very broadly to sweep beyond the claims that the exclusion aimed to exclude. In a recent coverage dispute, a professional liability insurer sought to apply an exclusion with the broad preamble language and precluding coverage for ERISA and securities law claims in order to preclude coverage even the common law and bankruptcy law claims alleged against the insured. In a February 7, 2020 opinion (here), Eastern District of Michigan Judge Laurie J. Michelson, applying Michigan law, concluded that the exclusion’s preclusive effect did not apply to the common law claims, because the insurer failed to establish the exclusion’s required causal connection between the alleged statutory violations, on the one hand,  and the common law and bankruptcy law claims, on the other hand.  Judge Michelson’s opinion provides an interesting perspective on exclusions with the broad “based upon and arising out of” preamble language.
Continue Reading Broad Form Statutory Claims Exclusion Does Not Preclude Coverage for Common Law Claims

I have long believed and said that the typical professional liability and D&O liability insurance policy contractual exclusion written with the broad “based upon, arising out” preamble sweeps too broadly and precludes coverage for the very kind of claims for which policyholders buy the insurance. The Seventh Circuit has now said what I have long been saying; the appellate court found that the contractual liability exclusion in an E&O insurance policy renders coverage under the policy “illusory” and therefore the policy must be reformed to match the policyholder’s “reasonable expectations.” I hope everyone involved in the professional liability and D&O liability insurance industry will take the time to familiarize themselves with this recent decision. I also hope this decision means the end of contractual liability exclusions using the broad “based upon, arising out of” preamble.
Continue Reading 7th Circ.: Contract Exclusion Renders Coverage “Illusory”

One area of potential legal exposure facing corporate executives – including even executives of private companies – is the risk of liability under laws designed to protect competition, including (but definitely not limited to) state and federal antitrust laws. Claims asserting liability under these various legal provisions not only represent a significant liability exposure for corporate executives, but they also present a number of potentially significant issues when it comes to questions of coverage under the typical private company D&O insurance policy. As discussed below, a recent paper discussed a number of these issues; I discuss additional issues below, as well.
Continue Reading The Critical Issue of Private Company D&O Insurance Coverage for Competition Law Claims

In a number of recent posts (most recently here), I have emphasized the importance of the wording of the securities exclusion in private company D&O insurance policies. A recent case out of Florida underscores the importance of the securities exclusion wording and illustrates how an unusual wording can lead to the preclusion of coverage for claims that might otherwise be covered. The decision also highlights the extent of the preclusionary effect from exclusions written on a very broad basis. Middle District of Florida Judge William Jung’s January 2, 2019 decision can be found here. A March 5, 2019 Law 360 article from the Jenner & Block firm about the decision can be found here.
Continue Reading Securities Exclusion Bars Securities Transaction Claim Coverage