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A CNA Financial Corp. unit is not obligated to cover an Oklahoma wastewater treatment firm under an “insured v. insured” exclusion in its directors and officers liability insurance policy, says a federal district court in a ruling Monday.
In March 2017, a shareholder derivative lawsuit was filed in federal court in New Jersey against Oklahoma City-based World Water Works Holdings Inc. and individually against three of its board members, according to the ruling by the U.S. District Court in Chicago in Water Works Holdings Inc. v. Continental Casualty Co. and Anthony W. Besthoff Jr.
The lawsuit charged that the directors had created various corporate entities in India that were later spun off as independent companies, and the three directors simultaneously held dual roles as members of World Water’s board and owners of the India operations.
It charged that these defendants took various actions in their capacity as World Water directors to the company’s detriment and for the Indian operation’s “sole benefit,” according to the ruling.
The shareholder, Mr. Besthoff, brought claims against the individual defendants for breach of fiduciary duty and waste of corporate assets and against one of the defendants for unjust enrichment and tortious interference with contract, according to the ruling.
World Water sought coverage in the litigation from CNA unit Continental under its D&O insurance policy, which the insurer denied based on the policy’s insured v. insured exclusion.
Claims and counter claims in the matter were filed in the District Court, which ruled in Continental’s favor.
The District Court held that as both the title of Mr. Besthoff’s complaint, Anthony W. Besthoff Jr. derivatively and on behalf of World Water Works Holdings Inc. v. Prashant Mitta et al., “and the content of the complaint demonstrate, the suit was brought on behalf of World Water.
“In other words, it is clear from the four corners of the Besthoff complaint that the (insured vs. insured) Exclusion applied to remove the case from coverage.
“Thus, whether or not one considers extrinsic evidence, Continental has met its burden of showing that the exclusion applies,” said the ruling, which disagreed with World Water that an exception to the exclusion applies.
The court granted Continental summary judgment, holding it had no duty to defend or indemnify Continental and also dismissing the lawsuit’s bad faith and breach of contract charges.
A spokesman for CNA and Water Works’ attorney could not immediately be reached for comment.
In 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.
CNA Financial Corp. on Monday reported $342 million in net income for the 2019 first quarter, a 17.5% increase from the comparable period a year ago.