Texas Supreme Court Enforces Insured-Versus-Insured Exclusion in D&O Liability Insurance Policy

March 23, 2017 | Insurance Coverage

The Texas Supreme Court has ruled that an insured-versus-insured exclusion in a directors and officers (“D&O”) liability insurance policy applied to preclude coverage of a lawsuit brought against a former director and treasurer of a condominium association by an assignee of the association.

The Case

After Robert Primo resigned as a director and treasurer of Briar Green, a non-profit condominium association in Texas, Briar Green maintained that Primo had misappropriated over $100,000.

Briar Green made a claim for the alleged loss with its fidelity insurer, which paid the claim in exchange for a written assignment of all of Briar Green’s rights and claims against Primo for the loss. The fidelity insurer then sued Primo.

Primo, in turn, sued the insurance company that had issued a D&O policy to Briar Green, seeking reimbursement for the defense costs and attorneys’ fees he said he had incurred in the lawsuit brought against him by the fidelity insurer.

The D&O insurer moved for summary judgment. It contended that it owed no duty to defend Primo in the fidelity insurer’s suit because that action fell within the D&O policy’s insured-versus-insured exclusion.

The trial court ruled in favor of the D&O insurer, an intermediate appellate court reversed, and the dispute reached the Texas Supreme Court.

The Texas Supreme Court’s Decision

The Texas Supreme Court reversed the appellate court, agreeing with the D&O insurer that the policy’s insured-versus-insured exclusion barred Primo’s action against it.

The court reasoned that as a former director of Briar Green, Primo was an insured under the D&O policy. The court pointed out that Briar Green had assigned whatever claims it had against Primo to its fidelity insurer, and it found that as a result, the fidelity insurer had “succeed[ed] to the interest of” Briar Green within the meaning of the insured-versus-insured exclusion in the D&O insurance policy.

Therefore, the court concluded, the D&O policy provided no coverage for the claims Primo asserted against the D&O insurer.

The case is Great American Ins. Co. v. Primo, No. 15-0317 (Tex. Feb. 24, 2017).

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