Do D&O Policies Cover Claims for Property Damage?

- By Brit Weimer

Most D&O policies have exclusions for property damage claims. Often the D&O exclusion extends to claims having an indirect connection to property damage, such as consequential economic losses arising from damage to tangible property.

The rationale for the D&O property-damage exclusion is to avoid significant overlap with CGL insurance. CGL Coverage A provides insurance for most claims of accidental damage to a third-party’s tangible property. Thus, the argument for a broad construction of the D&O exclusion is strongest when it falls within the zone of CGL coverage. However, the argument for a broad construction is weakest when it would fall outside the scope of CGL coverage – for example, if the damage is to the insured’s own property, or if the damage is intangible, or if the damage is not accidental.

Some D&O insurers seek to extend their property-damage exclusion to claims having some lateral indirect connection to property damage, such as a board error in investigating the source of water leakage causing increased financial losses. However, that strained construction makes little sense, since most of what community association boards do has an indirect impact on real property. Thus, such a broad construction of the property-damage exclusion could make the D&O coverage illusory.

Finally, the fact that parts of a complaint allege property damage does not eliminate coverage for other parts of the complaint that claims other types of damage, such as economic loss not covered by tangible property damage.

This information should be viewed as informational only and not direct legal advice. If you have an issue with a specific matter, the experienced lawyers at Moeller Graf are available to assist.