Ninth Circuit Ruling Impacts D&O Insurance Coverage Disputes

In a pivotal ruling by the Ninth Circuit Court of Appeals, the decision in Las Vegas Sands, LLC v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA has overturned a previous judgment favouring a directors and officers (D&O) insurer in a coverage dispute. The original Nevada district court had supported the insurer’s decision to deny coverage due to a breach of contract exclusion in the policy. The Ninth Circuit’s reversal highlights the critical need for policyholders to examine coverage denials diligently, particularly those involving broad contract exclusions, and to consider contesting insurers' decisions that may lack justification.

Case Background

The case involved a leading casino and resort operator seeking D&O insurance coverage for over $20 million in legal costs stemming from a lawsuit alleging breach of contract, fraud, and quantum meruit in a Nevada state court. The insurer declined the claim, citing an exclusion within the policy for contractual liabilities, which specified no coverage for claims "alleging, arising out of, based upon or attributable to any actual or alleged contractual liability of the company under any express contract or agreement.”

The district court initially upheld the insurer’s position, agreeing the claim was linked to contractual liability. However, the Ninth Circuit disagreed on appeal. It noted that the insurer failed to provide relevant case law justifying such a broad denial. The court determined that the quantum meruit and fraud claims were not sufficiently connected to the contractual liability to warrant an exclusion, necessitating further individual evaluation by the district court.

Implications for Policyholders

This ruling carries several significant implications for policyholders:

Policy Language Scrutiny: It is imperative for policyholders to closely review insurance policy language. Variations in exclusionary terms, particularly broad phrases like "arising out of," can greatly influence coverage decisions.

Challenge Unjust Denials: Policyholders should be wary of accepting coverage denials without scrutiny, particularly when broad exclusions are cited. Many jurisdictions mandate that exclusions be interpreted narrowly, necessitating a comprehensive analysis of each legal claim, as showcased in this case.

Burden of Proof in Coverage Disputes: Insured parties often benefit from courts' tendencies to resolve ambiguities in their favor. Policyholders need only demonstrate the potential for coverage to trigger an insurer's defense duty, rather than the certainty of coverage.

Advocacy and Consultation: Policyholders are encouraged to assert their rights in disputes, potentially recovering significant funds by doing so. Engage experienced insurance professionals, such as brokers and legal counsel, early in the claims process to challenge broad exclusions effectively and maximize the utility of D&O insurance.

Expert Profile

Yaniel specializes in complex insurance coverage matters, advocating for policyholders in disputes involving various insurance policies.

Geoff leads the D&O insurance and executive protection practice, resolving significant insurance disputes for corporate policyholders.

Alex focuses on insurance coverage litigation and arbitration, guiding clients to obtain suitable coverage and resolve disputes.

Kevin is a commercial litigator with expertise in insurance coverage and advisory services, leveraging his background as an insurance broker for nuanced insights.