Court Rejects Insured v. Insured Exclusion in D&O Policy
Wednesday, August 8, 2012

In Miller v. St. Paul Mercury Ins. Co., 683 F.3d 871 (7th Cir. 2012), the Seventh Circuit U.S. Court of Appeals held that St. Paul had an obligation to defend and indemnify the corporate defendant and two individual insureds against the claims brought by the non-insured plaintiffs. It found that the policy’s insured v. insured exclusion did not bar coverage notwithstanding that the case was brought by five plaintiffs, three of whom were considered insureds and two of whom were not insureds under the policy. 

The Seventh Circuit, consisting of Judges Posner, Bauer, and Hamilton, overturned the district court decision, finding that it could lead to arbitrary results and does not conform to the parties’ reasonable expectations.  The court found the relevant facts and policy language from the Miller case practically indistinguishable from  its prior holding and reasoning in Level 3 Communications, Inc. v. Federal Ins. Co., 168 F.3d 956 (7th Cir. 1999) (Nebraska law).  The Seventh Circuit further provided that the policy’s allocation provision provided there would be sufficient limits to cover the total amount of defense and indemnity obligations for the covered portion of the case.  The case was then remanded back to the District Court to make the appropriate allocation with respect to the duty to defend and indemnify.

 

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