EPL and D&O Policies: Loss Trigger

Most EPL and D&O policies require a covered “loss” or “damage.” Britton Weimer, Eric Satre, Andrew Whitman, and T. Michael Speidel, Employment Practices Liability, 2d ed.?pp. 21-22 (National Underwriter 2012); Clarance Hagglund, Britton Weimer and Joseph Monteleone, Directors & Officers Liability, p. 111 (National Underwriter 1999).

Often this loss trigger is limited to monetary settlements and judgments. For example, in Beauvallon Condominium Ass’n, Inc. v. Granite State Ins. Co., 2011 WL 2565474 (D. Colo. 2011), the Great American EPL policy defined “Loss” to mean: “Loss shall mean settlements and judgments, including punitive or exemplary damages or the multiple portion of any multiplied damage award.”

Usually the definition of “loss” excludes things like fines, penalties, taxes and uninsurable damages. For example, in Genesis Insurance Co. v. Crowley, 495 F.Supp.2d 1110, 1118 (D. Colo. 2007), the definition of “loss” excluded “criminal or civil fines or penalties imposed by law, multiplied portions of damages in excess of actual damages, taxes, or any matter which may be deemed uninsurable under the law pursuant to which this Policy shall be construed.”

In a D&O policy, the concept of “loss” can depend upon the plaintiff’s status as a shareholder, officer or director. For example, in ClearOne Communications, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 494 F.3d 1238, 1253 (10th Cir. 2007) (Utah law), the Tenth Circuit held the dilution of?a director's?stock as a result of settlement of shareholders' suit was not a covered loss under?the D&O?policy, as loss was suffered in his capacity as shareholder, and not as a?director.

In a widely-cited Seventh Circuit decision, Level 3 Communications Inc. v. Fed. Ins. Co., 272 F.3d 908, 911 (7th Cir. 2001), the court held that “loss” under a D&O policy does not extend to most claims for restitution. “An insured incurs no loss within the meaning of the insurance contract by being compelled to return property that it had stolen, even if a more polite word than ‘stolen’ is used to characterize the claim for the property's return.”

Brit Weimer is a commercial insurance coverage and defense attorney with Weimer & Weeding, practicing in Minnesota, Colorado and Wisconsin. Feel free to contact him with questions about this article!