On 24 February 2025, a US court found that an insurance claim by a hospital of $2.5 million in legal costs incurred in responding to state probes into its Covid-19 vaccine distribution programme was limited to the amount of $1 million because of a policy sublimit for regulatory cover.
The court found that an insured cannot recover amounts above a sublimit providing a “maximum” limit for a type of claim by asserting that other insuring clauses were triggered. Allowing a claim that is within the meaning of a sublimit to remain governed by the overall policy limit would render the sublimit ineffective. The very concept of a sublimit is to cap an insurers exposure at an amount below the policy limit if a particular type of covered peril caused the loss. The court found that the unambiguous language of the policy imposed no further obligation on the insurer to pay for additional costs above $1 million.
The directors and officers policy included cover for the insured’s defence costs which the insured might become legally liable to pay on account of any regulatory claim for a regulatory wrongful act. A regulatory claim included “a search warrant, subpoena, notice of investigation, or contact letter … brought by or on behalf of federal, state or local governmental, regulatory or administrative agency or entity for a regulatory wrongful act”. In the context, a regulatory wrongful act was any actual or alleged violation by the insured of responsibilities, obligations or duties imposed by law.
The maximum sublimited liability for all defence costs on account of regulatory claims was $1 million as part of the maximum aggregate limit of liability.
The parties agreed that the defence costs related to a regulatory claim. The insured alleged that the claim triggered multiple other insuring clauses so that the sublimit did not apply.