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.

39 minute read September 01, 2005 at 02:34 PM

By

Kim V. Marrkand And Nancy D. Adams