The United States Court of Appeals for the Eighth Circuit, applying Missouri law, has held that a D&O insurer cannot rely on a contract exclusion to deny coverage for an underlying lawsuit, finding that multiple endorsements addressing the deletion and replacement of the exclusion rendered the provision ambiguous. See Verto Med. Solutions, LLC v. Allied World Specialty Ins. Co., 2021 WL 1877802 (8th Cir. May 11, 2021).
The insured, a manufacturer of sports headphones, entered into an asset purchase agreement with an audio electronics company, which agreed to make periodic earn-out payments to the insured.
To garner support for the deal, the insured agreed to distribute an allocated portion of the earn-out payments to its investors, pursuant to the terms of reallocation agreements.
When the insured ultimately failed to make payments allegedly due under the reallocation agreements, a group of investors sued. The insured’s D&O insurer denied coverage for the suit on the basis that the policy’s contract exclusion barred coverage.