D&O insurance provides coverage for individuals to the extent they are acting in their capacities as directors and officers of their companies. The policies do not provide coverage when the individuals are acting in other capacities. A recent decision from a New Jersey appellate court highlights the coverage questions that can arise when individuals are alleged to be acting in multiple capacities. The court concluded that coverage was entirely precluded for an individual who was acting multiple capacities. As discussed below, the decision raises interesting questions. Continue Reading D&O Insurance Coverage Precluded for Individual Acting in Dual Capacities
dual capacity
D&O Insurance: No Coverage for Alleged Misconduct Not Undertaken in an Insured Capacity
One of the basic requirements in order for coverage to be triggered under a directors’ and officers’ liability insurance policy is that the misconduct alleged must have been undertaken by insured individuals in an “insured capacity” – that is, in their capacities as directors or officers of the insured entity. In a recent insurance coverage ruling, the Delaware Superior Court held that because the allegations against the insured individuals “arose out of” their involvement with entities other than the insured entity, there was no coverage for the individuals under their bankrupt company’s D&O insurance policy. The ruling underscores the importance of capacity issues in determining D&O insurance coverage and highlights the ways in which allegations of misconduct undertaken in multiple capacities can lead to complicated coverage questions. The Delaware Superior Court’s November 30, 2018 decision can be found here.
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D&O Insurance and Insured Capacity
The insurance available under a D&O insurance policy does not protect insured individuals for all of their activities; rather, the policy protects the individuals only for their actions undertaken in their capacities as officer or directors of the insured organization. The policy does not protect the individuals for actions undertaken in their personal capacity or for actions undertaken as a result of their involvement with entities other than the insured organization.
A recent decision out of the District of North Dakota and applying North Dakota law illustrates the coverage-determinative importance of the question of capacity. In an October 3, 2017 opinion (here), District of North Dakota Judge Daniel Hovland held that because the allegations against the individual who was seeking coverage did not involve alleged actions undertaken in an insured capacity, the individual was not entitled to coverage under the policy. The ruling underscores the importance of capacity issues and also highlights how challenging these issues can sometimes be when individuals are acting in multiple capacities.
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