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Evanston Insurance Co. is not obligated to indemnify or defend a beef company under its directors and officers liability policy because of an exclusion for matters relating to securities, says a federal appeals court, in affirming a lower court ruling.
Several directors and officers of Lakeland, Florida-based Colorado Boxed Beef Inc. were sued in a separate proceeding in Florida state court involving the sale of equity securities, according to Thursday’s ruling by the 11th U.S. Circuit Court of Appeals in Atlanta in Colorado Boxed Beef Co., Inc. Bryan Saterbo, et al. v. Evanston Insurance Co.
The U.S. District Court in Tampa ruled in litigation filed against the Deerfield, Illinois-based Evanston, a Markel Corp. unit, by Colorado Beef that it was not obligated to provide D&O coverage to the company in the litigation, which was affirmed by a unanimous three-judge appeals court panel.
“The district court’s decision turned on Exclusion K” in its policy, which provides Evanston will not be responsible for claims related to the sale or purchase of any debt or equity securities, said the ruling.
“We agree with the district court that the underlying claims all fall within the scope of Exclusion K,” the ruling said. “To the extent that the complaint references ‘improper management and self-dealing,’ it does so not in support of stand-alone claims, but rather as part of the overall scheme to allow (Colorado Beef) to induce the state-court plaintiffs to sell their shares at an artificially low price.
“We think that any references to self-dealing in the state-court complaint, at a minimum, ‘aris(e) out of’ the sale of securities,” said the ruling in quoting an earlier decision. “Therefore, the district court correctly held that Evanston can rely on Exclusion K to deny coverage.”
Evanston’s attorney had no comment, while attorneys for Colorado Boxed Beef could not immediately be reached for comment.
The 11th Circuit also ruled Tuesday that a company official who was charged by the U.S. Securities and Exchange Commission with fraudulent activity is not covered by the firm’s D&O liability insurer because of a policy exclusion.
Evanston Insurance Co. is obligated to defend and indemnify a title insurer accused in a scheme to defraud Maryland homeowners, and exclusions in its errors and omissions policy do not apply, an appeals court has ruled.