In the USA a directors and officers policy issued to a man who later pleaded guilty to selling $1.9 million in phony stock was voided for non-disclosure.

The policy taken out and renewed included a policy application where the director stated he was unaware of any acts, errors or omissions that may be grounds for future claims against the company or any individuals associated with the company within the preceding three years. The insured also said that none of the prospective insureds had been involved in litigation involving any deceptive trade practices during that period.

At the relevant time the securities commissioner had issued a cease-and-desist order directing the company to stop selling what the commissioner said were unregistered securities. There was also an indictment for securities and mail fraud, for selling stock representing that the company had customers, sales contracts and purchase orders when it did not.

The court had no trouble finding that the policies were void from inception due to the misrepresentations.

[Continental Casualty v Gargoyles Inc. et al., case number 1:14-cv-01183, in the U.S. District Court for the District of Maryland]