The Insured v. Insured Exclusion

The recent banking crisis spurred William G. Passannante, co-chair of Anderson Kill’s Insurance Recovery Group, to remind policyholders that D&O Insurance should respond to claims facing directors and officers from receivers. Corporations began purchasing D&O policies in the 1930s in reaction to liabilities created by the Depression-era enactment of securities and other regulations. If the past is any guide, some insurers will continue to cite the “insured v. insured” exclusion to bar such coverage. In earlier banking crises some insurers argued that the exclusion precludes coverage when a statutory receiver, the FDIC for example, sues a former director or officer. Most courts disagreed on grounds that the FDIC, as a statutory receiver, is sufficiently adverse to the failed financial institution not to be construed as an “insured.” Thus, lawsuits brought by the FDIC against directors and officers of a failed financial institution cannot be collusive in nature.