Insured v. Insured Exclusion Bars Coverage for Former Director’s Action Against CEO

The District Court of Appeal of Florida has held that an insured v. insured exclusion barred coverage for an action brought by a former director of the insured company against the company’s CEO. Durant v. James, 2016 WL 1295100 (Fla. Dist. Ct. App. Apr. 4, 2016).

Under the terms of a final judgment and dissolution of marriage, the former director was forced to sell his shares of the insured’s stock. The director later repurchased the stock, but at an inflated price due to certain alleged actions by the insured’s CEO. Ultimately, the former director obtained a money judgement against the CEO for damages in connection with the stock buyback. He then sought to collect the judgment from the insurer under the company’s D&O policy. The insurer denied coverage based on the policy’s exclusion for any claim by or on behalf of the insured entity, any affiliate of the insured entity or any insured person. The policy defined “insured person” to mean “any past, present or future director, trustee, officer, employee or honorary or advisory director or trustee of the Company.”

In the coverage litigation that followed, the former director contended that his action against the CEO was covered because he had brought the claim in his personal capacity, unrelated to his former position as director. The court disagreed, finding that the underlying action was based on a judgment obtained in an adversarial personal action against the CEO for damages incurred due to the CEO’s wrongful act of overvaluing the stock bought back by the former director. Moreover, the court noted that the former director’s status as an “insured” resulted from his undisputed status as a past director, and was not specially conferred to advance a particular statutory duty. The court thus held that the clear and unambiguous policy language barred coverage for the underlying action. The court also held that the exception to the exclusion for any claim arising out of the employment of an insured person did not apply because a director is not an employee of a company, and the former director had not accepted any duties beyond those required of a director to make himself an employee.