A Director's and Officer's Liability Insurance Carrier's Duty to Defend will be determined as an issue of fact on remand in Wintermute v. Kansas Bankers Surety Co., 2010 WL 31531 (8th Cir. Case No. 09-2806, Opinion Filed January 6, 2011)(authorized password required to access Westlaw). A Liability Insurance Company's Duty to Defend is ordinarily held to be determined by the allegations in the complaint against the Insured. See Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" ยง 3:48 (Shepard's/McGraw-Hill Second Edition, West Publishing Co. 2010 Supplement).
The D&O Policy involved in the Wintermute case, however, required the Courts to look at facts to see whether two Exclusions applied under Arkansas law to defeat the Duty to Defend, or not.
1. Personal Profit Exclusion.
The Trial Court in Wintermute granted a Summary Judgment of No Duty to Defend based in part on a "Personal Profit Exclusion":
Exclusion 2 provides that KBS [the D&O Carrier] shall not be liable for payment or defense of any claim for Loss made against a Director "based upon or attributable to the Director[ ] ... gaining in fact any personal profit or advantage to which [she was] not legally entitled."
Id. at *6. The Court of Appeals reversed. It held that the actual language of the Insurance Policy Exclusion required proof of facts, not merely reliance on allegation in the underlying complaint against the Insured in that case. "The term 'in fact' means 'actual or real' or 'resulting from the acts of parties rather than by operation of law.'" Id. at *8.
2. Dishonesty Exclusion.
The Trial Court also based its grant of Summary Judgment of No Duty to Defend on a so-called "Dishonesty Exclusion" in the Policy at issue:
Exclusion number 11 provides that KBS shall not be liable to make payment or provide any defense in connection with any claim for Loss against a Director "brought about or contributed to by the dishonesty of the Directors.... This exclusion shall not apply to any protection provided for any Director ... under the terms of this policy who was not involved in the dishonest acts."
Id. at *9. Again the Court of Appeals reversed the District Court and opted instead for an examination of the facts which it held is required by the actual language of this particular Policy provision. "We conclude that the last sentence of the dishonesty exclusion serves the same purpose as the "in fact" language contained in the personal profit exclusion. The last sentence must be given some meaning." Id. at *10.
The Court of Appeals' examination of the requirements imposed by the actual language of the Policy at issue is focused on the case before the Court rather than on the application of general principles that may have no meaning in the particular case. Whether other Courts follow this approach will be known over time.
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