By Greg Gotwald, Plews Shadley Racher & Braun LLP
Earlier this month, the Seventh Circuit found that a policyholder’s act of simply notifying it prior Directors’ and Officers’ (D&O) insurance provider barred coverage under the current D&O policy, even though the current policy should have otherwise provided coverage.
In 2010, Emmis faced a breach of fiduciary duty claim arising from an attempt to take the company private. Emmis provided notice of that claim to Chubb, its D&O insurer at that time. In 2012 after taking the company private, Emmis was again sued by five shareholders claiming that Emmis violated federal securities laws and Indiana law when it took the company private. Emmis, through the broker, submitted this new claim to Chubb and Illinois National (Emmis’s D&O insurer at this time).
Illinois National’s 2012 policy contains the following exclusion: “any claim alleging, arising out of, based upon, attributable to or in any way related directly or indirectly, in part or in whole, to an interrelated wrongful act.” In relevant part, interrelated wrongful act is defined as:“(i) the same or related facts, circumstances, situations, transactions, or events alleged in any of the event(s), and/or (ii) any wrongful act(s) that are the same or that are related to those that were alleged in any of the event(s.)”
The issue was whether the subsequent 2012 suit is “interrelated” to the former 2010 suit. The trial court said no and did not read the exclusion to mean that simply notifying a former carrier of a claim it might cover—a standard practice in the industry—would eliminate coverage from the carrier that otherwise would cover the claim.
In a short opinion, the Seventh Circuit reversed finding that the mere fact the broker provided notice to Emmis’ prior carrier Chubb barred coverage for Emmis under the Illinois National case. Emmis has sought a rehearing en banc.
While this language does not appear to be ubiquitous in D&O policies at this time, the decision could have real impacts within the industry. Providing notice to all potentially responsible carriers is a common practice. Policyholders and brokers will have to be very careful when notifying carriers of potential claims if this rules stands and this language exists in their policies.
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