Ninth Circuit: Contractual Liability Exclusion Does Not Apply to Each Cause of Action in Lawsuit

The United States Court of Appeals for the Ninth Circuit, applying Nevada law, held that the district court erred in treating breach of contract, fraud, and quantum meruit causes of action in the same suit as a single “Claim” barred by the policy’s contractual liability exclusion. Las Vegas Sands, LLC v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., No. 24‑6518, 2025 WL 3754348 (9th Cir. Dec. 29, 2025).

The insured was sued in Nevada state court for breach of contract, fraud, and quantum meruit based on alleged oral promises to compensate the plaintiffs for services rendered, prompting the insured to seek coverage under its D&O policy. The insurer denied coverage for the lawsuit based on the application of the policy’s contractual liability exclusion, which barred coverage for claims “alleging, arising out of, based upon or attributable to any actual or alleged contractual liability of the [insured] under any express contract or agreement.” After the insurer denied coverage, the insured filed suit against the insurer. The district court granted summary judgment to the insurer, concluding that the suit was barred from coverage by the policy’s contractual liability exclusion.

On appeal, the Ninth Circuit evaluated each cause of action separately and determined that the policy’s contractual liability exclusion may have precluded coverage for the breach of contract claim, but it did not automatically preclude coverage for the quantum meruit and fraud claims because those claims did not necessarily “arise out of” an express contract. The court observed that the insurer had not identified any case “under Nevada or California law suggesting that a complaint’s inclusion of a non-covered cause of action bars coverage for the defense of the entire action.” Therefore, the court vacated the district court’s decision and remanded the case for the district court to separately analyze each claim and assess the applicability of the contractual liability exclusion to the fraud claim and the applicability of the policy’s profit or advantage exclusion in light of the adverse judgment entered against the insured in the underlying litigation, as well as other coverage defenses asserted by the insurer.