Inter-related Acts Exclusion in Directors and Officers Liability Insurance Policies

by Michael Papuc

Attorney at Law

44 Montgomery Street, Suite 2405

San Francisco, California 94104

415-773-1755

email: Michael.Papuc@gmail.com

San Francisco Attorney Michael Papuc handles insurance claims of directors and officers who have claims made against them.

Directors and Officers in corporations sometimes get sued for a series of acts which occur during a course of time. These acts are often covered by Directors and Officers Liability Policies, issued to the corporation. These policies are usually "Claims Made" policies, which would cover the inter-related acts within the policy period, usually one year. Sometimes, the interrelated acts sued upon occur during several years, placing different carriers are on the risk depending on the language of the varius policies. Th directors or officers being sued has an incentive to bring in as much insurance coverage from different carriers as possible. The carriers, on the other hand, have an incentive to limit the insurance to a single carrier on the risk during a single policy period.

A typical insuring clause, would state:

"1. Insurer shall pay on behalf of the Directors and Officers Loss resulting from any Claim first made against the Directors and Officers during the policy period."

The D&O policy would likely define wrong ful acts as follows:

"9. Wrongful Act means any actual or alleged error, omission, misleading statement, neglect, breach of duty to act by:
"a) any of the Directors and Officers, while acting in their capacity as:
"(i) a director, officer or employee of the Company or the functional equivalent to a director or officer of the Company in the event the Company is incorporated or domiciled outside the United States; ..."

For an interrelated claim to be deemed made during a prior policy period, all interrelated claims must have been made to the insured during the same prior policy period. (Homestead Ins. Co. v. American Empire Surplus Lines Ins. Co. (1996) 44 Cal.App.4th 1297, 1306.)


The Homestead court stated:

"This policy definition of ‘claim’ remains subordinate to, and does not vary, the requirement in the insuring agreements that American Empire agrees to pay for loss which the insured shall become legally obligated to pay ‘from any claim made against the Insured during the Policy Period[.]’ To be covered by the policy, a claim-or a group or series of claims ‘treated as a single claim’-must still be made ‘during the Policy Period.’"(Id. at 1306; emphasis added.)

Thus, even when there are different actions by directors during a course of time, during different insurance policy periods, each carrier on the risk during the separate policy period must pickup the liability claim and undertake its duty to defend the officer or director.