Case:   The Marbella Condominium Association et al v. RSUI Indemnity Company
             No. 16-cv-80987-BLOOM/Valle
             United States District Court, S.D. Florida

In an action applying Florida law, a federal district judge ruled in favor of a Directors and Officers liability insurer, finding that the "insured versus insured" exclusion applied to bar both a defense and coverage of an underlying action.

In the underlying action, two condominium owners – one of which was a past condominium president – sued a contractor and the Marbella Condominium Association, alleging improper installation of hurricane impact windows and sliding glass doors. At the root of the problem was the contractor's installation of green rather than gray glass, the latter of which was required by City Ordinance. The underlying action was tendered to the Association's Directors and Officers liability insurer, which tender was rejected based on various exclusions. Although there were several attempts to amend the underlying complaint so that it would trigger coverage, the insurer continued to assert its exclusions, and raised the "insured versus insured" exclusion. Ultimately, the underlying action was settled in mediation. The underlying Defendants later sued the insurer in federal court for breach of the insurance contract.

The federal judge ruled on the pleadings, recognizing that an insurance policy under Florida law is interpreted under general rules of contract. The court first noted unambiguous language in an insurance policy will be given its plain meaning. The court then focused on the "insured versus insured" exclusion, as it found it dispositive. The policy defined Insured to include any "Insured Organization and/or any Insured Person." An Insured Person included "any past, present or future, director, officer, trustee, Employee, or any committee member of a duly constituted committee of the insured organization." The exclusion stated "The Insurer shall not be liable to make any payment for loss in connection with any Claim made against any Insured: ... Brought by or on behalf of any Insured, except:

Any Claim brought by any past, director, officer, trustee, manager or equivalent executives of the Insured Organization who have not served as a director, officer, trustee, manager or equivalent executive for at least three (3) years prior to the date such Claim is first made, and if the Claim is brought and maintained totally independent of and without the solicitation, assistance, active participation or intervention of the Insured Organization or any Insured Person not described in this paragraph....

Finding the exclusionary clause clearly prohibited coverage for claims brought by one Insured against another, the court recognized that the underlying issue was whether either of the underlying plaintiffs were an Insured under the policy, as the defendant Marbella Condominium Association was clearly an Insured Organization.

The court first noted that there appeared to be no question that one of the underlying plaintiffs – the past president – was an Insured, while the other plaintiff was not. The insurer argued that the presence of any Insured making a claim against any other Insured barred coverage for the entire underlying action. Plaintiffs, however, argued that the presence of one plaintiff who is not a defined Insured is sufficient to avoid the exclusion. Additionally, plaintiffs argued that the differences in damages alleged by the two underlying defendants, i.e., they owned different units, triggered the policy's allocation provision, thus requiring the parties to allocate covered versus uncovered losses.

Reviewing two Florida federal court cases, the court observed when the underlying action involved a claim by both an Insured and a non-insured plaintiff from its inception, the presence of the Insured plaintiff was found to bar coverage for the entire underlying action.

In the case before the court, one Insured was a plaintiff at the outset of the underlying litigation, and the court ruled coverage for the underlying action was barred in its entirety. Additionally, the court rejected plaintiffs' argument that because the underlying plaintiffs had asserted distinct claims, the allocation provision applied to afford a defense and at least some coverage. Rather, the court found that the allocation provision applied only after coverage was found, and further rejected the notion that the claims were distinct because they involved separate units, since they both sprang from the alleged faulty installation of the glass. Accordingly, the Directors and Officers liability policy was not required to provide either a defense or coverage.

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