The Kentucky Housing Corporation, a political subdivision of the Commonwealth of Kentucky, renewed an employment agreement with its executive director which was ratified and approved by its board members. Acting through the board members, it fired the man four months later and, allegedly, refused to pay benefits under the agreement.

The terminated official brought a wrongful discharge/breach of contract suit against the corporation, its directors and officers. Lloyd's of London denied coverage, based on the "insured v. insured" exclusion in the directors and officers liability policy it had issued. A stipulated settlement and dismissal of the action was entered, whereupon Lloyd's sought a federal court declaration that the D&O policy did not provide coverage. The insureds counterclaimed and sought damages, settlement costs, charges and expenses that they incurred.

The pertinent exclusion barred coverage of a suit brought by "any persons who were, now are, or shall be....(directors)." The court found it clear that the position held by the terminated employee was within the scope of "officers and directors," as defined in the policy. At issue here was whether the exclusion applied when the terminated person brought suit after his discharge.

The court concluded that there was no ambiguity in the "insured v. insured" exclusion upon which Lloyd's based its denial. Although the man who brought the lawsuit was not one of the "directors/officers" when he did so, he had been up to the time of his discharge. Hence, the pertinent exclusion barred coverage of his complaint.

The motion of the insurer for summary judgment was granted; that of the corporation, its directors and officers was denied.

(FOSTER ET AL., Plaintiffs v. KENTUCKY HOUSING CORP. ET AL., Defendants. United States District Court for the Eastern District of Kentucky at Frankfort. No. 92-115. April 13, 1994. CCH 1994 Fire and Casualty Cases, Paragraph 4943.)