Signing a contract without indicating it’s for your company can get you sued personally

I recently ran across a case from California where:

• a company officer signed a letter agreement, on his company’s letterhead, but with no indication of his title;

• the company backed out of the deal;

• the other side sued both the company and the officer in his personal capacity; and

• the company’s D&O insurance carrier successfully denied coverage, on grounds that D&O coverage doesn’t include garden-variety breaches of contract; and

• the insurance carrier therefore didn’t have to pay for the officer’s litigation defense expenses.

See August Entertainment, Inc. v. Philadelphia Indemnity Ins. Co., 146 Cal.App.4th 565 (2007).

Of course, there was a wrinkle, one that likely didn’t sit well with the court. The two companies had settled their dispute. Under the settlement, the officer agreed to allow a $2 million judgment to be entered against him. The plaintiff agreed to look solely to the insurance carrier for recovery of the money, and to dismiss its claims against the officer’s company, which was now insolvent.

Regardless, the court had no trouble holding that the D&O policy did not cover the plaintiff company’s claim for breach of contract.