man throwing diceD&O policies vary quite a bit from carrier to carrier, and language on “standard” exclusions can change from year to year. Accordingly, it is important to do a yearly review of your D&O policy to make sure your company has the right coverage. Three recent federal court decisions interpreting the “insured vs. insured” or “I v. I” exclusion remind us why examining specific policy language and understanding how it may apply to your business is so important.

In an unpublished decision, the Ninth Circuit recently ruled that an I v. I exclusion barred coverage for an FDIC receiver’s claim against former directors and officers where the policy barred claims brought by “any successor or receiver.” FDIC v. Bancinsured, Inc., 2017 WL 83489 (9th Cir. Jan. 10, 2017). This language is not common and, in fact, many courts have found coverage for these types of claims under more typical versions of the I v. I exclusion. Here, the FDIC was the party advocating for coverage and argued the policy did cover these types of claims because the main policy form contained a “regulatory exclusion” that was deleted by endorsement. The FDIC argued that deletion of the regulatory exclusion revealed an intent to cover FDIC claims or, at minimum, created an ambiguity that should be construed in favor of coverage. The “regulatory exclusion” barred claims for “any action or proceeding brought by or on behalf of any federal or state regulatory or supervisory agency or deposit insurance organization.” The endorsement deleting the regulatory exclusion stated it did not “vary, waive, or extend” any of the policy’s other terms. Although the Court noted that the regulatory exclusion more clearly barred the FDIC’s claims, the deletion of that exclusion did not mean the I v. I exclusion could not also apply or that any ambiguity was created.

The FDIC also attempted to argue it was not a “receiver” as that term was used in the exclusion. The Ninth Circuit rejected that argument, holding that the term “receiver” was clear and unambiguous and included the FDIC as the “receiver” of the failed bank. The Court also rejected the FDIC’s argument that it had a “unique role” as well as the FDIC’s assertion that it was effectively asserting a shareholder derivative claim and that coverage was available under the I v. I exclusion’s derivative claim carve back. The Ninth Circuit noted that other courts have found coverage for these types of claims, but noted those cases did not involve policies that expressly referred to claims brought by a “receiver.” As a result, no coverage was available.

The directors and officers of the failed company in Bancinsured may have thought the company had purchased the right coverage for them by having the regulatory exclusion deleted by endorsement. But either they or their broker may not have fully considered whether another exclusion could also apply. Accordingly, this case demonstrates the importance of considering each exclusion separately and not focusing solely on the exclusion that “seems” to apply to the particular risk.

The day after the Ninth Circuit decision came out, the Eighth Circuit issued a decision of its own on the I v. I exclusion. Jerry’s Enterprises, Inc. v. U.S. Specialty Ins. Co., 845 F.3d 883 (8th Cir. 2017). This time, the question was whether the exclusion barred coverage for claims brought by the plaintiff who was not only the daughter of the founder of the insured, but also a former director. The case also involved the question of whether the I v. I exclusion applied to the claims of her two children who were shareholders, but not directors or officers, of the company. There, the I v. I exclusion barred coverage for any Claim that was “brought by or on behalf of, or in the name or right of…any Insured Person, unless such Claim is: 1) brought and maintained independently of, and without the solicitation, assistance or active participation of, the Insured Organization or any Insured Person…” The policy defined Insured Person to include “any past, present, or future director, officer, managing member, officer or Employee of the Insured Organization.” The court found that application of the exclusion was “straightforward” because the daughter was a former director. The exclusion also applied to the claims of her children because she had been an “active participant” in the litigation. The court rejected the argument that the “Claims” of the founder’s daughter and the “Claims” of her children were separate because the policy defined Claim as “a civil proceeding commenced by service of a complaint.”

Finally, a court in the Southern District of Florida recently applied the I v. I exclusion where one plaintiff was insured under the policy and one was not. The Marabella Condominium Association v. RSUI Indemnity Co., 2017 WL 395301 (S.D. Fla. January 30, 2017). There, a condominium association hired a contractor to install windows in the building. However, the windows did not comply with city requirements and the city issued a notice of violation to the association. Two condominium owners sued the association. One of those owners previously served as the association’s president. There, the policy barred coverage for Claims made “against any Insured…brought by or on behalf of any Insured.” The definition of Insured included Insured Persons which meant “any past, present or future director, officer, trustee, Employee, or any committee member of a duly constituted committee of the Insured Organization.” The court held that the I v. I exclusion applied to the entire action even though one of the plaintiffs did not qualify as an Insured Person.

The outcome in Marabella Condominium Association was similar to the one in Jerry’s Enterprises where the court found the exclusion barred arguably covered claims because they were asserted in a single lawsuit with excluded claims. These decisions seem both unfair and contrary to other cases holding that a single complaint can assert separate “Claims” in a D&O Policy. The cases also serve as a warning to plaintiffs who may want to assert claims by an “Insured Person” in a separate action from others who do not qualify as “Insured Persons” to avoid having both claims barred by the I v. I exclusion.

All three of these decisions are good examples of how courts apply the express language of the I v I exclusion despite what the policyholders may have intended when they purchased the insurance policy. Accordingly, these cases all highlight the need to carefully review your D&O policy on an annual basis to ensure that your company has the coverage it wants and needs.