In an October 19, 2021 decision in Twin City Fire Insurance Co. v. Vonachen Services, Inc., the Northern District of Illinois, applying Illinois law, addressed key insurance coverage issues under the D&O and EPL coverage parts of a management liability insurance policy. In the following guest post, Peter Selvin reviews and analyzes the decision. Selvin is a partner with Los Angeles-based Ervin Cohen & Jessup. A version of this article previously was published in the LA Daily Journal. I would like to thank Peter for allowing me to publish his article on my site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Peter’s article.
Continue Reading Guest Post: Court Addresses Biometric Claims and Insurance Issues
The news that McDonald’s had filed a lawsuit against its former CEO, Stephen Easterbrook, to recoup severance compensation the company had paid Easterbrook, made the front page of the Wall Street Journal. The company contends that Easterbrook had only been terminated last November “without cause” – entitling him to a full severance package – because he had lied to investigators about the nature and extent of his relationship with company employees. The lawsuit contends — based on evidence of three additional sexual relationships Easterbrook had with company employees that only came to light this summer — that Easterbrook should have been terminated for cause. As discussed below, the lawsuit raises a number of interesting issues. A copy of the company’s August 10, 2020 filing on Form 8-K about the lawsuit can be found 
Many traditional liability insurance policies contain provisions specifying that in the event of a claim the insurer has the duty to defend the insured. However, many management liability insurance policies do not impose a duty on the insurer to defend the insured; rather, these policies usually provide that insureds will defend themselves, with the obligation on the insurer to advance defense costs as they are incurred, subject to all of the policy’s terms and conditions. However, because defense obligations under the more traditional duty to defend arrangement are well established and more familiar to many courts, courts sometimes attempt to resolve issues arising under duty to advance policies by referring to principles established with regard to duty to defend policies.
One of the key elements to establish coverage under a directors and officers insurance policy is the existence of claim is for actions undertaken by an insured individual in an insured capacity – that is, in his or her capacity as a director or officer of the company. Things in life are never simple, and lawsuits often allege that corporate director or officer defendants were acting in multiple capacities – that is, both in their capacity as a director or officer and in other capacities as well. These multiple capacity claims often present policy interpretation and coverage issues under D&O insurance policies.
A standard exclusion found in most private company directors and officers insurance policies precludes coverage for claims brought by one insured against another insured – the so-called Insured vs. Insured exclusion. The exclusion typically includes several coverage carve-backs preserving coverage for certain types of claims for which the exclusion would otherwise preclude coverage. One relatively standard coverage carve-back preserves coverage for claims brought by a former director or officer after the individual’s service to the company terminated. While the inclusion of this type of coverage carve-back is fairly standard, the wording of the carve-back can and sometimes does vary in ways that can significantly affect whether or not coverage is available for particular claims.