Excess “Other Insurance” Provision Does Not Relieve Insurer’s Duty to Defend

The United States District Court for the Central District of California, applying California law, has held that a D&O insurer cannot rely on an excess “other insurance” provision to preclude a duty to defend.  TriPacific Capital Advisors, LLC v. Fed. Ins. Co., 2021 WL 5316407 (C.D. Cal. Nov. 15, 2021).

The insured is a California-based financial services company that manages institutional capital for residential construction projects.  In 2020, a former employee sued the company and the company’s president.  The company tendered the action to its D&O and EPL insurers.  The EPL insurer agreed to provide a defense, but the company’s D&O insurer denied coverage, asserting, among other things, that its policy applied in excess of the EPL policy. 

In the ensuing coverage action, the D&O insurer advanced several arguments to support its contention that it had no duty to defend.  First, it argued that the alleged wrongdoing by the company president occurred not in his capacity as a director and officer of the company, but as a joint venture partner, in which case the terms of the policy precluded coverage.  The court held that because the president had established a “potential” that he was acting in his capacity as a director and officer at the time of the alleged wrongdoing, that was sufficient.

Second, the D&O insurer attempted to limit its duty to defend to only those claims that are “potentially covered” under its policy.  The court dismissed this argument, holding that, under California law, “where some claims are potentially covered and others are not, the insurer has a duty to defend the action in its entirety.”  The court did note, however, that the D&O insurer could attempt to seek reimbursement at the close of litigation for any expenses that were solely allocable to non-covered causes of action.

Finally, the D&O insurer argued that it did not have a duty to defend because its policy had an “other insurance” clause dictating that its policy was excess to any other applicable insurance policies.  Thus, it asserted that it sat above the EPL policy, and did not have any defense obligation until the limits of that policy had been exhausted.  The court disagreed, holding that “other-insurance provisions are intended to apply in contribution actions between insurers, not in coverage litigation between insurer and insured.”  The court also noted that where an insurer has a duty to defend – which the D&O insurer was determined to have had immediately after tender – the existence of the “other insurance” clause does not change that duty.  The court noted, however, that the D&O insurer could bring an equitable contribution action against the EPL carrier, and in that suit “the other-insurance provision could impact the allocation of liability.”