Coverage under D&O policies is extremely narrow, as the 11th Circuit determined once again that a D&O carrier did not have an obligation to defend a common interest community Association that was sued for, among other things, breaching its fiduciary duty to the unit owners. The Eastpointe Condominium Association was sued by one of its unit owners for failing to maintain and repair common elements, as well as the roof and the air conditioning system. The unit owner complained of water intrusion, interior damage and mold growth, and sued the Association for negligence of the construction defects and breach of its fiduciary duties.
The Association notified both its general liability carrier as well as its directors and officers carrier ("D&O") of the claim. The liability carrier accepted defense of the Association but the D&O carrier denied defense and indemnity, claiming that the policy contained a "property damage" exclusion. After a trial and verdict in favor of the common interest community, the Association filed a declaratory judgment action against the D&O carrier. The Association argued that the claim is a breach of fiduciary duty, which should result in coverage, regardless of whether or not that breach resulted in some property damage. Further, the Association argued that nearly every claim against the Association would in some way involve property damage, as maintenance and repair of the common elements are the main purposes of the Association.
The 11th Circuit disagreed. The court stated that the language excluding coverage for any loss arising out of damage to property, precluded coverage under this policy because the breaches of the Association’s fiduciary duty ultimately caused property damage. Further, the court rejected the Association’s argument that coverage under the D&O policy was illusory, because it would cover claims that did not arise out of property damage. For example, the court referenced claims of slander of title, breach of the covenants, or restraint of trade that may be covered under a D&O policy, as those claims do not arise out of property damage. As such, the Association’s claims against its D&O carrier were dismissed.