Recently, the U.S. District Court for the District of Massachusetts upheld an unusual exception to the Insured v. Insured Exclusion in a private company management liability policy. The court interpreted a “former director and officer” exception and a “shareholder derivative” exception in a way that preserved coverage under the policy.
The decision was reached after applying Massachusetts law, suggesting a above-average degree of scrutiny applied to coverage exclusion clauses. This is highlighting how legislations and court rulings can impact even the finer details of company risk management strategies, including insurance coverage. Policies with similar structures and phrasing may need to be revisited in light of this new ruling.
Generally, insured v. insured exclusions are intended to prevent collusive lawsuits between insured entities. As this case shows, the interpretation of exceptions to these provisions may vary significantly based on the specific wording in the policy, along with the prevailing law and its interpretation.
This case could set a precedent for court interpretations of Insured v. Insured Exclusions, and shape the design of future policies. Companies and legal counsels should closely follow further developments and adjust risk management strategies accordingly.
For additional information about this ruling and its potential implications, you can read more at JDSupra.