Goggin and the D&O Insurance ‘Capacity’ Exclusion: A Potential Coverage Gap for Private Equity and Other Investor-Designated Directors
This Eye on the Experts article discusses a Delaware court ruling that a typical directors and officers policy’s “capacity” exclusion may preclude coverage for acts that a director-designee takes in anything but his exclusive capacity as the insured company’s board member and fiduciary.
Private equity sponsors, hedge funds, and other investment entities who bargain for seats on their portfolio companies’ boards often assume that their director-designees will be fully covered by the portfolio companies’ directors and officers (“D&O”) insurance policies. But as a Delaware court recently ruled in Goggin v. National Union Fire Insurance Company, a typical D&O policy’s “capacity” exclusion may preclude coverage for acts that a director-designee takes in anything but his exclusive capacity as the insured company’s board member and fiduciary. In other words, a designated director facing allegations that he or she acted to further the appointing sponsor’s interests, rather than solely to further the portfolio company’s, may not be covered.
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