Louise Thomas of PA along with co-counsel Leslie Ahari of Toutman Sanders won an appeal involving D&O coverage issues. Medical Mutual Insurance Co. of Maine v. Indian Harbor Ins. Co. 08-2525 [http://www.ca1.uscourts.gov/cgi-bin/getopn.pl?OPINION=08-2525P.01A].
An ousted ceo filed a complaint against MMIC with the Maine Human Rights Commission and EEOC, naming MMIC as the respondent, but alleging discriminatory conduct on the part of MMIC, its directors and its officers. The administrative charges were followed by a civil complaint in the District of Maine (Dowling v. Medical Mutual Ins. Co.) again naming only MMIC as a defendant, but including allegations of wrongful conduct attributable to MMIC's directors and officers, and as relief, seeking damages against MMIC and, inter alia, to enjoin MMIC "its agents, employees, and successors" from continuing to violate Dowling's rights.
The named parties settled, with MMIC paying $325,000 in return for Dowling's release of all claims against MMIC and its "officers, agents, employees, attorneys [and] members of the Board of Directors." MMIC then sought reimbursement from Indian Harbor, which had issued a D&O policy to MMIC. Judge Hornby, affirmed by the First Circuit, held that the policy didn't cover the loss.
The policy provided that the insurer would pay loss which the company is required or permitted to pay as indemnification to any of "the Insured Persons resulting from a Claim first made against the Insured Persons" during the policy period, defining Insured Person as directors, officers, Board members etc., and defined claims to include a written demand, or civil, criminal or regulatory proceeedings.
MMIC argued first that the demand letter from Dowling's counsel consisted a covered claim. The First Circuit rejected this argument "out of hand" because it was not raised below. The Court of Appeals then deemed the administrative complaint not to constitute a "claim" within the meaning of the policy because under the policy's definition, the filing must "identif[y] in writing [an] Insured Person … as a person … against whom a proceeding … may be commenced." The administrative notice of charge named MMIC as the sole respondent, with only "a few categorical references" to MMIC's agents and board members, not naming any individual. "Reading the policy as it is written, the administrative complaint simply does not comprise a 'claim' for the purposes of coverage…".
This left the court complaint. That was a "claim," but was deemend not to be "made against" any Insured Person. Dowling only sued MMIC. The allegations of wrongful actions by directors and officers included in the Complaint did not make the claim one "against" those persons.
There's some nice language in the decision for those representing insurance companies in coverage disputes to the effect that the concept of ambiguity has limits, and language "need not negate every possible construction" to be deemed unambiguous. In order for a judicial complaint to be "made against" someone, the complaint "must be filed in court and must identify the person as a defendant in the action." It doesn't matter that a company acts through its directors or officers; the claim has to be made against them. The prayer for relief, incidentally referring to the company's agents, didn't convert the action to fit the policy language because it did not demand relief from them in their personal capacities, which requires joining them as parties to the suit.
The First Circuit's decision is consistent with Appleman's view and decisions from various states.
