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    PLUS D&O Comment: Private Companies, Tortious Interference, and Contractual Liability Exclusions

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    On the first morning of the PLUS D&O Symposium, a panel discussed the emerging field of D&O insurance issued to private and non-profit companies, and whether this market was a “Nest Egg or Power Keg.”  The panelists commented that insurers of private companies can be exposed to broad lawsuits involving unexpected liabilities that were not intended to be within the scope of D&O coverage.  One common example that was raised was claims of tortious interference with contract, which are often asserted by a competitor when the insured company hires an individual formerly employed with the competitor.  The panelists observed that it can be difficult to avoid a duty to defend in these cases.  They specifically addressed application of an exclusion for “unfair trade practices,” saying that it would be difficult to apply the exclusion at the duty to defend stage.

    Edwards Wildman attorneys Craig Stewart and Jonathan Toren were successful in convincing a court that an insurer had no duty to defend a case fitting exactly the description discussed by the PLUS panel, based on the policy’s contractual liability exclusion.  In Radianse, Inc. v. Twin City Fire Ins. Co., No. 1:10-cv-10120-RGS (D. Mass. Oct. 6, 2010), the insured (a private company) was sued by an accounting agency for hiring one of the agency’s former employees in violation of the employee’s non-compete clause.  The agency sued the insured for tortious interference with contractual relations and violation of the Massachusetts consumer protection statute.  The insured sought coverage under its D&O policy.  However, that policy contained an exclusion for claims “based upon, arising from, or in any way related to any liability under any contract or agreement, provided that this exclusion shall not apply to the extent that liability would have been incurred in the absence of such contract or agreement.”  Citing this exclusion, the insurer denied coverage.

    In his decision, District Court Judge Richard G. Stearns granted summary judgment to the insurer.  He rejected the insured’s argument that the exclusion could only apply to claims that the insured breached its own contract.  He noted that the exclusion applied to “any” liability under “any” contract or agreement, not only contracts to which the insured is a party.

    The opinion is available here.

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