It is always refreshing to find that the principle of separation of powers is alive and well in our state courts. In State of Nebraska v. United National Insurance Co., 761 N.W.2d 916 (Neb. 2009), the court held that the regulatory exclusion in National Union’s D&O insurance policy excluded coverage for a claim brought by the Nebraska Director of Insurance against the directors and officers of Amwest Surety Insurance Company, an insolvent Nebraska insurance company.
The United National Regulatory Exclusion provided:
This Policy does not apply to any claims brought by or on behalf of any insurance regulatory agency or supervisory authority, including but not limited to any state or local insurance department or Commission or any state or local Insurance Guaranty or Insolvency Fund. . . including any type of legal or equitable action which such Agency has legal right to bring as . . . Liquidator . . . of the insured . . . whether such action or proceeding is brought in the name of such Agency . . .
The court determined that the exclusion applied to the Director’s claim, rejecting the argument that the position of Liquidator cannot be considered as an “agency, authority, department, fund, or organization under the regulatory exclusion” because “the liquidator is an officer of the court and is under the authority of the court.” Id. at 920.
The court concluded that in his capacity as Liquidator, the Director carries out the regulatory and supervisory functions in regard to the business of insurance in the State of Nebraska. On this construction, the court held that “the language of the regulatory exclusion clearly applies to the liquidator in this case.” Id.
The Director charged that the regulatory exclusion was in direct conflict with the provisions of the Nebraska Liquidation Act and thus void as against public policy because the exclusion “blocks the liquidator’s ability to carry out his or her statutory duties.” Id. at 921. The court rejected the argument:
There is no direct conflict between statutory provisions and the regulatory exclusion. The liquidator argues that the statute grants the liquidator any remedies available to an insured, creditor, shareholder, or member and that the regulatory exclusion strips one of these remedies from the liquidator. The regulatory exclusion does not conflict with the statute, because under the terms of the policy, the liquidator may still have a claim against the personal assets of the directors and officers. Id.
The court admirably reaffirmed its commitment to “freedom of contract,” remarking that “it is not the province of courts to emasculate the liberty of contract by enabling parties to escape their contractual obligations on the pretext of public policy unless the preservation of the public welfare imperatively so demands.” Id. The court enjoined that “there is no statutory requirement that an insurance company carry D&O coverage,” but that “voiding the [regulatory exclusion] would undermine our policy supporting freedom to contract.” Id.
