‘Insured v. Insured’ Exclusion Imposed No Temporal Limitation, U.S.D.C. N.D.Cal. Rules

 In a coverage lawsuit arising out of Flora Bioscience Inc.’s former director’s complaint against fellow directors for a fiduciary breach of duty, the District Judge ruled Scottsdale Insurance Company did not act in bad faith when it denied coverage for a claim concerning two insureds—despite the plaintiff serving as an insured for only three weeks and initiating both suits before and after this period.

Terry Gross, a shareholder for Flora Bioscience Inc. (“Flora”), initially pushed the company to take legal action against Flora’s former CEO and director, as well as two other directors for their participation in alleged company mismanagement. Following the resignation of the three directors in 2017 and the rest of the board in 2019, Gross was appointed to the board as Flora’s sole director. He served in the position for three weeks before resigning after failing to secure Directors and Officers liability coverage.

After Gross’s resignation, he sued the three directors individually and on behalf of Flora. Eventually, Gross settled for $4.5 million but did not collect the settlement directly from the directors in exchange to pursue Scottsdale Insurance Company (“Scottsdale”), the business and management indemnity policy provider during the initial claim period, for the settlement amount.

However, District Judge Edward J. Davila ruled against Gross in his lawsuit against Scottsdale because the policy excluded “insured. v. insured” claims. In explaining his reasoning, Judge Davila stated, “Neither the insured v. insured exclusion nor the definition of ‘insured’ imposes a temporal limitation on who constitutes an insured. Once a person becomes a director, they are an insured, and any claim they have filed or will file is excluded from coverage." (Hope Patti. Med Co. Director’s Fiduciary Claims Not Covered, Judge Says. Law360. www.law360.com/insurance/articles/2515269?nl_pk=b33b8803-ed03-48c9-a0b3-667d840ac471&utm_source=newsletter&utm_medium=email&utm_campaign=insurance&utm_content=2026-08-20&read_main=1&nlsidx=0&nlaidx=0).