Independent directors and officers, who may have once been secure in believing they were covered for most categories of potential professional liability through their directors and officers (d&o) insurance coverage absent personal malfeasance, may now have serious reason for concern. Two recent decisions from the Ninth Circuit Court of Appeals have held that material misrepresentations known to a director or officer who signed the insurance application can be imputed to innocent directors and officers, thus enabling the insurance provider to rescind coverage for all (regardless of personal culpability).
In Cutter & Buck (C&B) v. Genesis Insurance Company (Genesis), the Ninth Circuit reviewed and interpreted a d&o liability insurance policy. The policy contained "limited severability" clauses permitting the insurer to rescind coverage for all directors and officers, including those who did not have personal knowledge of any material misrepresentations made in the application for coverage. The Ninth Circuit upheld a ruling from the District Court for the Western District of Washington that "material misrepresentations known to the director or officer who signed the application can be imputed to innocent directors and officers."
See full Article.
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