845 F.3d 883
8th Cir.2017Background
- JEI (closely held family grocery company) was sued by former director Cheryl Sullivan and her daughters alleging undervaluation of shares; the suit included multiple claims and was filed jointly by all three plaintiffs.
- JEI settled the underlying suit confidentially and sought indemnification and defense costs from its D&O insurer, U.S. Specialty; insurer refused coverage.
- The relevant D&O policy covered "Loss" from "Claims" against Insured Persons but contained an "Insured vs. Insured" exclusion barring claims brought by or on behalf of any Insured Person unless brought independently and without the Insured Person's solicitation, assistance, or active participation.
- The policy also had an allocation clause requiring allocation between covered and uncovered loss when a single Claim includes both covered and uncovered matters.
- District court granted summary judgment to U.S. Specialty, holding Cheryl was an Insured Person, the exclusion barred coverage for the suit, and the daughters’ jointly brought claims were also excluded; JEI appealed only the ruling as to the daughters’ claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Cheryl Sullivan is an "Insured Person" under the policy | Cheryl argued interpretation could favor coverage | U.S. Specialty: policy definition plainly includes past directors | Held: Cheryl is an Insured Person under the unambiguous policy definition |
| Whether the Insured-vs-Insured exclusion bars Cheryl's claims | JEI contended exclusions should be narrowly construed in favor of insured | U.S. Specialty: exclusion text unambiguously excludes claims brought by any Insured Person | Held: Exclusion applies; policy language unambiguous and controls |
| Whether the exclusion bars claims brought by Sullivan's daughters (joint suit) | JEI: daughters are not Insureds; exclusion should not bar their claims and allocation can preserve coverage | U.S. Specialty: Claim defined as the entire civil proceeding; because suit was brought jointly with an Insured Person actively participating, exclusion bars coverage for the whole Claim | Held: Exclusion bars coverage for the daughters’ claims because the suit was a single Claim brought with active participation of an Insured Person |
| Whether the allocation clause requires apportionment of settlement between covered and uncovered matters | JEI: allocation clause mandates splitting loss so portions attributable solely to daughters are covered | U.S. Specialty: allocation does not override the specific exclusion; assistance exception prevents the Level 3 allocation rationale | Held: Allocation clause does not restore coverage here; specific Insured-vs-Insured exclusion (and its assistance exception) controls over the general allocation clause |
Key Cases Cited
- Level 3 Communications, Inc. v. Federal Ins. Co., 168 F.3d 956 (7th Cir. 1999) (allocation clause used to apportion loss where an inactive insured joined an existing suit)
- Sphinx Int’l, Inc. v. Nat’l Union Fire Ins. Co., 412 F.3d 1224 (11th Cir. 2005) (refused allocation where insured actively instigated and drove the suit)
- Miller v. St. Paul Mercury Ins. Co., 683 F.3d 871 (7th Cir. 2012) (reaffirmed Level 3 but distinguished based on policy language; emphasized effect of assistance exceptions)
- Oakdale Mall Assocs. v. Cincinnati Ins. Co., 702 F.3d 1119 (8th Cir. 2013) (principles on de novo review of policy interpretation)
- Henning Nelson Constr. Co. v. Fireman’s Fund Am. Life Ins. Co., 383 N.W.2d 645 (Minn. 1986) (insurer contract interpretation must consider the policy as a whole)