Insured vs Insured Exclusions
Virtually all directors and officers liability insurance policies contain some variation of an “Insured vs. Insured” exclusion clause. Such exclusions typically exclude coverage of any claims brought by present and past directors and officers, as well as claims by the corporation itself and the corporation’s shareholders, creditors or others brought in the name of the corporation (i.e., derivative claims) against current directors and officers.
There has not been a lot of litigation in Canada about this exclusion clause. One of the leading cases is Kohanski v. St. Paul Guarantee, 2006 CarswellOnt 202 (C.A.) in which Bob Howe and Ava Kanner of Davies Howe Partners LLP were successful before the Ontario Court of Appeal in enforcing an Insured vs. Insured exclusion in a directors and officers policy.
Kohanski, a former officer, applied to the court seeking a declaration that the insurer, St. Paul Guarantee, had a duty to defend him under a directors and officers policy. The Court of Appeal confirmed that St. Paul’s did not have a duty to defend based upon the Insured vs. Insured exclusion in the policy. The Court said:
Because the claim of MIA (against Kohanski) is clearly and unambiguously excluded from coverage by reason of the insured v. insured exclusion, the appellants cannot have a duty to indemnify Kohanski under the policy and accordingly the appellants have no duty to defend Kohanski in the underlying action. Whatever the policy behind the exclusion may be, where the language of the contract is clear and unambiguous, the court must give effect to that language.
As with every insurance policy, it is important for both insurers and insureds to pay close attention to the wording of the Insured vs. Insured exclusions in their directors and officers policies.