A state’s highest court for the first time has upheld the regulatory exclusion as applied to insurance regulators.

The Nebraska Supreme Court recently ruled against the Nebraska Insurance Department’s request to invalidate a regulatory exclusion contained in a $5 million directors and officers liability insurance policy, written by Pittsburgh, Pa.-based United National Insurance.

“This case is significant for United National and the insurance industry, both for its precedential value and because it was an all-or-nothing decision about whether the insurance director was entitled to the $5 million policy limits,” Michael P. Comiskey, a partner at Locke Lord Bissell & Liddell, which handled the case in the trial court, said in a statement.

Deceased former Nebraska insurance commissioner, L. Tim Wagner, was appointed liquidator of Amwest Surety Insurance Co., an insolvent insurance company based in Calabasas. Calif., more than a decade ago. In January 2006, the liquidator filed suit against United National Insurance and GAINSCO, a Texas-based insurer dismissed from the suit. Both companies had written D&O coverage for Amwest.

The liquidator alleged that Amwest became insolvent through wrongful conduct and break of multiple fiduciary duties of its officers and directors. The liquidator, which later included Wagner’s successor, Ann Frohman, argued that the exclusion, which precluded coverage under the policy for a lawsuit he had brought against Amwest’s former directors and officers, did not apply to him when he was acting in the capacity as liquidator and that the exclusion was void as against public policy. The regulator further argued that the exclusion “blocked” the ability of the regulator to carry out statutory duties, according to the Supreme Court filing.

The Nebraska Supreme Court affirmed the Lancaster County District Court’s ruling, finding that the exclusion applied to the liquidator and that it comported with public policy.