Insured Versus Insured Exclusion Defeats Coverage for Class Action Filed by Former Director | Wiley Rein LLP

In a win for Wiley’s consumer, america District Court docket for the District of Wyoming, making use of Wyoming regulation, held that an insured versus insured (“IvI”) exclusion barred protection for a complete class motion continuing introduced by an insured’s former director towards the insured and varied different former administrators and officers. Tri County Tel. Ass’n, Inc. v. Twin City Fire Ins. Co.No. 24-CV-274-KHR (D. Wo. John. 12, 2026).

One of many insured’s former administrators and his spouse (with whom he shared his membership curiosity) sued the insured phone cooperative and varied different former administrators and officers in each his particular person capability and as a consultant of a category of over 800 members. The swimsuit alleged {that a} merger transaction undervalued the cooperative and bought it for lower than it was price. After greater than 4 years of litigation, the insured prevailed on abstract judgment. The insured sought a protection beneath its administrators and officers legal responsibility coverage, however the insurer denied protection primarily based on the coverage’s IvI exclusion, which barred protection for “any Declare introduced or maintained by or on behalf of any Insureds (in any capability) or any safety holder of an Insured Entity.” The insured argued that two exceptions to the IvI exclusion restored protection: the Safety Holder Exception and the Former Supervisor Exception.

Making use of Wyoming regulation, the court docket first held that the IvI exclusion barred protection for the complete class motion as a result of “Declare” was outlined as a civil continuing. Although the category motion included each the insured entity and varied insured individuals as defendants, and the grievance underwent a number of amendments, together with new theories and a late-added defendant, the previous director’s involvement within the class motion because the principal plaintiff served to exclude the complete continuing, together with all defendants and iterations of the grievance. The court docket rejected the insured’s try and invoke the allocation clause to allow protection for sure claims encompassed throughout the class motion as a result of the allocation clause solely utilized the place there’s a coated declare. As a result of the complete class motion was a single Declare barred by the IvI exclusion, there was no coated declare that required allocation. The court docket additionally held that even when the underlying claims had been separate, they had been nonetheless primarily based on the identical Wrongful Act or Interrelated Wrongful Acts centered across the merger transaction, which fashioned a single Declare.

The court docket enforced the exclusion as written, noting {that a} swimsuit introduced by a former director deeply concerned within the underlying dispute match squarely inside one of many acknowledged functions of IvI exclusions—to preclude protection for disputes arising from company infighting—although the court docket emphasised that it’s the plain which means of the coverage language, not the exclusion’s function, that controls.

The court docket then held that no exception utilized to revive protection. Underneath the Safety Holder Exception, the IvI exclusion didn’t apply to “a civil continuing by a safety holder of an Insured Entity . . . that’s introduced and maintained with out solicitation, help, or lively participation of any Insured Entity or Supervisor.” The court docket held that it was enough that the previous director was a Supervisor beneath the coverage and had participated within the litigation, rejecting the insured’s argument that the language required a second actor. The Former Supervisor Exception additionally didn’t apply as a result of it required the swimsuit to proceed fully with out the involvement of “a former Supervisor who has not served in such capability for at the very least one 12 months previous to such Declare being made.” The court docket agreed {that a} director “serves” whereas holding workplace, no matter after they final took official motion as a director. As a result of the board of administrators formally resigned lower than one 12 months earlier than the swimsuit was filed, the exception couldn’t apply.

Lastly, the court docket held that the insured had not demonstrated unhealthy religion as a matter of regulation as a result of the insurer accurately denied a protection, and the proof demonstrated that the insurer carried out at the very least a cursory protection investigation.

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