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- On May 11, 2026, the New Jersey Supreme Court affirmed that Berkley Insurance's capacity exclusion blocked a $2 million D&O (directors and officers liability) policy payout for Mist Pharmaceuticals and its chairman in a self-dealing dispute involving more than twelve affiliated entities.
- A $12 million global settlement reached in June 2020 left the insured responsible for roughly $3 million in liability — with zero contribution from their insurer, despite a trial court initially ruling otherwise.
- Berkley's practice of sending ten or more formal reservation-of-rights notices over five years of litigation proved decisive: the court found those communications definitively defeated the policyholder's waiver arguments.
- For any executive who holds leadership roles at multiple organizations, the ruling is a direct signal that standard D&O policy coverage may contain a structural gap that most people never see until a claim arrives.
What Happened
$1,751,567.35. That's the precise dollar figure a New Jersey trial court initially ordered Berkley Insurance to pay Mist Pharmaceuticals — and it's a number that two higher courts subsequently erased entirely. According to Insurance Business America, the New Jersey Supreme Court issued its ruling on May 11, 2026, unanimously affirming the Appellate Division and delivering a complete victory to Berkley. The dispute centered on a directors and officers policy — D&O coverage is liability insurance that shields corporate executives from personal financial exposure when sued for alleged management misconduct — that Berkley issued to Mist Pharmaceuticals on April 21, 2014. That policy carried a $2 million limit covering the period from April 8, 2014 through November 30, 2015.
The underlying claims came from two investor groups — CelestialRX Investments and Krittaka Life Sciences — who alleged that Mist chairman Joseph Krivulka orchestrated a self-dealing arrangement funneling benefits through Akrimax Pharmaceuticals and more than twelve affiliated entities. Lawsuits filed in Delaware in 2015 and New Jersey in 2019 were ultimately resolved through a $12 million global settlement in June 2020. Of that total, approximately 25% — roughly $3 million — was specifically allocated to Mist Pharmaceuticals and Krivulka in his capacity as chairman. Berkley declined to contribute, citing a capacity exclusion in the policy that excluded claims arising from acts taken outside the executive's insured role at Mist. The trial court rejected that argument and entered judgment for the remaining policy limit plus $796,258.38 in attorney fees. The Appellate Division reversed. The Supreme Court agreed — creating a precedent that risk assessment professionals say will reshape how New Jersey courts read broadly worded D&O exclusions for years ahead.
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Why It Matters for Your Coverage
That reshaping of legal precedent carries direct consequences for any executive who holds board seats or management roles at more than one organization. Think of a capacity exclusion like a job-description clause built into a liability policy: coverage follows you only when you are acting in the specific, insured role named in the agreement. Step outside that role — even briefly, even at a closely affiliated company — and policy coverage can evaporate entirely, regardless of how much premium has been paid over the life of the contract.
That is the structural risk the Mist dispute puts on full display. Joseph Krivulka simultaneously served as Mist's chairman and directed operations through Akrimax and its network of related entities. When the lawsuits arrived, Berkley's policy drew a hard line: the alleged misconduct was tied to his Akrimax-facing capacity, not his Mist chairmanship. Hunton Andrews Kurth, writing in the National Law Review, described this dynamic as creating a form of "double trouble" for executives in dual-capacity roles, explaining that D&O policies can fail to protect individuals when their alleged wrongful acts are inextricably tied to their roles at uninsured entities — leaving a significant coverage gap even where the individual is clearly named as an Insured Person under the policy.
Chart: Four key dollar figures from the Berkley v. Mist Pharmaceuticals D&O dispute. The $12M total settlement dwarfs both the $2M policy limit and the $1.75M trial court award that was ultimately overturned on appeal.
The precedent reaches further than individual executives. Kennedy's Law, analyzing the Appellate Division ruling that the Supreme Court later affirmed, noted that New Jersey had never formally addressed this type of capacity exclusion before — making the decision a matter of first impression in the state. Going forward, courts will apply broad exclusionary language strictly when the wording is unambiguous and the insurer has consistently preserved its denial position throughout the claims process.
That consistent preservation carries its own lesson in risk assessment. Berkley sent no fewer than ten reservation-of-rights notices — formal communications that preserve an insurer's right to deny coverage later, even while providing a legal defense — over five years of litigation, and specifically warned at least six times that its correspondence should not be construed as a waiver. The Supreme Court found that this pattern definitively foreclosed the policyholder's estoppel and forfeiture defenses (legal doctrines arguing the insurer implicitly gave up its right to deny the claim by waiting too long to act). The paper trail was meticulous, and it won the case.
For small business owners doing an insurance comparison between standard D&O products, the practical implication is sharp. WTW's Insurance Marketplace Realities 2026 report notes that D&O pricing is currently trending flat to modestly lower on a case-by-case basis — which means executives with multi-entity exposure have a genuine market window to improve their policy coverage without a meaningful cost increase. The targeted solution coverage specialists consistently recommend is a Side A DIC policy (Difference in Conditions coverage — a supplemental layer that activates precisely when the primary D&O policy declines to pay). A properly structured Side A DIC addresses capacity-exclusion gaps directly, and in a flat-rate environment, pursuing that upgrade represents a concrete insurance savings opportunity that dual-role executives frequently miss until it is too late.
The AI Angle
Building on the coverage gap theme, the insurance industry is deploying artificial intelligence to reduce the kind of claims management disputes that defined the Berkley litigation. Underwriting platforms from firms like Verisk and Relativity6 now use machine-learning models to flag complex insured structures — including executives with board positions at multiple entities — during initial policy review. When those structures are detected, AI tools can prompt underwriters to insert more precise exclusion language or adjust pricing at issuance, reducing the ambiguity that leads to multi-year coverage battles and expensive risk assessment failures on both sides of the table.
On the claims side, AI-driven document review tools can parse thousands of reservation-of-rights letters and coverage correspondence in hours rather than months, building a clear timeline of how consistently a carrier preserved its denial position. That capability makes estoppel and waiver arguments — which already failed in the Berkley case — considerably harder to sustain going forward. As Smart Legal AI's recent coverage of AI's expanding role in legal technology explores, the combination of automated document analysis and tightening case law precedent is quietly rewriting the risk calculus for every corporate liability policy on the market. For policyholders, this means insurers will increasingly enter disputes with a far more airtight paper trail from day one — making early coverage clarity more important than ever.
What Should You Do? 3 Action Steps
Compile a complete list of every board seat, advisory position, and management role you hold outside your primary employer — then present that list to your broker and ask specifically whether each role is covered, excluded, or unaddressed by your current D&O policy. If the policy language uses broad terms like "any capacity other than as an Insured Person," treat that as a functional exclusion until you get written confirmation otherwise. Running an insurance comparison across two or three competing D&O carriers on this single point alone can reveal meaningful differences in how capacity exclusions are drafted and what you're actually buying.
Side A DIC policies (Difference in Conditions — a supplemental coverage layer that pays when the underlying D&O declines to) are specifically structured to activate in scenarios like the Berkley v. Mist fact pattern. For any executive running roles at more than one organization, this is less an optional add-on and more a foundational risk management tool. The current flat-to-declining D&O pricing environment cited in WTW's 2026 marketplace report is a practical window to pursue insurance savings by bundling or renegotiating both layers together. Ask your broker to include Side A DIC terms in any insurance comparison to make sure your supplemental coverage doesn't carry parallel capacity-based carve-outs of its own.
The Supreme Court's ruling is a direct reminder that claims management correspondence is legally consequential from the moment it arrives. When an insurer sends a reservation-of-rights letter, it is formally preserving its right to deny coverage even while defending you — not sending a routine acknowledgment. Forward each letter to a coverage attorney or experienced broker immediately, document your response, and maintain a running file of all communications. The finding that ten-plus such notices over five years definitively defeats waiver arguments shows how heavily this paper trail can weigh in court. Never assume silence or continued defense equals acceptance of coverage. Always consult a licensed insurance agent for guidance specific to your policy coverage situation before responding to any formal carrier communication.
Frequently Asked Questions
What is a D&O capacity exclusion and how can it create a policy coverage gap for executives at multiple companies?
A capacity exclusion limits D&O coverage to actions an executive takes in their specific, named insured role at the covered company. If alleged wrongdoing is connected to a different role the executive holds — such as running an affiliated entity — the exclusion can eliminate coverage entirely, even if the individual is listed as an Insured Person under the policy. The Berkley v. Mist ruling established that New Jersey courts will enforce this language strictly when it is clearly worded and the insurer has consistently reserved its rights throughout the claims management process. Executives at multiple organizations should review this language carefully at every renewal.
Can a D&O insurer legally deny a claim if I sit on boards at multiple companies without a separate DIC policy?
Yes — and the Berkley case is precisely that scenario playing out at the New Jersey Supreme Court level. When the alleged misconduct is tied to activities through an affiliated or subsidiary entity not covered by the primary D&O policy, a clearly worded capacity exclusion gives the insurer legal grounds to deny even while the individual is a named Insured Person. A Side A DIC policy (Difference in Conditions) is the most direct solution, but only if the DIC policy itself doesn't contain parallel exclusions. An insurance comparison that reviews both layers side-by-side — examining exact exclusion language rather than just limits and premiums — is the right starting point. A licensed insurance agent can help identify which structures fit your exposure profile.
What is a reservation-of-rights letter in an insurance claims management dispute, and what happens if I ignore one?
A reservation-of-rights letter is an insurer's formal notice that it is providing a defense or acknowledging a claim while explicitly preserving its right to deny coverage later based on identified policy exclusions. It is not a denial — but it is not an acceptance either. Ignoring or misunderstanding these letters is costly: the Supreme Court found that Berkley's ten-plus such communications sent over five years of claims management definitively defeated the policyholder's argument that the insurer had waived its right to deny. If you receive one, treat it as a legal document, involve a coverage attorney immediately, and do not assume that continued defense payments signal coverage acceptance.
Does adding a Side A DIC policy produce real insurance savings compared to simply buying higher D&O policy limits?
For executives with multi-entity exposure, Side A DIC coverage typically delivers better protection per dollar than increasing primary limits — because it activates in scenarios where the primary policy refuses to pay at all, including capacity exclusion situations. Raising Berkley's $2 million limit would not have changed the outcome in the Mist case, because the insurer denied the claim outright before any limit calculation applied. The insurance savings opportunity is real in the current market: WTW's 2026 marketplace report notes pricing is trending flat to modestly lower, meaning bundling a Side A DIC layer can sometimes be done for minimal incremental cost relative to the coverage gap it closes. A qualified broker should run the risk assessment numbers for your specific multi-entity structure before you decide.
How does the NJ Supreme Court's D&O ruling change risk assessment for small business directors serving on multiple boards in 2026?
The ruling establishes — for the first time in New Jersey — that capacity exclusions in D&O policies will be enforced strictly when the language is clear and the insurer has preserved its rights throughout the dispute. For small business directors, this means the standard risk assessment of "I have D&O coverage, I'm protected" is no longer adequate if you hold roles at more than one entity. The policy coverage you carry may simply not extend to alleged misconduct tied to a second or third organization. The ruling also signals that courts will scrutinize claims management correspondence closely from the earliest stages of a dispute, making documentation habits a live legal issue long before any courtroom appearance. Consult a licensed insurance professional for a policy coverage review specific to your board structure.
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Disclaimer: This article is for informational and editorial commentary purposes only and does not constitute insurance, legal, or financial advice. Facts are drawn from publicly reported court decisions and industry research sources. Always consult a licensed insurance agent or qualified attorney for personalized guidance on your specific policy coverage and risk management needs.
