US Appeal Court Considers Insured vs. Insured Exclusion
February 25th, 2011In a recent American case – Foodtown Inc. v. National Union Fire Insurance Company of Pittsburgh, Nos. 08-3940 and 08-4083, United States Court of Appeals, Third Circuit (January 6, 2011) – the Court considered an “Organization vs. Insured” exclusion in a directors and officers insurance policy.
Foodtown is a close-held grocery cooperative whose members operate supermarkets. Food King Inc., a member of Foodtown, brought an action against Foodtown and members of its Board of Directors. National Union had issued an insurance policy to Foodtown and its directors and officers.
National Union denied coverage for all of Food King’s claims, in part on the basis of the “Organization vs. Insured” exclusion (i.e., with respect to three of the four Counts contained in a Second Amended Complaint).
The Court of Appeals for the Third Circuit found that the exclusion clause only applied to one of the Counts, namely, a derivative claim brought by or on behalf of the Organization against an “Individual Insured”. Specifically, the President of Food King was a former President of Foodtown and a former member of Foodtown’s Board of Directors, and was now actively participating in the litigation against Foodtown. Foodtown unsuccessfully argued that the prior status of the President of Food King was irrelevant. The Court of Appeals noted that the National Union insurance policy defined an “Individual Insured” to include a past director or officer.
The Court of Appeals declined to apply the exclusion to two other Counts.
David Cherepacha
Read MoreDirectors and Officers Liability under Newly Revised Securities Legislation
February 17th, 2011On February 14, 2011, leave to appeal a ruling of the Ontario Superior Court was denied in Silver v. IMAX Corporation (Court File No. CV-06-3257-00). The result of this decision is to allow a class action to go forward against IMAX and its directors for false statements made regarding its 2005 financial results. This is the first case under the recent revisions to the Ontario Securities Act that are designed to permit investors, with leave of the Court, to bring actions for civil liability against directors and officers of public companies for misrepresentations in public disclosure documents.
Formerly, for such an action to succeed at common law, it was necessary to show detrimental reliance upon a misrepresentation. This requirement has been eliminated by the 2005 Ontario Securities Act.
This case is a reminder of the ever increasing potential for personal liability that is assumed when someone accepts a position as a director or officer of a company. However, this risk can be tempered with an appropriate directors and officers insurance policy which provides coverage for securities-related litigation.
Ava Kanner
Read MoreInsured vs Insured Exclusions
February 17th, 2011Virtually 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.
David Cherepacha
Read MoreDavies Howe Hosted ACC Continuing Legal Education Program
January 26th, 2011On October 12, 2010, in association with the Association of Corporate Counsel (ACC), Ontario Chapter, Davies Howe Partners LLP hosted a continuing legal education program entitled “How to Best Protect Directors and Officers Through D & O Insurance” for in-house legal counsel.
US District Court Disallows Claim for Costs relating to SEC Investigation
January 7th, 2011On October 15, 2010, the United States District Court for the Southern District of Florida released a Decision in Office Depot, Inc. v. National Union Fire Insurance Company.
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January 1st, 2011Professional and executive liability insurance products are an important part of our insurance law practice at Davies Howe Partners LLP. We represent insurers, directors and officers, and corporate clients in a wide variety of insurance coverage, policy advice and litigation matters.