An Allied World Assurance Co. unit is not obligated to compensate a Minnesota tile retailer under its directors and officers liability excess coverage for claims arising out of the policyholder allegedly failing to report related-party transactions, a federal appeals court said Monday, in affirming a lower court ruling.

Plymouth, Minnesota-based Tile Shop Holdings Inc. was started in 1984 and founder Robert Rucker decided to take the company public in 2012, according to Monday’s ruling by the 8th U.S. Circuit Court of Appeals in St. Louis in Tile Shop Holdings, Inc. v. Allied World national Assurance Co.

American International Group Inc. provided primary D&O liability insurance coverage and Allied World provided an excess policy above AIG’s $10 million policy limit.

Tile Shop’s registration statement, several amendments and prospectus, never mentioned it had obtained millions of dollars in supplies from Chinese export companies owned and operated in substantial part by Mr. Rucker’s brother-in-law, according to the ruling.

About 15 months after the company went public, an investment research firm reported that the Tile Shop had failed to disclose the related party transactions in its Securities and Exchange Commission filings, the ruling said.

The report said that Tile Shop secretly controlled its largest supplier and had used “this dubious entity to report fictitious margins.” It recommended investors sell the stock immediately.

“The report spelled trouble for the company,” including shareholder class action lawsuits and derivative suits against the company’s directors and officers for breaches of fiduciary duty and unjust enrichment.

To recover some of what it had lost, it turned to its D&O policies, the ruling said. Because Tile Shop’s claims exceeded AIG’s $10 million policy limit, it sought indemnification from Allied, which denied coverage on the basis of a policy exclusion for wrongful prior acts.

The Tile Shop filed suit against Allied World in U.S. District Court in Minneapolis, which ruled in the insurer’s favor.

The ruling was affirmed by a three-judge appeals court panel. AIG’s primary policy provided coverage for wrongful acts that occurred on or after Aug. 20, 2012.

But it also said that “loss arising out of the same or related Wrongful Act shall be deemed to arise from the first such same or related Wrongful Act,” which the ruling labeled a relation-back clause.

The Allied World policy did not reiterate the relation-back clause, which led to the question of whether it was incorporated into its excess policy.

The appeals panel concluded the relation-back clause was incorporated, based on its follow form clause which, it said, incorporated the primary policy’s terms and limitations.

As a result, because the alleged wrong acts occurred prior to, or were the same or related to pre-Aug. 20 acts, they were excludable under Allied World’s excess policy, the ruling said, in affirming the lower court’s ruling.

Attorneys in the case did not respond to requests for comment.