A latest Ninth Circuit determination—Las Vegas Sands, LLC v. Nat’l Union Fireplace Ins. Co. of Pittsburgh, PA, 2025 WL 3754348 (ninth Cir. Dec. 29, 2025) —reversed a Nevada district court docket’s ruling in favor of a D&O insurer that had refused to cowl a lawsuit asserting each contract and tort claims below the coverage’s contractual legal responsibility exclusion. The ruling is a well timed reminder for policyholders about why they need to fastidiously scrutinize protection denials, particularly overbroad readings of contract exclusions, and contemplate pursuing insurers who wrongfully deny protection.
Background
A on line casino and resort firm sought insurance coverage protection from its administrators and officers (D&O) legal responsibility insurer, in search of protection for over $20 million in protection and settlement prices incurred in a lawsuit introduced in Nevada state court docket for breach of contract, fraud, and quantum meruit.
The insurer denied protection based mostly on a breach of contract exclusion. That exclusion offered that the insurer needn’t cowl claims “alleging, arising out of, based mostly upon or attributable to any precise or alleged contractual legal responsibility of the corporate below any categorical contract or settlement.” Protection litigation ensued.
The district court docket dominated in favor of the insurer, reasoning that it “can’t be disputed that the [underlying litigation] was a declare arising out of an alleged contractual legal responsibility.” Las Vegas Sands, Inc. v. Nat’l Union Fireplace Ins. Co. of Pittsburgh, Pa., 2024 WL 4279382, at *3 (D. Nev. Sept. 23, 2024).
The policyholder appealed and received. In rejecting the insurer’s overbroad studying of the contract exclusion, the Ninth Circuit identified that the criticism included each coated and purportedly excluded causes of motion. It additionally criticized the insurer for citing no caselaw suggesting that the presence of excluded causes of motion bars protection for protection of all the motion and, in actual fact, defined the insurer’s personal circumstances reached the alternative conclusion.
Trying on the specifics of the underlying lawsuit, the court docket reasoned that it was “not evident” that the exclusion “ought to have precluded protection of protection or settlement prices arising from the quantum meruit and fraud claims.” The Ninth Circuit reasoned that the quantum meruit declare “couldn’t have arisen out of the” contract as a result of below Nevada legislation, “quantum meruit claims aren’t actionable the place there’s an categorical contract or settlement.” The fraud declare likewise offered an inadequate nexus to contractual legal responsibility to set off the exclusion. On remand, the district court docket was required to undertake a “separate evaluation” of every reason behind motion.
Takeaways for Policyholders
Sands is a well timed reminder for policyholders on 4 fronts.
First, policyholders ought to pay shut consideration to the textual content of the governing insurance coverage coverage. For instance, the relevant exclusion right here had “arising out of” causation language that’s broader than different exclusions out there in the marketplace. The relevant exclusion was additionally about “categorical” contracts or agreements, which may, relying on the circumstances differ from contracts that is perhaps implied by legislation. Small linguistic variations like this may appear immaterial however they will have massive—even outcome-determinative—penalties.
Second, policyholders shouldn’t take protection denials at face worth as a result of such denials might be—and sometimes are—unfounded. That is notably true for contract exclusions, even these with broad causation language just like the coverage in Sands. Because the Ninth Circuit made clear, many states refuse to implement contract exclusions on a blanket foundation and as an alternative require a extra nuanced method, just like the “separate evaluation” of particular person causes of motion endorsed by the Ninth Circuit below Nevada legislation.
Third, policyholders ought to keep in mind that courts give them the good thing about the doubt in protection litigation over exclusions, which have to be construed narrowly in opposition to the insurer that drafted the coverage and in favor of protection. Likewise, to set off a legal responsibility insurer’s protection obligations, a policyholder want solely present the potential for protection, not that the coverage, in actual fact, covers the claims or losses as alleged. These are extraordinarily highly effective instruments that may be leveraged in shut or contested questions of coverage interpretation.
Lastly, policyholders shouldn’t be cautious about standing as much as insurers who wrongfully deny protection. Right here, by pursuing the insurance coverage coverage rights it was owed in trial and appellate court docket, the policyholder might find yourself with substantial insurance coverage proceeds that in any other case would have been wrongfully withheld by its insurer. Consulting with skilled brokers, protection counsel, and different danger professionals early on within the claims course of—and particularly after receiving a denial letter tied to an exclusion—may help problem the overbroad utility of exclusions and guarantee firms and their administrators and officers are maximizing the worth of their D&O insurance coverage protection.