Insured Versus Insured Exclusion Does Not Bar Coverage for Claims Brought by Member of Insured LLC

Applying Washington law, a federal district court has held that an insured versus insured exclusion does not bar coverage for claims asserted by a member of an insured limited liability company. Starr Indem. & Liab. Co. v. Point Ruston LLC, 2021 WL 3630511 (W.D. Wash. Aug. 17, 2021).

The court also held that a lawsuit is not brought ‘on behalf of’ an insured solely because an insured is a principal of the claimant.

The insurer issued a claims-made policy to a limited liability company. The policy excluded coverage for ‘any Loss in connection with any Claim . . . brought by or on behalf of an Insured’ (the ‘IvI Exclusion’).

The Policy defined Insured to include an ‘Insured Person,’ which included an ‘Executive.’ The Policy further defined ‘Executive’ to include a ‘management committee Member’ and ‘Member of the board of managers.’ ‘Member’ was in turn defined as the ‘owner of a limited liability company represented by its membership interest, who may serve as a Manager.’

On March 11, 2020, sixteen Insureds were named as defendants in a lawsuit alleging that they mismanaged a commercial housing development project in which the plaintiffs invested.