D&O Insurance: The Contract Exclusion

D&O Insurance: The Contract Exclusion - 3/16/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

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D&O Insurance: The Contract Exclusion
Kevin LaCroix

The D & O Diary. March 16, 2009
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EXCERPT: A liability insurance policy is not intended to provide policyholders a means to shift to the insurer their separate, voluntarily undertaken contractual obligations. Private company D&O insurance policies generally embody this principle in a separate exclusionary provision. However, the wording of the exclusionary clause can substantially affect the scope of coverage otherwise available under the policy. In particular, the expansive reading given certain exclusionary language in recent cases suggests that a more narrowly constructed exclusion would more appropriately address the concern that the provision was originally intended to address. Background Long standing case law establishes that liability insurance policies do not cover breach of contract claims, because a contractual duty is not a liability imposed by law but is rather a voluntarily undertaken obligation. By way of illustration, a debtor ought not to be able to borrow funds, neglect to repay the debt, and then shift the repayment obligation to an insurer. While these case law principles are well-established, some years ago private company D&O insurers nevertheless began to insert express contract exclusions in their policies. In part the insertion of the contract exclusion was intended to address the recurring policyholder objection that the policy does not say that it will not cover contractual liability. The insurers also wanted policy language to try to address recurring problems presented by claims against insured companies that sound both in contract and in tort (e.g., a complaint that asserts both a breach of contract claim and a claim for tortious breach of contract). In addressing these issues, some carriers have adopted broadly worded exclusionary language.

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