Insurer not obligated to defend beef company in D&O suit

A federal district court in Florida has ruled in Evanston Insurance Co.’s favor, and held it is not obligated to defend a beef company and its directors and officers in a D&O liability lawsuit filed in connection with stock purchases.

Deerfield, Illinois-based Evanston, a Markel Corp. unit, was sued by Lakeland, Florida-based Colorado Box Beef Co. and its officers and directors for its refusal to defend them in connection with a lawsuit filed in state court, according to Friday’s ruling by the federal district court in Tampa in Colorado Boxed Beef Co. Inc. v. Evanston Insurance Co.

The underlying lawsuit charges the company’s directors and officers with fraud, negligent misrepresentation and unjust enrichment, among other charges, according to the complaint in the case.

It said the directors and officers are being charged with “voluminous allegations” from 2011 to 2017, alleging “improper management and self-dealing as well as alleged exorbitant compensation paid in lieu of paying dividends to shareholders.”

Colorado Box Beef had purchased a D&O policy from Evanston that included “Exclusion K,” which said coverage is excluded in connection with the purchase or sale of debt or equity securities. Evanston argued it is not obligated to defend the company’s directors and officers because of this exclusion.

“Defendants argue that Exclusion K applies, and Defendant thus has no duty to defend the Buyers and Plaintiff (chief financial officer John) Sullivan in the underlying lawsuit. The court agrees,” said the ruling, in granting Evanston summary judgment dismissing the case.

In September 2017, a federal appeals court affirmed a lower court ruling and held Beazley Insurance Co. Inc. was not obligated to indemnify the directors of a now-dissolved company based on the insured vs. insured exclusion in its D&O liability policy.