(Article from Insurance Law Alert, June 2018)
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Addressing a matter of first impression under North Dakota law, a North Dakota federal district court ruled that a director is not entitled to coverage under a directors and officers policy because he was not alleged to have acted solely in his capacity as a director. Security National Ins. Co. v. H.O.M.E., Inc., 2018 WL 2325406 (D.N.D. May 18, 2018).
Lauris Molbert, president and CEO of H.O.M.E., sued his siblings in connection with a stock purchase agreement. The siblings alleged several counterclaims against Molbert, including breach of fiduciary duty and violation of state statutory law. Security National, H.O.M.E.’s D&O insurer, denied coverage for the counterclaims. In ensuing coverage litigation, the court granted Security National’s summary judgment motion, finding no coverage under the policy.
The court ruled that the siblings’ counterclaims were not covered because the allegations did not assert that Molbert was acting “solely in [his] capacity as director” as required by the policy. The court reasoned that the counterclaims “inextricably intertwine” Molbert’s role as lawyer with his role as director because they allege that his legal work directly facilitated the breach of duties that he owed the company as director. The court rejected Molbert’s assertion that he acted solely in his capacity as director with respect to at least some claims (i.e., the statutory claims that apply only to directors and officers), finding that the counterclaims “not only allege[] he simultaneously acted in noncovered capacities during all relevant times but also that these capacities aided the breach of his fiduciary duties as director and officer.”
Alternatively, the court ruled that even if there was ambiguity with respect to coverage under the policy, the counterclaims would nonetheless be excluded under the insured vs. insured exclusion because the siblings were “insureds” under the policy. The court rejected H.O.M.E.’s contention that the exclusion ought not apply because the underlying litigation did not raise concerns about collusion among insureds.