In Corporate Officer Coverage Case, Montana District Court Holds That Personal Profits Exclusion Barred Some Claims

January 24, 2017 | Insurance Coverage

A federal district court in Montana has ruled that a personal profits exclusion in a directors, officers, and managers liability and corporate indemnification (“D&O”) policy had been triggered by a special master’s finding that the insured officer had committed conversion – but only with respect to that claim.

The Case

After an officer of Global Net, Inc., was sued, the insurer that had issued a D&O policy to Global Net issued a reservation of rights letter in which it agreed to provide a defense to him subject to the terms of the letter and the policy.

The officer subsequently sought a declaratory judgment regarding the insurer’s defense and indemnity obligations.

In the meantime, a special master in the suit against the officer found that he had converted the sum of $14,264.17.

The insurer then issued an amended reservation of rights letter citing the personal profit exclusion in the D&O policy and argued in the officer’s declaratory judgment action that the D&O policy did not require that it defend the officer.

The District Court’s Decision

The district court, applying Montana law, ruled that the special master’s finding that a conversion had occurred triggered application of the personal profits exclusion and, therefore, it granted partial summary judgment in favor of the insurer as to the claim for conversion for $14,264.17. Accordingly, it concluded that the insurer had no further duty to advance defense costs to the officer with respect to the conversion claim.

The district court, however, then ruled that the exclusion did not preclude all coverage under the policy, because the underlying litigation still was ongoing and other claims had not yet been determined to be excluded.   As for those claims, the insurer had a duty to advance defense costs until they were determined to be excluded from coverage.

The case is Johnson v. Federated Rural Electric Ins. Exchange, No. CV 13-18-BU-DLC (D. Mont. Dec. 14, 2016).

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  • Robert Tugander

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