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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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