On Monday, June 22, 2015, the Eleventh Circuit, in The Langdale Company v. National Union Fire Insurance Company of Pittsburgh, PANo. 14-12723 (11th Cir. 2015), ruled for the insurer on a “capacity” exclusion in a director and officer policy that precluded coverage for loss in connection with a claim “arising out of” or “based upon” any act of an individual insured in an uninsured capacity. The Court held that coverage for a family trust dispute was precluded because, “but for” the culpable conduct of the individuals acting in an uninsured capacity for the family trust, claims against the insured entity and the individuals in dual capacities (as trustee of the separate trust and director and officer of the insured entity) would not have existed.


The insured entity, The Langdale Company (TLC), was incorporated by Judge Harley Langdale Sr. as a holding company for subsidiaries engaged in a number of businesses, including forest products, auto dealerships and banks. Judge Langdale’s grandson, Johnny Langdale, was the CEO and a director of TLC, and Johnny’s uncle, Harley Langdale Jr. (Harley), also was a director. Judge Langdale subsequently created the “Virginia Miller Langdale Family Trust,” for the benefit his daughter, Virginia Langdale Miller, and her children. Johnny and Harley also became trustees of the Family Trust.

In May 2009, Virginia and the other Family Trust beneficiaries sued Johnny and Harley, alleging that they embarked on a scheme to consolidate control over TLC by (1) having the company redeem the Family Trust's stock at a very low price and (2) making misrepresentations to the trust beneficiaries to induce them to sell their shares back to the company for that low price. (The beneficiaries were paid $27 million for TLC shares that they alleged were worth more than $150 million.) The complaint included claims against Johnny and Harley for breach of fiduciary duties as trustees of the Family Trust and as directors and officers of TLC. The beneficiaries also asserted claims against TLC in a separate suit that was consolidated with the suit against Johnny and Harley.

National Union Fire Insurance Company issued a D&O policy to TLC that required the insurer to “advance Defense Costs” for covered claims. The insureds sought coverage under the policy in light of the breach of fiduciary duty count against Johnny and Harley involving their alleged director and officer misconduct. National Union denied coverage on Exclusion 4(g), which applied to any claim “alleging, arising out of, based upon or attributable to” TLC’s directors’ and officers’ “actual or alleged act or omission” in any capacity other than as a director or officer of TLC.

Arguments and Holding

The insureds argued that because Johnny and Harley were directors and officers when they allegedly perpetrated the scheme to obtain control of company stock, they necessarily acted in an insured capacity within the D&O coverage, and were in fact sued in that D&O capacity. However, the Court found that Johnny and Harley’s wrongful acts as directors and officers “arose out of their wrongful acts as trustees of the [Family] Trust,” an uninsured capacity. The Court observed that when the phrase “arising out of” is found in an exclusionary clause, Georgia courts apply the “but for” test to determine cause-in-fact liability. The Court cited other Georgia authority indicating that such exclusionary clauses are “focused solely upon the genesis of the underlying plaintiff’s claims.” The Court found that the claims against TLC and against Johnny and Harley as directors and officers “could not have existed independent from [Johnny and Harley’s] alleged misconduct as trustees” of the Family Trust. All of the causes of action therefore “arose out of” Johnny and Harley’s wrongful acts in their capacities as trustees of the Family Trust, and were therefore excluded by Exclusion 4(g).

The insureds also argued that each cause of action was its own “claim” under the policy, and because the insurer had a duty to defend at least the claim involving Johnny and Harley’s conduct as directors and officers, it had a duty to defend all claims. The Court observed that “claim” was defined to include the entire “civil … proceeding,” but opted not to resolve the question. Even accepting the insureds’ narrower interpretation of “claim,” the Court stated each cause of action “arose out of” the allegations against Johnny and Harley as trustees.


The Langdale Company v. National Union is a pro-insurer decision applying the “but for” test to an exclusion for insureds’ acts “arising out of” or “based upon” acts in an uninsured capacity. Such exclusion applied to preclude coverage for the entire claim, including all causes of action against the insured individuals and the insured entity, even though the entity was not “acting” in a conflicted capacity. So long as acts committed in the uncovered capacity are the basis of the “claim,” all insureds (whether acting in a dual capacity or not) will fall within the purview of the exclusion.