Creditor Exclusion: The Perils of D&O Coverage

December 01, 2016

The U.S. Court of Appeals for the Fifth Circuit recently held that a Creditor Exclusion provision in a directors and officers (D&O) insurance policy may result in significant limitations on the coverage provided to the D&Os, when the underlying dispute is with a creditor acting in its creditor capacity. Markel Am. Ins. Co. v. Verbeek (5th Cir. Sep. 27, 2016).

In the Markel case, the owners and officers of Color Star Growers of Colorado, Inc. (Color Star) were sued by lenders who provided the company with a credit facility to refinance its debt. It should be noted that nowhere were the defendants referred to as directors as well. The lenders alleged that the individual defendants misrepresented the company’s financial condition in procuring the loan. The defendants tendered the litigation to Color Star’s D&O insurer requesting it to defend the litigation as required by Color Star’s D&O insurance policy. The insurer refused citing the policy’s Creditor Exclusion.

Read "Creditor Exclusion: The Perils of D&O Coverage."

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