APPELLATE WATCH: Eleventh Circuit Asked To Interpret Contractual Liability Exclusion In D&O Policy

Because insurers generally draft their own policies, it is a common rule of construction that ambiguous terms will be construed against the insurers. However, in Bond Safeguard Ins. Co. et al. v. National Union Fire Insurance Co. of Pittsburgh, PA., the United States District Court for the Middle District of Florida held that the phrase "arising out of" in a D&O policy's contractual liability exclusion is "unambiguous" and "indiscriminately broad" in denying coverage.

Bond Safeguard concerned whether the defendant, National Union, was obligated to provide indemnity for a stipulated judgment of $40,410,729.03, which was entered against National Union's insured and in favor of Plaintiffs Bond Safeguard Ins. Co. ("Bond Safeguard") and Lexon Ins. Co. ("Lexon"). The stipulated judgment was the result of what is known as a Coblentz settlement agreement—based on the U.S. Court of Appeals for the Fifth Circuit's holding in Coblentz v. Am. Sur. Co. of New York, 416 F.2d 1059, 063 (5th Cir. 1969) that, absent fraud or collusion, a liability insurer (such as National Union) with notice of an action against its insured who declines to...