The U.S. Court of Appeals for the Second Circuit, applying Kentucky law, has held that a D&O policy’s insured v. insured exclusion barred coverage for a lawsuit brought by a non-insured entity and other insured persons. Gregory v. Navigators Ins. Co., 2023 WL 8538173 (2d Cir. Dec. 11, 2023).

Two employees of a farm and ranch equipment manufacturer were sued by a non-insured entity and several founding members of the manufacturer. The employees sought coverage under the manufacturer’s directors and officers policy. The insurer denied coverage based on the policy’s insured v. insured exclusion, and the employees separately sued for coverage in New York and Kentucky federal district court, respectively. Both district courts concluded that the insured v. insured exclusion barred coverage, and both employees appealed.

Deferring to the Sixth Circuit’s affirmance of the Kentucky court’s opinion, the Second Circuit held that the policy’s insured v. insured exclusion barred coverage because the underlying plaintiffs included three insured persons and the policy defined “claim” to include the entirety of a civil proceeding. The Court also rejected the insured employee’s argument that the allocation provision required the apportionment of defense costs related to defending against the uninsured entity and the insured persons, concluding that the language of the insured v. insured exclusion controlled over the policy’s allocation provision.

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