It was not a very happy new year for Chipotle having been slapped with a shareholder class action lawsuit for “having known the fast food chain had inadequate safety practices but lied and omitted material facts in reports to stockholders".
Read the actual lawsuit here: "Susie Ong v. Chipotle Mexican Grill, Inc."
While the ink is not yet dry on this lawsuit, it does raise an interesting point about a relatively standard exclusion in a D&O policy – the Bodily Injury/Property Damage Exclusion. Virtually every policy will have this exclusion since coverage for “bodily injury" to third parties is meant to be covered through a Commercial General Liability (CGL) policy.
There is a key difference in the language at the beginning of these exclusions which needs attention, especially if a “bodily injury” event can give rise to a shareholder claim for loss of a company’s enterprise value. For example, the “bodily injury/property damage” exclusion may eliminate coverage for claims either “for bodily injury...” or “based upon or arising out of bodily injury....” The “for” wording is much more narrow since it excludes only claims by a person who suffers the bodily injury. The “absolute” or “arising out of” language could also exclude, for example, a secondary derivative claim by shareholders seeking recovery from directors and officers for loss incurred by the corporation as a result of bodily injury suffered by third parties.
Carefully looking at the Management Liability coverage your company purchases is an important part of the risk management program efforts. Let me know if there are any questions you may have regarding the coverage your company purchases. As fee-based consultants we are engaged regularly by companies of all sizes for coverage and exposure reviews.
About the Author
Albert Sica is the Managing Principal of The ALS Group. You can read more about Al or contact him here. Click here to request more information about The ALS Group.