In the following guest post, John McCarrick and Paul Schiavone propose that as D&O insurers seek to return to profitability by raising prices, the insurers should also revisit many of the coverage extensions that have become standard in recent years. The authors present a “wish list” of specific items they suggest insurers might want to consider; the list itself is the result of the authors’ “anonymous survey” of insurer-side professionals. My commentary on the authors’ proposals follows below. John is a partner in the law firm White and Williams LLP and leads the Firm’s Financial Lines Practice Group. Paul is a Senior Vice President at Allianz, and is the Global Head of Alternative Risk Transfer and North American Head of Corporate Long Tail Lines. I would like to thank John and Paul for allowing me to publish their article on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is John and Paul’s article.
Continue Reading Guest Post: Is it Time to Revisit the Scope of D&O Coverage?
Most public company D&O insurance policies provide coverage for the corporate entity only for “Securities Claims.” But what constitutes a “Securities Claim”? That is the question the Delaware Supreme Court addressed in a recent appeal of an insurance coverage dispute in which a bankruptcy trustee had sued Verizon for breach of fiduciary duty, unlawful payment of a dividend, and violation of the uniform fraudulent transfer act. The trial court had entered summary judgment for Verizon, ruling that the bankruptcy trustee’s claims represented “Securities Claims” within the meaning of the policy. In an October 31, 2019 decision (
D&O insurance policies sometimes contain Major Shareholder Exclusions, precluding coverage for claims brought by shareholders’ with ownership percentages above a certain specified ownership threshold. But when is the shareholder’s ownership percentage to be determined – at the time of policy inception or at the time of the claim? This issue was among the D&O insurance coverage question presented in a recent case before the Third Circuit. The appellate court, applying Delaware law, found that the exclusionary language involved was ambiguous, and therefore resolved the issue in the policyholder’s assignee’s favor. As discussed below, the appellate court’s ruling is interesting in a number of different respects.
D&O insurance policyholders sometimes bridle when the insurers take steps to try to rein in burgeoning defense expense. In that situation, the D&O insurers will often try to remind the policyholder that because defense expense erodes the limit of liability, it is in everyone’s interest for defense expense to be monitored closely. An unusual coverage action in the Western District of New York reversed the usual concerns about insurer defense cost control. The policyholder sued its D&O insurer for breach of contract, bad faith, and intentional infliction of emotional distress not for failing to pay defense costs or full defense costs, but rather for allowing the policyholder’s defense expenses incurred in an underlying criminal action to exhaust the applicable limit of liability. While it is hardly a surprise that a court concluded that an insurer that paid out its full limits cannot be held liable for breach of contract – much less bad faith or infliction of emotional distress –there are still a number of interesting aspects to this dispute and to the court’s ruling. 
One way or the other, I have been doing D&O for more than 35 years. One of the reasons I love what I do is that there is always something new and so I am always learning. This week’s new thing is a recent ruling by a federal district court ruling that a debtor’s insurer could not rely on a bankruptcy exclusion in the debtor’s D&O policy to deny coverage for an underlying claim because the exclusion violates the bankruptcy code’s probation against ipso facto provisions in executory contracts. In all my years, I don’t believe I have ever run across the bankruptcy code’s ipso facto provision prohibition, so the district court’s ruling in this case was a learning opportunity for me – and I suspect it will be for most readers as well.
In July, the Seventh Circuit issued a 
In an interesting development in a long-running legal battle in which for-profit education company Apollo Education Group is seeking D&O insurance coverage for its $13.125 million settlement of an options backdating-related securities class action lawsuit, the Ninth Circuit has certified to the Arizona Supreme Court the question of the standard of law to be applied to the insurance policy’s consent to settlement provisions. The Arizona Court’s response to the certified question potentially could have important implications for the meaning and application of similar provisions in other D&O insurance policies. The Ninth Circuit’s August 15, 2019 opinion certifying the question to the Arizona court can be found 