Does D&O Insurance Cover Restitution Claims?

– By Brit Weimer

Coverage for most D&O policies is not triggered without a covered “loss.” Coverage for loss is usually limited to monetary settlements and judgments. See Britton Weimer, “Management Liability Coverages: EPL and D&O Insurance Demystified,” Colorado Lawyer (January-February 2025).

The definition of “loss” usually excludes things like fines, penalties, taxes, and uninsurable damages. For example, in Genesis Insurance Co. v. Crowley, 495 F.Supp.2d 1110, 1118 (D. Colo. 2007), “loss” excluded “criminal or civil fines or penalties imposed by law, multiplied portions of damages in excess of actual damages, taxes, or any matter which may be deemed uninsurable under the law pursuant to which this Policy shall be construed.”

With D&O insurance, the concept of “loss” can depend on the plaintiff’s status as a shareholder, officer, or director. For instance, in ClearOne Communications, Inc. v. National Union Fire Insurance Co. of Pittsburgh, 494 F.3d 1238, 1253 (10th Cir. 2007), the court held that the dilution of a director’s stock due to a shareholders’ suit settlement was not a covered loss under the D&O policy because the loss was suffered in his capacity as a shareholder, not as a director.

In Level 3 Commc’ns Inc. v. Fed. Ins. Co., 272 F.3d 908, 911 (7th Cir. 2001), the court held that “loss” under a D&O policy does not extend to most claims for restitution: “An insured incurs no loss within the meaning of the insurance contract by being compelled to return property that it had stolen, even if a more polite word than ‘stolen’ is used to characterize the claim for the property’s return.”

Though widely cited in other jurisdictions, it is unclear if the Level 3 holding is consistent with Colorado law. In Genesis Insurance, Judge Miller acknowledged that case law from other jurisdictions supported the proposition that insurable damages do not include restitution of disgorgement of property wrongfully acquired. 495 F.Supp.2d at 1118. However, he also observed that “none of the parties has directed me to any authority indicating that this is the law in Colorado and I have found none.” Id.

If you would like help evaluating the pros and cons of submitting a D&O or CGL insurance claim on behalf of the association, the experienced lawyers at Moeller Graf are available to assist. This information should be viewed as informational and not direct legal advice.