Summary
**Langdale v. National Union Fire Ins. Co., 14-12723 (11th Cir. 2015)** – D&O insurance; "capacity" exclusion; "arising out of" causation. The Eleventh Circuit, applying Georgia law, held that a D&O policy's Exclusion 4(g)—barring coverage for claims "arising out of" acts committed in a non-insured capacity—precluded coverage for claims against a corporation and its directors/officers where the underlying allegations arose from the same individuals' misconduct as trustees, not solely as corporate fiduciaries. Applying the but-for causation standard, the court found that the director/officer misconduct claims could not exist independently of the trustee misconduct, affirming summary judgment for the insurer on both the duty to advance defense costs and the insured's bad-faith claim.
Topics
Practice areas
Questions Presented
- Whether the district court erred in finding that Exclusion 4(g) of the D&O policy barred coverage for claims asserted against TLC and its directors/officers, where the claims arose out of alleged misconduct committed in a non-corporate capacity as trustees.
Holdings
- Exclusion 4(g) bars coverage because the claims against TLC and the individual directors arose out of their alleged misconduct as trustees, not as corporate officers or directors. Under Georgia's 'but for' test, the claims could not have existed independent of the trustee misconduct.
Key quotations
“Mixing family and family-owned business can be complicated. When the mix produces litigation, complications can multiply. When the litigation involves misconduct allegedly committed by family members serving simultaneously as officers of the family business and as trustees of the family trust holding large amounts of the company's stock, the complications abound. Add the question of insurance coverage for the litigation to the mix, and you have this case.” (at 2)
“When the phrase 'arising out of' is found in an exclusionary clause of an insurance policy, [Georgia courts] apply the 'but for' test traditionally used to determine cause-in-fact for tort liability.” (at 13)
“[T]he exclusionary clause is focused solely upon the genesis of the underlying plaintiff's claims—if those claims arose out of the excluded acts . . . then coverage need not be provided. Claims arise out of [t]he excluded conduct when 'but for' that conduct, there could be no claim against the insured.” (at 13)
“Just as the negligence claims against Page's law partners in Continental Casualty arose out of Page's excluded conduct, the misconduct claims against TLC based on Johnny and Harley Langdale's alleged officer or director misconduct 'arose out of [their] culpable conduct' as trustees.” (at 29-30)
Factual background
The Langdale Company (TLC) is a family-owned holding company. The Virginia Miller Langdale Family Trust held 24.8% of TLC's voting stock. Johnny and Harley Langdale served simultaneously as TLC directors/officers and as trustees of the Trust. In 2009, Trust beneficiaries sued them, alleging a scheme to have TLC redeem the Trust's stock at an unfairly low price to consolidate control. TLC sought defense costs under its D&O policy, which excluded coverage for claims arising out of acts committed in a capacity other than as a corporate officer or director. National Union denied coverage, citing Exclusion 4(g).
Procedural history
The Langdale Company (TLC) sued its D&O insurer, National Union, for denying coverage and refusing to advance defense costs incurred in underlying state-court litigation. The district court granted summary judgment to National Union on all claims, holding that Exclusion 4(g) of the policy barred coverage. TLC appealed.