Major shareholder exclusion

The major shareholder exclusion is a D&O (directors and officers) exclusion that bars claims by a shareholder whose stake exceeds a threshold set in the policy. The standard wording excludes any claim brought by or on behalf of a shareholder holding, directly or indirectly, more than 15% of the policyholder's capital or voting rights. The threshold varies from policy to policy: 10% in some wordings, more in others. The logic is borrowed from the insured versus insured exclusion. A major shareholder often sits on the board through its representatives, has sway over the directors it is suing and may have an interest in turning an investment loss into a D&O claim. The insurer does not want to fund a dispute between shareholders, and it fears collusion between plaintiff and defendant. Two drafting points decide how far the clause really reaches. First, the threshold calculation: a direct holding or one through controlled companies, taken alone or in concert with other holders, measured on the date of the claim or of the wrongful act. Then the carve-backs. Many policies restore cover when the shareholder acts without the solicitation, assistance or active participation of an insured. Some also restore it when the claim takes the form of a derivative action, the action sociale ut singuli under French law, whose proceeds go to the company. In private equity, the exclusion hits the most likely case: the fund holding 60% of the target is the one that will sue the executive it appointed after a failed acquisition. Policies written for funds handle the issue separately, with their own cover for directors placed on portfolio company boards.