Mist Pharmaceuticals: Broad D&O “Capacity” Exclusions Bar Coverage for Claims “In Any Way Involving” Uninsured-Entity Conduct; Repeated Reservations Defeat Griggs Estoppel and Fireman’s Fund Forfeiture

1. Introduction

In Mist Pharmaceuticals, LLC v. Berkley Insurance Company (Supreme Court of New Jersey, May 11, 2026), the Court addressed a recurring D&O-coverage problem: when a principal allegedly engages in self-dealing across multiple related entities, how far does a “capacity” exclusion reach, and when—if ever—do the doctrines of forfeiture and estoppel prevent an insurer from invoking that exclusion?

Parties. Plaintiff Mist Pharmaceuticals, LLC (the insured entity) sought coverage under a claims-made Directors and Officers (D&O) policy issued by defendant Berkley Insurance Company. Joseph Krivulka, Mist’s chair and an insured person in that capacity, was alleged in underlying litigation to have orchestrated a diversion scheme benefiting Mist and other entities he controlled. Berkley insured Mist only; the other entities (including Akrimax Pharmaceuticals, LLC) were not insured entities or outside entities under the policy.

Key issues. The Court framed three legal questions: (1) whether the underlying claims fell within the policy’s capacity exclusion; (2) whether Berkley forfeited reliance on the exclusion by refusing to contribute to/consent to the global settlement under Fireman’s Fund Insurance Co. v. Security Insurance Co., 72 N.J. 63 (1976); and (3) whether Berkley was estopped from disclaiming coverage under Griggs v. Bertram, 88 N.J. 347 (1982), given Berkley’s earlier partial defense-cost payments and communications.

2. Summary of the Opinion

The Court (Patterson, J.) held that:

  • The underlying Delaware and New Jersey complaints fell squarely within the capacity exclusion because the allegations “in any way” involved Krivulka’s alleged wrongful acts in his capacity as a director/member/manager of uninsured entities (with Akrimax “front and center” in all claims).
  • Berkley properly preserved its defenses: repeated, express reservations of rights—including repeated recitation of the capacity exclusion—defeated Griggs estoppel.
  • Fireman’s Fund forfeiture principles did not apply because Berkley’s denial rested on a correct application of an exclusion, and there was no bad-faith breach of a coverage obligation.
  • Berkley therefore had the right, under these circumstances, to refuse to contribute to the settlement of uncovered claims.

The Court affirmed as modified the Appellate Division’s judgment, including leaving undisturbed the Appellate Division’s remand for an award of counsel fees up to July 7, 2021 (an issue Berkley did not cross-petition).

3. Analysis

3.1. Precedents Cited

A. Interpreting broad exclusions: Flomerfelt v. Cardiello vs. Norman Int’l, Inc. v. Admiral Ins. Co.

The Court’s coverage analysis turns on a distinction it has emphasized in prior coverage cases:

  • In Flomerfelt v. Cardiello, 202 N.J. 432 (2010), the exclusion (“arising out of” controlled substances) was treated as requiring a causal nexus. Because causation of the injury was genuinely disputed (drugs vs. alcohol vs. other causes), the Court could not resolve indemnity on summary judgment and found at least a potential for covered claims triggering a duty to defend.
  • In Norman Int’l, Inc. v. Admiral Ins. Co., 251 N.J. 538 (2022), the exclusion used multiple disjunctive connectors (“arising out of, related to, caused by, contributed to by, or in any way connected with”), and the Court held that the broad, disjunctive text did not demand a causal relationship. Critically, the Court stated: “Because the exclusion test is disjunctive, each phrase in the exclusion must be considered separately, any one of which would be sufficient to trigger the exclusion.” Id. at 555.

Mist Pharmaceuticals treats the policy’s capacity exclusion as “closely analogous” to Norman International, not Flomerfelt. The Court thus rejected any requirement that Berkley prove a causal nexus between the uninsured-capacity acts and the alleged loss; the operative trigger is whether the claim “in any way” involved wrongful acts committed in an uninsured capacity.

B. Narrow construction, but no “strained” ambiguity: core interpretive rules

The Court restated standard New Jersey insurance interpretation principles, citing: Mem’l Props., LLC v. Zurich Am. Ins. Co., 210 N.J. 512 (2012); Rodriguez v. Shelbourne Spring, LLC, 259 N.J. 385 (2024); Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165 (1992); Chubb Custom Ins. Co. v. Prudential Ins. Co. of Am., 195 N.J. 231 (2008); Princeton Ins. Co. v. Chunmuang, 151 N.J. 80 (1997); Am. Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J. 29 (1998); Stafford v. T.H.E. Ins. Co., 309 N.J. Super. 97 (App. Div. 1998); and Longobardi v. Chubb Ins. Co., 121 N.J. 530 (1990).

These authorities supply two guardrails that structure the opinion: (1) exclusions are construed narrowly and ambiguities resolved in favor of coverage; but (2) courts will not manufacture ambiguity through “far-fetched” readings or strained constructions that defeat clear text. The Court placed the dissent’s “dual capacity” coverage reading on the “strained” side of that line.

C. Forfeiture and estoppel limits: Fireman’s Fund, Griggs, and reservation-of-rights doctrine

Mist argued Berkley could not rely on the exclusion because Berkley allegedly acted inconsistently—paying 10% of defense costs for a time, then declining coverage/settlement participation—and therefore (i) forfeited settlement-control rights under Fireman’s Fund, and (ii) was estopped under Griggs.

  • Fireman’s Fund Insurance Co. v. Security Insurance Co., 72 N.J. 63 (1976), involved an insurer that clearly owed coverage and whose bad faith was undisputed. In that setting, the Court held the insurer forfeited settlement-control rights. Mist Pharmaceuticals limits Fireman’s Fund to cases of breach/bad faith in the face of actual coverage obligations, and holds it “simply inapplicable” where an exclusion correctly bars coverage.
  • Griggs v. Bertram, 88 N.J. 347 (1982), estopped an insurer that knew a basis to disclaim but failed for an unreasonable time to warn the insured of a potential disclaimer. In Mist Pharmaceuticals, repeated reservations—no fewer than ten restatements, with repeated full-text quotation of the capacity exclusion and repeated nonwaiver language—defeated any claim of justifiable reliance or prejudice.
  • The Court relied heavily on Passaic Valley Sewerage Commissioners v. St. Paul Fire & Marine Insurance Co., 206 N.J. 596 (2011), which approved reservation-of-rights letters as “proper defense mechanisms” and held that “a good-faith challenge to coverage is not a breach of an obligation to defend.”

D. Standard of review and “complaint allegation” method

The Court applied de novo review for summary judgment and policy interpretation, citing In re Est. of Jones, 259 N.J. 584 (2025); Padilla v. Young Il An, 257 N.J. 540 (2024); and AC Ocean Walk, LLC v. Am. Guar. & Liab. Ins. Co., 256 N.J. 294 (2024). On scope-of-exclusion, it endorsed the Appellate Division’s approach focusing on the allegations in the underlying complaints, noting that the discovery produced did not alter the conclusion that the claims fell within the exclusion.

The Court also distinguished situations governed by Burd v. Sussex Mut. Ins. Co., 56 N.J. 383 (1970), where coverage depends on a factual issue not resolved in the underlying trial; here, by contrast, the capacity exclusion’s application was driven by the pleaded structure of the claims (self-dealing through uninsured-entity control), not a “trial-only” fact.

3.2. Legal Reasoning

A. The capacity exclusion’s operative breadth: “in any way involving” + disjunctive structure

The key textual move is the Court’s insistence that the exclusion is disjunctive: “based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving” wrongful acts in an uninsured capacity. Under Norman International, each phrase can independently trigger the exclusion.

The Court then selects the broadest hook—“in any way involving”—to avoid importing a causation requirement. It expressly rejects the Appellate Division’s “but for” causation gloss as unnecessary in this case (while leaving open whether causation would ever matter under different exclusion language or factual settings).

B. “Wrongful Act” definition expands the exclusion’s sweep

The policy defined “Wrongful Act” broadly (breach of duty, neglect, error, misstatement, omission, or act) committed by insured persons “in their respective capacities as such,” and the exclusion then removes losses connected with wrongful acts committed while serving as a director/officer/member of any other entity that is neither an insured entity nor an outside entity.

Given that the underlying pleadings portrayed Krivulka’s alleged Akrimax governance and related-entity control as the mechanism of the scheme, the Court concluded that there was “no allegation against Mist Pharmaceuticals—or against Krivulka as a director, member, or manager of Mist Pharmaceuticals—that is unrelated to Krivulka’s capacity” with Akrimax or other uninsured entities. That linkage was decisive.

C. Rejecting the dissent’s “dual-capacity parsing” approach

The dissent argued the exclusion should bar only those portions of loss attributable to uninsured-capacity acts, requiring allocation between insured and uninsured roles and construing ambiguity in favor of coverage. The majority rejected that on two grounds:

  • Textual: the clause excludes any claim “in any way involving” uninsured-capacity wrongful acts; thus even claims also involving insured-capacity conduct are swept in.
  • Doctrinal: the dissent’s reading was not a “fair interpretation” creating ambiguity under Flomerfelt; it was, in the majority’s view, an attempt to rewrite the bargain.

The majority also distinguished the dissent’s out-of-state cases in a footnote, emphasizing that the exclusion language in those decisions was not analogous to Berkley’s “in any way involving” formulation.

D. Forfeiture and estoppel: why the insurer’s settlement refusal stood

The Court’s forfeiture/estoppel analysis is structured around the presence of a correct, properly preserved exclusion:

  • No Fireman’s Fund forfeiture without coverage and bad faith: where the policy does not cover the claim, an insurer’s refusal to fund a settlement of uncovered claims is not a breach of duty and does not strip the insurer of contractual defenses.
  • No Griggs estoppel without unreasonable silence and reliance: Berkley repeatedly quoted the exclusion and repeatedly stated that nothing in its correspondence constituted waiver/estoppel; Berkley also pleaded the exclusion as a defense in its answer well before settlement. In that procedural and communications record, Mist could not show justifiable reliance on a belief that Berkley would indemnify.

3.3. Impact

Mist Pharmaceuticals materially clarifies New Jersey insurance law in at least four practical ways:

  1. Capacity exclusions with “in any way involving” language can operate as near-total bars when the underlying narrative centrally involves conduct in uninsured roles—even if the insured entity is also alleged to have benefitted or participated.
  2. Courts will treat disjunctive exclusion phrasing as independently operative triggers (per Norman International), which incentivizes insurers and insureds to negotiate narrower connectors if they intend causation/attribution limits.
  3. Reservation-of-rights practice is reinforced as the key anti-estoppel tool: repeated, clear ROR letters that identify the specific exclusion and disclaim waiver/estoppel can defeat Griggs arguments even where the insurer initially pays some defense costs.
  4. Settlement-consent disputes will be filtered through the coverage question first: if a claim is excluded, refusal to consent or fund settlement ordinarily will not be deemed “unreasonable,” and courts may never reach allocation/reasonableness-of-settlement inquiries.

For policyholders and brokers, the case underscores the underwriting/placement importance of (i) defining “outside entity,” (ii) limiting the breadth of “capacity” exclusions, and (iii) anticipating multi-entity enterprise risk where principals operate interlocking companies.

For insurers, the decision validates a two-track approach: provide limited defense-cost contributions while reserving rights, and later deny indemnity if the exclusion applies—so long as the insurer’s communications consistently preserve defenses and do not create reasonable reliance.

4. Complex Concepts Simplified

  • Claims-made policy: coverage is generally triggered when a claim is first made and timely reported during (or shortly after) the policy period, not when the underlying conduct occurred.
  • Duty to defend vs. duty to indemnify: the duty to defend is broader and can exist if there are potentially covered claims; indemnity is narrower and depends on whether the loss actually falls within coverage after applying exclusions.
  • Capacity exclusion: a D&O provision that denies coverage when the insured person is sued for acts done in a different role—e.g., as a manager/director/member of an uninsured entity—rather than for acts done as a director/officer of the insured entity.
  • Disjunctive exclusion wording: when an exclusion lists multiple triggers separated by “or,” any single trigger can bar coverage. Broad triggers like “in any way involving” can be decisive without proving a cause-and-effect chain.
  • Reservation of rights: a letter in which an insurer provides a defense or partial payments while expressly preserving the right to later deny coverage based on specified policy provisions.
  • Estoppel (in this context): the insurer can be prevented from denying coverage if it unreasonably delays warning of a potential disclaimer and the insured reasonably relies to its detriment (the core Griggs concern).
  • Forfeiture (in this context): an insurer that breaches obligations in bad faith may lose contractual rights such as settlement control (the core Fireman’s Fund concern).

5. Conclusion

Mist Pharmaceuticals, LLC v. Berkley Insurance Company establishes a strong, text-centered rule for New Jersey D&O litigation: where a capacity exclusion uses broad, disjunctive phrasing—especially “in any way involving”—courts will enforce it to bar coverage when the pleaded claims are intertwined with alleged wrongful acts committed in uninsured capacities, without importing a causation requirement.

The decision also tightens the boundary lines of policyholder protections under Fireman’s Fund Insurance Co. v. Security Insurance Co. and Griggs v. Bertram: forfeiture and estoppel are not shortcuts around a correctly applicable exclusion when the insurer has repeatedly reserved rights and consistently disclaimed waiver/estoppel. In that setting, an insurer may refuse to contribute to settlement of uncovered claims, and courts may resolve the dispute at the coverage stage without reaching settlement-reasonableness or allocation issues.