No Duty to Defend or Indemnify Due to Securities Exclusion

Applying Florida law, a federal district court has held that an insurer owed no duty to defend or indemnify its individual insureds because an exclusion for claims arising from the purchase or sale of securities barred coverage.  Colorado Boxed Beef Co. v. Evanston Ins. Co., 2019 WL 77376 (M. D. Fla. Jan. 2, 2018).

The individual insureds, officers and directors of a beef company, were sued for making misrepresentations and omissions that allegedly drove down the stock price of a company in which they purchased shares.  The individual insureds tendered the lawsuit under their D&O policy.  The insurer denied coverage based on an exclusion in the policy for claims “based upon, arising out of or in any way involving . . . the actual, alleged or attempted purchase or sale, or offer or solicitation of an offer to purchase or sell, any debt or equity securities.”

The court granted the insurer’s motion to dismiss the coverage litigation that the individual insureds filed, holding that the exclusion barred coverage for the underlying lawsuit.  In so holding, the court noted that the entire complaint sought to revoke, rescind, and obtain damages for the sale of stock in the company.  The court held that each of the seven causes of action in the underlying action was connected directly to the stock purchase agreement that the individual insureds allegedly breached and falsely induced the plaintiffs to execute.  Although the individual insureds argued that the exclusion did not apply because some of the alleged activity both preceded and continued after the execution of the stock purchase agreement and because one of the individual insureds was not a party to the agreement, the court rejected these arguments.  The court explained that the heart of the issue in the underlying action was the alleged misrepresentations and omissions of material fact by the individual insureds relating to the securities sales, not their other alleged activities.  Even though the complaint contained additional allegations of misconduct, the alleged misrepresentations and omissions during negotiations of the agreement were central to each of the causes of action in the underlying lawsuit.  The other alleged misconduct formed part and parcel of the alleged fraudulent inducement of the stock purchase.  As such, the exclusion applied, and the court concluded that the insurer had no duty to defend or indemnify the individual insureds.