Introduction

The Supreme Court of Texas, in Great American Insurance Company v. Robert Primo, 512 S.W.3d 890 (Tex. 2017), addressed a critical interpretation of the "insured-versus-insured" exclusion within a Directors and Officers (D&O) liability insurance policy. This case involved Great American Insurance Company ("Great American") and Robert Primo, a former director of Briar Green, a non-profit condominium association. The heart of the dispute revolved around whether the exclusion barred Great American from defending and indemnifying Primo in litigation stemming from claims made by Briar Green’s insurer, Travelers Casualty & Surety Company ("Travelers"), against Primo.

Summary of the Judgment

Primo was accused of misappropriating funds from Briar Green. After Briar Green filed a claim with Travelers, who then sued Primo to recover the funds, Primo sought defense and indemnification from Great American under the D&O policy. Great American denied coverage, invoking the "insured-versus-insured" exclusion, which prohibits coverage for claims made by one insured against another. The trial court sided with Great American, granting summary judgment. The Court of Appeals overturned this decision, but upon review, the Supreme Court of Texas reinstated Great American's summary judgment, effectively upholding the exclusion and denying Primo's claims for defense costs and attorney's fees.

Analysis

Precedents Cited

The Court extensively referenced several key precedents to interpret the policy language:

• Gilbert Tex. Const., L.P. v. Underwriters at Lloyd's London - Emphasized the importance of contract interpretation based on the plain meaning of terms.
• National Union Fire Ins. Co. v. Crocker - Reinforced that contracts should be interpreted as a whole, adhering to the parties' expressed intent.
• Am. Mfrs. Mut. Ins. Co. v. Schaefer - Clarified that clear and definite policy language negates ambiguity.
• STATE FARM LLOYDS v. PAGE - Asserted that disagreements over policy interpretation do not inherently create ambiguity.
• Augusta Court Co-Owners' Ass'n v. Levin, Roth & Kasner, P.C. - Provided a definition of "successor" in the context of contracts, indicating that a successor must assume both rights and obligations.
• Houston Expl. Co. v. Wellington Underwriting Agencies, Ltd. - Highlighted the necessity of ascertaining parties' true intent in contract construction.
• Additionally, the Court referenced scholarly works and other case law to support the interpretation of "successor in interest" within insurance exclusions.

Legal Reasoning

The Supreme Court of Texas focused on the plain and ordinary meanings of the policy language. The "insured-versus-insured" exclusion stated that the policy does not apply to claims made against any insured by, for the benefit of, or at the behest of the insured entity or its successors. The critical question was whether Travelers, as the assignee of Briar Green's claims against Primo, qualifies as a "successor to the interest of Briar Green."

The Court disagreed with the Court of Appeals' narrow interpretation that required a successor to assume both rights and obligations, effectively limiting the exclusion's applicability. Instead, it adopted a broader interpretation aligned with the plain language, recognizing that Travelers, upon assignment, succeeded to Briar Green's interest in the claims. This interpretation was consistent with how other courts and commentators have understood "successor" in similar insurance contexts, thereby maintaining the exclusion's intent to prevent coverage for internal disputes among insured parties.

Impact

This judgment reinforces the validity and breadth of the "insured-versus-insured" exclusion in D&O insurance policies. By affirming that third-party assignees of claims do constitute successors to the insured's interests, the decision limits the scope of coverage, preventing insured individuals from recovering defense costs and attorney's fees when facing claims assailed by entities connected to them. Future cases involving similar exclusions will likely reference this decision to uphold insurers' rights to deny coverage under comparable circumstances, thereby affecting how D&O policies are interpreted and enforced in Texas.

Complex Concepts Simplified

Insured vs. Insured Exclusion

This exclusion is a common clause in insurance policies that prevents the insurer from covering claims made by one insured party against another. In essence, if two parties are both covered under the same policy, and one sues the other, the insurer will not defend or indemnify the party being sued.

Successor in Interest

A "successor in interest" typically refers to a party that has taken over the rights and obligations of another through processes like assignment or mergers. In this case, Travelers, by being assigned the claims against Primo, succeeded to Briar Green’s interest in those claims.

Summary Judgment

Summary judgment is a legal decision made by a court without a full trial. It is granted when there is no dispute over the material facts of the case, allowing the court to decide the case based on the law.

Conclusion

The Supreme Court of Texas, in Great American Insurance Co. v. Robert Primo, decisively upheld the "insured-versus-insured" exclusion within a D&O policy. By interpreting "successor to the interest of [Briar Green]" to include assignees like Travelers, the Court reinforced insurers' ability to deny coverage in internal disputes among insured parties. This ruling underscores the importance of clear policy language and serves as a precedent for limiting the circumstances under which insurers must provide defense and indemnification. Stakeholders in the insurance and corporate governance sectors must heed this decision when drafting, interpreting, and relying on D&O policies to manage risks associated with internal conflicts.