Policyholders must be mindful of expansive causation language in policy exclusions that could pose significant—and sometimes unforeseen—hurdles to obtaining coverage for D&O claims. In TriPacific Capital Advisors, LLC v. Federal Insurance Co., a California federal court recently ruled that a D&O insurer had no duty to defend an investment firm’s $8.5 million employment suit because coverage was barred by the policy’s broad contract exclusion, which applied not only to breach of contract claims but also any claims “arising from” contractual liability owed by the company.
A former employee filed an arbitration demand against TriPacific Capital, a financial services company, alleging that he was owed $8.5 million and asserting causes of action for breach of fiduciary duties and breach of contract, among others. TriPacific Capital submitted a claim to its insurer, Chubb, under the company’s asset management liability policy that included a D&O liability coverage part with $5 million limits.
Chubb denied coverage under the policy’s “Contract Exclusion,” which barred coverage for loss on account of any claim “based upon, arising from, or in consequence of any Insured’s liability under any contract or agreement regardless of whether such liability is direct or assumed.” The Contract Exclusion did not apply to “liability that would attach to an Insured even in the absence of a contract or agreement.”
In the ensuing coverage litigation, TriPacific Capital argued that...
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