The U.S. District Court for the District of Minnesota recently dismissed a directors and officers liability coverage suit, rejecting plaintiffs' argument that an underlying suit had to be brought by the insured in his capacity as an insured in order to implicate the policy's insured vs. insured exclusion. Ideal Development Corporation v. United States Liability Insurance Company, Civil No. 10-772 (PAM/RLE) (July 13, 2010).
In the underlying lawsuits, a director of the named insured brought claims against the named insured and members of its board of directors for breach of fiduciary duty and related causes of action arising from a blocked tender offer. The named insured and its directors tendered the defense of the claims to their D&O insurer, who denied coverage on the basis of the policy's insured vs. insured exclusion. The named insured and its directors then brought suit for wrongful denial of coverage, arguing that the insured vs. insured exclusion did not apply because the former director brought suit in his capacity as a shareholder rather than as a director and did not collude with the other insureds in bringing suit.
The Court found that the undisputed language of the policy did not contain any "capacity" carve out to the insured vs. insured exclusion and did not require collusion between the insureds, and that the exclusion unambiguously excluded the underlying suits from coverage. The Court therefore entered summary judgment for and dismissed all claims against the insurer.