Law.com Subscribers SAVE 30%
Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.
Unriddling the Sphinx The Insured v. Insured Exclusion and the Multiple Capacities of D&Os
As directors' and officers' insurance is intended to provide coverage for claims by third parties, most, if not all, D&O policies contain an exclusion commonly referred to as an “insured v. insured exclusion.” The exclusion bars coverage for claims brought by one insured against another insured. Historically, the exclusion was drafted in response to “friendly” and collusive lawsuits arising out of the savings and loan bank crisis in the early to mid-1980s. Essentially, friendly lawsuits were being filed by the failed banks against their directors and officers in an effort to recoup loan losses from the proceeds of D&O policies. Thus, the primary purpose in drafting the insured v. insured exclusion was ' and continues to be ' to prevent a corporation from suing its own directors and officers to obtain the benefits of coverage for itself, rather than third parties.
The exclusion is fairly easy to apply where a solvent corporation brings suit against its current or former directors and officers for breaches of fiduciary duties or where a director or officer brings suit for termination or compensation-related issues. Where, on the other hand, the director or officer brings suit in his or her sole capacity as a shareholder of the corporation, the applicability of the exclusion is more complex. As the analysis of the two cases below indicates, there is little guidance for insurers, as well as insureds, as to how a court will apply the exclusion where the capacity of a director or officer is cloudy. Accordingly, rather than leave the interpretation of the exclusion up to a judge ' with all the subjectivity that may entail ' insureds and insurers are well advised to anticipate and resolve the scope of the insured v. insured exclusion during the negotiation and issuance of the policy.
By way of example, in the context of a securities class action, the director or officer may be a class member ' named or unnamed ' in the lawsuit. As the insured v. insured exclusion prohibits coverage for lawsuits brought by one insured ' directors and officers ' against another insured ' the company ' the exclusion should bar coverage in its entirety. In subsequent coverage litigation, insureds have argued and ' at least the Seventh Circuit has agreed ' that the application of the exclusion leads to an unacceptable result where the shareholder is merely an unnamed and passive class member. To avoid the literal interpretation of the exclusion, insureds have taken the unusual position of arguing, with mixed results, that the exclusion is inapplicable because the director or officer does not qualify as an insured under the policy. Insureds have also argued, again, with mixed success, that the exclusion requires a finding of collusion between the insureds. Alternatively, insureds have argued, with greater success, that the director or officer's uncovered claim must be carved-out from the otherwise covered claims against the non-directors and officers. Each of these approaches is a result-driven attempt to bend unambiguous policy language; an attempt that was recently rejected by the Eleventh Circuit Court of Appeals in Sphinx Int'l v. National Union Fire Ins. Co., 2005 WL 1389234 (11th Cir. (Fla). June 14, 2005).
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Strategy vs. Tactics: Two Sides of a Difficult Coin
With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.
Legal Possession: What Does It Mean?
Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.
The Stranger to the Deed Rule
In 1987, a unanimous Court of Appeals reaffirmed the vitality of the "stranger to the deed" rule, which holds that if a grantor executes a deed to a grantee purporting to create an easement in a third party, the easement is invalid. Daniello v. Wagner, decided by the Second Department on November 29th, makes it clear that not all grantors (or their lawyers) have received the Court of Appeals' message, suggesting that the rule needs re-examination.