In this month’s issue of Tressler’s Specialty Lines Advisory, we summarized an important decision from the New York Court of Appeal (the high court in New York) holding that the “other insurance” clause in a D&O policy rendered it excess to a CGL policy for the same insured homeowners association because both policies had in common coverage for allegations of “injurious falsehood”.* Fieldston Property Owners Ass’n, Inc. v. Hermitage Ins. Co. (view March 2011 Specialty Lines Advisory here)

Fieldston was decided on February 24, 2011. Fifteen days earlier, a federal court in Maryland decided another D&O vs. CGL insurance dispute centered on application of the policies’ other insurance clauses and relying in part upon a lower court decision in Fieldston that was ultimately overruled by the Court of Appeal. Federal Ins. Co. v. Firemen’s Ins. Co. of Washington, DC, 2011 WL 503185 (D. Md. February 9, 2011).

In the Federal case, the common insured was a home repair and handyman services company that was contracted by a homeowner to do a major renovation and additions project. In an arbitration brought by the homeowner, it was alleged in an amended complaint document that the insured failed to perform work which they had been contracted and paid to perform and that the work that they did perform was not done properly and/or up to industry standards. The CGL insurer disclaimed coverage on the basis that its coverage was limited solely to claims for bodily injury or property damage. The D&O policy, which covered the insured company and apparently did not contain any professional liability exclusion, broadly covered “wrongful acts”, i.e. any error, misstatement, misleading statement, act, omission, neglect or breach of duty.

Supplementing the allegations in the formal complaint document, however, the homeowner had introduced into evidence a letter listing numerous incidents of allegedly sustained property damage. This letter convinced the Court that there was in fact applicable CGL coverage, but nonetheless found the other insurance clause in the D&O policy inapplicable. Unlike in Fieldston where there was a common covered risk in the nature of “injurious falsehood”, the Federal court hound that the D&O and CGL insurers covered entirely separate risks. Thus, instead of the D&O insurer walking away with a complete win as in Fieldston on the basis of their excess other insurance clause, here the best that they could achieve was a ruling that the CGL insurer must “contribute” to defense costs.**

Fieldston and Federal are not inapposite, but rather can readily be reconciled. In Fieldston, both policies covered the common risk of injurious falsehood. In Federal, although not stated so explicitly by the Court, the CGL insurer covered the property damage risk and the D&O insurer apparently covered everything other than property damage.

* The other insurance in this D&O policy provided as follows.

If any Loss arising from any claim made against the Insured(s) is insured under any other valid policy(ies) prior or current, then this policy shall cover such Loss, subject to its limitations, conditions, provisions, and other terms, only to the extent that the amount of such Loss is in excess of the amount of such other insurance whether such other insurance is stated to be primary, contributory, excess, contingent or otherwise, unless such other insurance is written only as specific excess insurance over the limits provided in th[is] policy.

This “excess” language is fairly typical in D&O policies.

** This is typically the result when the other insurance clauses in the respective policies are found to be inapplicable or mutually repugnant. Both policies are treated as primary insurance and contribution may be had on a pro-rata basis either based upon the respective policy limits, time on the risk or some other method of calculation.