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
D&O insurance policies sometimes contain Major Shareholder Exclusions, precluding coverage for claims brought by shareholders’ with ownership percentages above a certain specified ownership threshold. But when is the shareholder’s ownership percentage to be determined – at the time of policy inception or at the time of the claim? This issue was among the D&O insurance coverage question presented in a recent case before the Third Circuit. The appellate court, applying Delaware law, found that the exclusionary language involved was ambiguous, and therefore resolved the issue in the policyholder’s assignee’s favor. As discussed below, the appellate court’s ruling is interesting in a number of different respects.
Let’s say your client has been served with a new D&O lawsuit. Based on what you know about the events that led up to the lawsuit, you are genuinely unsure whether the claim was first made earlier, or not until the lawsuit was filed. Just to complicate things further, during the last renewal cycle, the client moved its D&O coverage from one carrier to another carrier, and some of the events in the lawsuit lead-up occurred during the prior policy period. Just notice both carriers, right? That would seem to be the prudent thing to do, especially given the uncertainty about the claims made date, right?
A federal district court has held that because of an insured company’s application misrepresentation about possible M&A activity, a D&O insurance policy’s Warranty Exclusion precludes coverage for the policyholder’s costs incurred in defending claims arising out of the insured company’s acquisition. The court’s opinion raises interesting questions about how the meaning of application questions is to be determined. Central District of California Judge Phillip Gutierrez’s February 4, 2019 opinion in the case can be found