Insurers cannot deny coverage for entire lawsuits when only some claims trigger policy exclusions, the Ninth Circuit ruled December 29.
The decision vacated a lower court ruling that had sided with National Union Fire Insurance Company in a coverage dispute with Las Vegas Sands. The heart of the dispute: whether National Union should have covered Las Vegas Sands' legal bills and settlement costs in a lawsuit brought by Richard Suen and Round Square Company over claims of breach of contract, fraud, and quantum meruit.
The case offers a practical lesson for insurers and their clients on how to handle lawsuits that mix different types of claims under a directors and officers liability policy. It also highlights the tricky question of when policy exclusions apply when some allegations in a complaint might be covered while others clearly are not.
Las Vegas Sands got sued back in 2004 by Richard Suen and his company, Round Square. The case wound through the Nevada courts for years before the state Supreme Court finally ruled in 2016 that Las Vegas Sands was indeed liable under a quantum meruit theory.
Throughout the litigation, Las Vegas Sands asked National Union to cover its defense and settlement costs under a D&O policy. The insurer said no, pointing to a provision in the policy that excludes coverage for claims arising from contractual liability under any express contract or agreement.
When Las Vegas Sands sued, a district judge agreed with National Union and granted summary judgment to the insurer. The judge decided that since the underlying lawsuit involved contract claims, the exclusion applied to knock out coverage for everything.
Not so fast, said the appeals court. Writing in a memorandum decision, the three-judge panel found that the district court made a crucial mistake by lumping all of Suen's allegations together as one “claim” under the policy.
The problem with that approach, the Ninth Circuit explained, is that under Nevada law, quantum meruit claims do not arise from express contracts at all. Quantum meruit is an equitable remedy that applies when there is no express agreement, or to prevent unjust enrichment. The court noted that if an express contract exists, you cannot even bring a quantum meruit claim in Nevada.
“The quantum meruit claim therefore could not have arisen out of the alleged express contract or agreement,” the appeals court wrote.
The Ninth Circuit also questioned whether Suen's fraud claims had any real connection to a contract. That meant the contractual liability exclusion might not bar coverage for the quantum meruit and fraud portions of the lawsuit, even if it applied to the straight breach of contract claim.
The appeals court pointed to a California case, Health Net v. RLI Insurance, which held that insurers have a duty to defend claims that are at least potentially covered, even when the same lawsuit includes claims that are not covered. The court noted that Nevada courts sometimes look to California law for guidance when Nevada's highest court has not addressed an issue.
National Union tried to argue that the policy's definition of "claim" as including an entire judicial proceeding meant it could deny coverage for everything. The Ninth Circuit was not persuaded.
The case now goes back to the district court with instructions to analyze each type of claim separately. The trial judge will need to determine whether the contractual liability exclusion bars coverage for the breach of contract allegations but allows coverage for quantum meruit and fraud.
But that is not the only issue the district court will need to sort out. The policy contains another exclusion that bars coverage when a final court ruling establishes the insured gained a profit or advantage they were not legally entitled to receive. Since the Nevada Supreme Court did rule against Las Vegas Sands in 2016, that exclusion might come into play.
The timing issue complicates things. Las Vegas Sands notified National Union about the lawsuit back in 2004, more than a decade before the final adverse ruling. The insurer argues the exclusion applies retroactively to all defense costs, which it says it could recoup under the policy's advancement provisions. The district court will need to work through when coverage obligations began, when they might have ended, and what National Union's recoupment rights really mean.
The policy structure adds another layer. National Union had no duty to actually defend Las Vegas Sands unless the company specifically asked the insurer to take over the defense, which Las Vegas Sands admitted it never did. Instead, the policy required National Union to advance defense costs to the company, with the ability to get that money back if it turned out Las Vegas Sands was not entitled to coverage after all.
National Union raised another coverage defense that the district court will need to address: whether the claim was even made during the policy period. The insurer contends that because Suen made written demands before the policy started, the whole matter falls outside coverage. Las Vegas Sands will get a chance to argue that the claim was first made during the policy period.
On remand, the district court will also need to reconsider Las Vegas Sands' claims that National Union breached its duty of good faith and fair dealing and violated Nevada's Unfair Claims Practices Act by denying coverage.
The Ninth Circuit heard arguments in the case on October 8, 2025, in Las Vegas. The three-judge panel included Circuit Judges Bennett, Sanchez, and H.A. Thomas. Their decision came in the form of a memorandum, which means it is not binding precedent for future cases but does resolve this particular dispute.
For insurance professionals, the case serves as a reminder that policy exclusions need to be applied with precision, especially when a single lawsuit alleges multiple theories of liability. A blanket denial based on one excluded claim may not hold up if other allegations in the same case could trigger coverage.
