Securities Law | Expert Legal Commentary

January 15, 2010

Medical Mutual v. Indian Harbor: No D&O Coverage If Lawsuit Does Not Specifically Name Officer or Director

Medical Mut. Ins. Co. of Maine v. Indian Harbor Ins. Co.

By Josh Lawler of Zuber Lawler & Del Duca and Joel Ginsberg

Medical Mutual v. Indian Harbor: No D&O Coverage If Lawsuit Does Not Specifically Name Officer or Director

The First U.S. Circuit Court of Appeals held that a company cannot recover from its D&O insurance carrier the cost of fighting lawsuits or administrative cases that allege wrongful director or officer acts but do not specifically name those individuals as defendants. In Medical Mut. Ins. Co. of Maine v. Indian Harbor Ins. Co., 583 F.3d 57 (1st Cir. 2009), the Court held that only claims specifically filed against “insured persons” under the policy are covered by the policy – under the policy at issue, only the individual directors and officers, but not the general overall company, were “insured persons.” As a result, claims brought against only the company and not the individual directors and officers could not be covered.


Patrick Dowling, formerly the CEO of Medical Mutual Insurance Co., suffered a stroke and was subsequently terminated from his position with the company. Dowling sent a demand letter to Medical Mutual seeking compensation for disability discrimination. When that effort failed, Dowling filed administrative complaints with both the Maine Human Rights Commission and the federal EEOC. The administrative cases named Medical Mutual as the lone respondent, but alleged discriminatory conduct by the company as well as its directors and officers.

The agencies issued right-to-sue letters and Dowling filed a federal lawsuit against Medical Mutual only in federal court. Like the administrative complaints, the lawsuit claimed discriminatory conduct by the company as well as its officers and directors. The prayers for relief in the lawsuit included a request for injunctive relief against the company, its agents, employees, and successors.

Medical Mutual settled the lawsuit with Dowling for $325,000 out of its own pocket in exchange for a release of all claims against it, its officers, agents, employees, attorneys, and directors. The company then sought reimbursement from Indian Harbor Insurance Co., which had issued a D&O policy to the company.

Indian Harbor refused to pay, arguing that since the claims were only filed against the company and not against the actual directors or officers, they were not covered claims under the policy. The district court agreed with Indian Harbor, granting summary judgment in Indian Harbor’s favor, and Medical Mutual appealed. Medical Mut. Ins. Co. of Maine v. Indian Harbor Ins. Co., 583 F.3d 57 (1st Cir. 2009).

No coverage where claims don’t name directors or officers as defendants

The First U.S. Circuit Court of Appeals agreed with the district court, holding that coverage under the D&O liability policy was not available for claims that did not specifically name the officers or directors as respondents.

The D&O policy at issue included the following language: “The Insurer shall pay on behalf of the Company 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… for a Wrongful Act or Employment Practices Wrongful Act.”

“Insured person” was defined in the policy as “any past, present, or future director or officer, or member of the Board of Managers of the Company.” The policy defined the term “claim” as including “any civil proceeding” or an “administrative regulatory proceeding… including any proceeding before the Equal Employment Opportunity Commission.”

The Court first determined that the policy did cover the administrative complaints because those complaints did not name any specific officer or director as an adverse party. Because the complaints did not, therefore, name any “Insured Person” as a respondent, the complaints did not qualify as a “Claim” under the unambiguous terms of the policy. 583 F.3d at 61-62.

The Court then addressed the question of whether the policy covered the judicial complaint. While the Court acknowledged that the lawsuit was a “Claim” because it was a civil proceeding covered by the policy, the Court found that the lawsuit was not “made against” an “Insured Person” as required by the policy. The Court held that this condition unambiguously required that the lawsuit specifically identify an Insured Person as a defendant in order to be covered by the policy. Because the lawsuit only named the company – but not any of its officers or directors – as a defendant, and the company itself is not an “Insured Person” under the policy, the lawsuit was not covered by the policy’s unambiguous terms. Id. at 62.

Medical Mutual made several arguments in an attempt to circumvent this policy language. The company claimed that the claims should be covered because: 1) both the administrative and judicial complaints were based on general allegations of misconduct by the officers and directors; 2) the complaint sought an injunction against the company as well as its agents and employees; and 3) the ultimate settlement agreement included a release of the company as well as its directors and officers, indicating that the claims were brought against the directors and officers. Id. at 63-64.

The Circuit Court rejected all of Medical Mutual’s arguments, stating: “D&O policies exist to fund indemnification covenants that protect corporate directors and officers from personal liability, not to protect the corporation by which they are employed. The position advanced by the company in this case – extending coverage to situation in which the directors and officers are not themselves the actual targets of the claims made – would if accepted transmogrify D&O policies into comprehensive corporate liability policies. Because such a transmogrification is contrary to both the letter and spirit of the D&O policy at issue here, we affirm the district court’s entry of summary judgment in favor of the insurer.” Id. at 59.  Thus regardless of the allegations, prayer for relief and broad settlement agreement language, because the complaint did not name the directors or officers as individual defendants, it was not covered by the policy.  Additionally, the Court referred to Medical Mutual’s reference to the general settlement and release as “a non sequitur.” Id. The Court explained that Medical Mutual’s requirement as a condition of settlement, that Dowling renounce any potential claims that he might have against its directors and officers does not expand the parameters of the civil action, stating: “It would make no sense to allow an insured to manufacture coverage by the simple expedient of insisting, as a condition of settlement, that a plaintiff frame a release more broadly than the plaintiff had framed the claim actually made.” Id.


The Medical Mutual case really restates the generally accepted rule that corporate indemnification coverage under a D&O policy is only implicated if the individual directors or officers are named as defendants. However, corporations should review and negotiate the terms of their D&O policies carefully—many D&O policies include a corporate liability section that would provide protection for claims like the ones present in Medical Mutual, even if the claims do not name the individual directors or officers as specific defendants or respondents.

About the Authors

Joel Ginsberg is Deputy General Counsel at Guidance Software, an industry leader in digital investigative solutions.

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Josh Lawler
Joel Ginsberg

Companies Mentioned

Indian Harbor Insurance Company

Medical Mutual Insurance Company of Maine

Also See:

Amgen Inc. v. Connecticut Retirement Plans & Trust Funds: Supreme Court Sides with Investors in Securities Fraud Class Action

Gabelli v. SEC: Unanimous Supreme Court Rejects Extending Statute of Limitations in SEC Enforcement Actions

In re Rigel Pharmaceuticals, Inc.: Ninth Circuit Increases Difficulty for Investors to Sue Drug Companies Based on Clinical Trial Results

Mastick v. TD Ameritrade, Inc.: Court Upholds Use of California Arbitration Act in Contracts Governed by California Law

Lawson et al. v. FMR LLC: Sarbanes-Oxley’s Whistleblower Protection Is Limited to Employees of Publicly Traded Companies

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