1st Circuit Rejects Health Insurer's D&O Claim

Medical Mutual Insurance Co. cannot force its D&O carrier to pay for its $325,000 settlement of a disability discrimination suit by MMIC's ex-CEO because that action did not name any director or officer, a federal appeals court in Boston has ruled.

In affirming the decision of a Maine federal court judge, the 1st U.S. Circuit Court of Appeals found that the underlying action did not qualify for coverage under a director-and-officer policy written by Indian Harbor Insurance Co. because it only alleged wrongs by the MMIC directors and officers as a group of company agents.

The underlying action was filed by former MMIC CEO Patrick Dowling, who said he was ousted from that position shortly after he suffered a stroke in April 2005.

He first filed an administrative complaint against MMIC with the Maine Human Rights Commission and the federal Equal Employment Opportunity Commission. He then brought a disability discrimination suit in the federal court in Maine, alleging, among other things, discriminatory conduct by the MMIC directors and officers.

The suit asked the court to enjoin those directors and officers from continuing to violate Dowling's rights but it did not name any of them.

MMIC later settled Dowling's case for $325,000 and turned to its D&O insurer for reimbursement. Indian Harbor denied the claim on the theory that the suit was against MMIC as an entity and only mentioned the directors and officers as corporate agents.

MMIC sued Indian Harbor in the U.S. District Court for the District of Maine to get coverage for the settlement.

The judge agreed with Indian Harbor that the D&O policy did not apply and dismissed the suit, triggering this appeal.

MMIC had argued that the policy purported to cover all civil proceedings, but Judge Bruce Selya wrote on behalf of the appellate panel that the claim would "transmogrify D&O policies into comprehensive corporate liability policies."

"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 judge said.

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