A court held that a tortious interference with a contract claim alleged against an insured did not fall within a D&O policy's contract exclusion. 

The insured, a condominium association, sought coverage for an underlying lawsuit alleging breach of contract and tortious interference related to unpaid union fringe benefits for parking garage workers. The insured and a third-party property manager created a management company to provide parking services for the building’s parking garage. The management agreement required the insured to pay the parking manager for operating expenses, including the salaries, wages, payroll taxes, and fringe benefits for union workers. 

The insured allegedly directed the parking manager to cease paying the union fringe benefits. The union refused to accept the new arrangement and the insured and manager created a new non-union operating company. In response, the union sued the management company to recover unpaid fringe benefits. After winning a judgment against the then-insolvent management company, the union sued the insured for breach of contract and tortious interference. The insured’s D&O carrier denied coverage, in part, based on the policy’s contract exclusion, while the insured argued that the tortious interference claim triggered a duty to defend.  

The contract exclusion provided there was no duty to defend "any claim for . . . alleged liability of any insureds under the terms . . . of any . . . contract.” The tortious interference claim was based on the insured’s alleged inducement of another party’s breach, not liability under any contract to which the insured was a party. The court found that because the insured was not a party to the union contract, the tortious interference allegations did not “rely on [insured]'s liability under the terms of the management agreement in any way” and could not be barred by the exclusion. As a result, the court held that the insurer had a duty to defend.

We previously reported on this case in May 2025, when a federal court held that, based on the plain meaning of a Regulatory Claims endorsement to a D&O policy, defense costs were included within the amended definition of Loss and were subject to a Retention. At the time, however, the court did not decide whether Defense Expenses were also subject to the Policy's sublimit. The court has now addressed that issue and concluded that the sublimit applied, despite a typographical error in the endorsement. 

The Insured, a provider of infectious-disease laboratory testing, was the subject of several regulatory claims seeking production of documents and responses to interrogatories. The carrier agreed to provide coverage, but maintained that, under the Regulatory Claims endorsement, the costs of defending the claims were subject to a sublimit. The Insured argued that the endorsement was ambiguous and therefore the sublimit should not apply.

The endorsement stated:

The Insurer will pay on behalf of the Insured any Loss from a Regulatory Claim first made against them during the Policy Period […]. The Insurer's maximum aggregate Limit of Liability for Loss under this policy in connection with Regulatory Claims made against all Insured's shall be $250,000. This sublimit shall be part of and not in addition to the amount set forth in Item 2.A of the Directors and Officers Liability Declarations Page.

The Insured argued that the apostrophe in the phrase “made against all Insured's,” rendered the provision nonsensical, thereby creating ambiguity and precluding the application of the sublimit. The court rejected that argument, finding the apostrophe to be a drafting error. Reading the policy as a whole, the court found that the only reasonable interpretation was that the policy intended to cap coverage for Regulatory Claims at the sublimit amount. Ambiguity required competing but reasonable interpretations of the same policy language. Ambiguity could not be created from a drafting error that did not lend itself to an otherwise reasonable interpretation and the court was permitted to excuse such a typographical error.

A court held that a medical professional liability insurer (the “Insurer”) was required to provide coverage for a doctor accused of fertility fraud. 

A doctor (the “Doctor”) who used his own sperm to perform IVF treatments without his patients’ knowledge or consent was entitled to a defense from his Insurer. The Doctor represented to the patients that he resorted to a “mixed sperm method” and mixed the sperm of the father with that of a donor, without disclosing that he was the donor. Later in life, the children discovered that they were half-siblings and filed a civil action against the Doctor. One of the children inherited a genetic disease from the Doctor. The complaint alleged negligence, fraudulent concealment, and various violations of the state trade practices. 

The Doctor submitted the matter for coverage and the Insurer denied, citing the intentional acts and the sexual conduct exclusions. The lower court sided with the Insurer; however, the appellate court reversed the lower court’s decision. The court held that impregnation was not an inherently sexual act because the act at issue was not the production of the Doctor’s sperm, it was the use of his sperm to inseminate his patients, an act that could have been excluded specifically. Additionally, the intentional conduct exclusion did not bar coverage here because the Insurer failed to show that the Doctor intended to commit both—the acts and the injuries that resulted, such as passing the genetic disease. 

At the lower court, the claimant filed a motion for entry of a final judgment on the question of rescission based on a material misrepresentation made by the Doctor in the insurance application. The lower court found the rescission claim moot and incapable of providing relief. It remains to be seen whether the lower court will revisit the rescission issue on remand.

A court held that no coverage existed under the excess policy in a claim that arose from obligations tied to a merger agreement, triggering the policy’s breach of contract exclusion.

In the underlying case, former shareholders sued the company and its executives over alleged misconduct related to the merger. The company argued coverage applied because the claim involved wrongful acts by insured persons acting in their capacities as directors or officers. After the exhaustion of the primary layer, the excess insurer denied coverage, citing the breach of contract exclusion which provided that the policy excluded:

Loss on account of any Claim against an Organization . . . based upon, arising from or in consequence of any liability in connection with any oral or written contract or agreement to which an Organization is a party, provided that this Exclusion . . . shall not apply to the extent that such Organization would have been liable in the absence of such contract or agreement.

The court concluded that the exclusion barred coverage for claims “arising from” contractual liability because the allegations were directly tied to the company’s role in the merger agreement, the connection to the contract was sufficient to preclude coverage under California’s broad interpretation of the “arising from” policy language.

A court held that a D&O insurer was required to cover a business’s defense and settlement where the underlying lawsuit included claims that went beyond a contract dispute. 

A credit card processing company sued the insured company and its CEO for alleged violations of the service agreement. The CEO had personally guaranteed payment under the agreement, in a document titled "PERSONAL GUARANTY FROM OWNER/OFFICER," which stated it was made solely for business and commercial purposes.

The D&O carrier denied coverage, arguing that the complaint did not allege a Wrongful Act (as defined by the policy) or covered Loss, and the policy’s contract exclusion barred coverage. That exclusion applied to "any Claim made against the Company . . . for any actual or alleged breach by the Company of an express or implied contract, except to the extent the Company would have been liable in the absence of such contract." 

The court rejected the carrier’s position, emphasizing that the absence of broad “arising out of” language meant that the exclusion did not extend to tort claims, like fraud, even if related to a contractual relationship. Because the underlying lawsuit included a tort claim, the carrier had a duty to cover the defense and settlement. The court also found that although the CEO personally guaranteed payment under the contract, the guarantee was signed in his capacity as an officer of the company, bringing his conduct within the policy’s definition of Wrongful Act.

A federal court held that a property manager’s professional liability policy does not cover claims arising from real estate investment, financing, or ownership activities, even where the Insured also acts as a property manager.

An investment company’s principals, which owned and managed multiple residential properties, were sued by investors for fraud and breach of fiduciary duty in connection with investment transactions for the financing and co-ownership of multiple properties. The investors alleged misrepresentations regarding purchase prices and their equity interests in various real estate investments. The Insured noticed the lawsuit under its Professional Liability policy, which provided coverage for Wrongful Acts arising from the rendering or failure to render Professional Services—the services performed by the Insured in the Insured's capacity as a property manager or leasing agent. The carrier denied coverage, in part, because the underlying lawsuit did not allege a “negligent act, error or omission by [the Insured] in the provision of Professional Services.” The Insured argued that the terms "property manager" and "leasing agent" were not defined and were ambiguous, such that they should be interpreted broadly to include the allegations of the underlying lawsuit.  

The court, however, determined that the policy covered “wrongful acts arising solely from the rendering or failure to render professional services, which encompass traditional property management or leasing services—not the financing and purchase of residential properties or the management of an investor's funds and financial interest at issue in the Underlying Actions.” The court agreed with the carrier that the Insured was “attempting to conflate property management and management of a business that own[ed] property” and that the alleged conduct related to investment and financial management, not day-to-day property management. Essentially, being a property manager did not extend coverage to all activities of a real estate enterprise.