The Eleventh Circuit recently held that an excess Directors and Officers (“D&O”) insurance policy did not cover its insured’s attorney’s fees after the primary policy’s limits were depleted. Galanter v. Nat’l Union Fire Ins. Co., No. 08-10872 (11th Cir. Sept. 17, 2008). The court reached this conclusion because a letter agreement between the insurer and the insured’s attorney did not reference the excess policy.

In Galanter, the founder and former chief executive officer (“CEO”) of an internet start-up company became a defendant in a federal criminal proceeding. A “tower” of D&O insurance policies provided liability coverage to the former CEO. One insurer provided the primary and final excess liability policies, and three other carriers provided separate layers of intermediate coverage.

The primary/final excess liability insurer and its insured entered into a letter agreement with a criminal defense attorney concerning the former CEO’s defense. The letter agreement required the insurer to pay the insured CEO’s legal costs to the extent of “policy limits,” but did not specify whether “policy limits” included the final excess policy. The primary insurer paid the criminal defense attorney over two million dollars in fees under the letter agreement, but refused to pay additional fees after the primary policy’s limits were depleted. The attorney sued the insured and all of its insurers for unpaid legal fees. The district court granted summary judgment in favor of all the defendant insurers. The attorney appealed only the summary judgment in favor of the primary/final excess liability insurer.

On appeal, the Eleventh Circuit noted that courts have not allowed attorneys to sue directly under insurance policies or any other agreements that obligate one contracting party to pay the other’s attorney’s fees. Thus, the attorney in Galanter could seek payment solely under the letter agreement to which he was a party. That agreement did not, however, reference either the excess policy or its limits. Interpreting the letter agreement “in accordance with its plain meaning,” the court held that defense costs were expressly limited to the primary policy’s $10 million continuously depleting limit. Since there was no dispute that the attorney submitted the invoices at issue after the primary policy’s limit had been exhausted, the Galanter court affirmed the summary judgment in favor of the insurer.

A copy of the court’s opinion is attached here.