D & O Insurance

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It is not uncommon for companies to add third parties as additional named insureds to their D&O insurance policies. Most of the time that doesn’t cause any problems. However, serious problems can arise in a subsequent claim if a company’s interests and the interests of the additional named insured conflict. At a minimum, in the event of a serious claim, the company and the third party can clash as they compete for the finite proceeds of the insurance policy. In a recent coverage decision, the Delaware Superior Court, applying Delaware law, held that AR Capital, an additional named insured under the D&O insurance program of VEREIT, was entitled to have its costs of defending the underlying claims advanced under the program. The Court’s December 12, 2018 ruling, which can be found here, provides an interesting perspective on additional named insured issues.
Continue Reading D&O Insurance: Additional Named Insured Entitled to Defense Cost Advancement

The Second Circuit recently took up the insurance coverage dispute arising out of the high profile enforcement action the SEC pursued against hedge fund Patriarch Partners and its CEO, Lynn Tilton. The district court had ruled that coverage under the firm’s third level excess D&O insurance policy for the expenses the firm incurred in defending the SEC action was precluded because the agency’s investigation preceded the policy’s “prior and pending” litigation date. The Second Circuit affirmed the district court, but not on the grounds on which the lower court had relied. Rather, the appellate court affirmed the district court ruling based on its conclusion that coverage was precluded under language in the warranty statement the firm submitted for the excess insurance policy. The opinion includes interesting discussion of the issues surrounding the warranty statement. The Second Circuit’s December 6, 2018 Summary Order in the case can be found here.
Continue Reading Second Circuit: Excess D&O Policy’s Warranty Statement Exclusion Precludes Coverage

One of the basic requirements in order for coverage to be triggered under a directors’ and officers’ liability insurance policy is that the misconduct alleged must have been undertaken by insured individuals in an “insured capacity” – that is, in their capacities as directors or officers of the insured entity. In a recent insurance coverage ruling, the Delaware Superior Court held that because the allegations against the insured individuals “arose out of” their involvement with entities other than the insured entity, there was no coverage for the individuals under their bankrupt company’s D&O insurance policy. The ruling underscores the importance of capacity issues in determining D&O insurance coverage and highlights the ways in which allegations of misconduct undertaken in multiple capacities can lead to complicated coverage questions. The Delaware Superior Court’s November 30, 2018 decision can be found here.
Continue Reading D&O Insurance: No Coverage for Alleged Misconduct Not Undertaken in an Insured Capacity

As has been well-documented (on this site and in various other sources), securities class action frequency has soared to historically high levels in recent years. Given this development, it might reasonably be assumed that D&O insurance pricing has increased to account for the increased litigation risk. However, for a number of reasons – including the continued abundance of insurance capacity – D&O insurance pricing overall has declined. For that reason, it “should come as no surprise” that Transatlantic Reinsurance’s October 2018 analysis of the U.S. public company D&O liability insurance marketplace reveals “price inadequacy” – that is, that the “level of compensation in the market is not commensurate with the risks being taken.” The TransRe report, while technical, illustrates the currently challenging circumstances facing the D&O insurance industry.
Continue Reading Losses Up, Pricing Down: A Tough Combination for D&O Insurers

I have frequently written on this blog about relatedness issues and how they affect the availability of D&O insurance coverage for a series of lawsuits that have been filed over time against a company. D&O insurers frequently argue, in order to try to avoid coverage,  that a later lawsuit is related to an earlier proceeding in order to try to argue that the subsequent suit is deemed made at the time of the earlier proceeding. In an interesting case in the Southern District of Texas, the insurer took the opposite position and tried to argue that two securities class action lawsuit complaints filed after the end of the policy period were unrelated to an earlier securities suit that had been filed during the policy period, in order to try to avoid coverage for the subsequent lawsuits.

In an October 4, 2018 decision (here), Magistrate Judge Nancy K. Johnson ruled that the later securities lawsuits filed against Nobilis Health were interrelated with the earlier lawsuit against the company, and therefore that the insurer was obligated to cover the costs the insured company incurred in defending all three lawsuits. The court’s decision underscores the breadth of the relatedness in D&O insurance policies and highlights the fact that relatedness issues can, depending on the circumstances, result in a coverage expansion and not only a narrowing of coverage.
Continue Reading D&O Insurance: Insurer Must Defend Later Securities Lawsuits Related to Earlier Claim

In the latest development in nearly decade-long legal battle, a New York intermediate appellate court has held in light of the U.S. Supreme Court’s 2017 decision in Kokesh v. SEC that amounts Bear Stearns paid under an SEC disgorgement order represent a “penalty” for which coverage is precluded under the bank’s insurance policy. This ruling, which overturned a trial court order holding that the disgorgement amount was covered, represents a substantial reversal of fortune for the claimants in this long-running and high-profile insurance coverage dispute. While further proceedings in the case seem likely, the ruling nevertheless represents a setback for policyholders seeking to establish insurance coverage for disgorgement amounts. The intermediate appellate court’s September 20, 2018 opinion can be found here.
Continue Reading N.Y. Appellate Court: Coverage Precluded for Disgorgement “Penalty”

As I have noted in earlier posts, questions of whether or not two sets of circumstances are interrelated for purposes of determining insurance coverage can be vexing; at a minimum, they are always fact-intense. In a recent decision, the Tenth Circuit examined the question of whether or not a later civil lawsuit was interrelated with an earlier SEC investigation, and therefore deemed first made at the earlier date (prior to the policy period). The appellate court affirmed the district court’s conclusion that the lawsuit was interrelated with the investigation, precluding coverage for the claim. As discussed below, while the appellate court’s conclusion arguably is unremarkable, it still does highlight the elusive problems involved with relatedness issues. The Tenth Circuit’s September 10, 2018 decision in the case can be found here.
Continue Reading Tenth Circuit: Later Lawsuit Interrelated with Earlier SEC Investigation

Perhaps because of my many years in the D&O insurance business, I am frequently approached by younger insurance agency and insurance brokerage professionals who are thinking about trying to concentrate on D&O insurance as product specialty. I generally encourage this idea, as I think that D&O insurance is an interesting industry space that still provides a lot of worthwhile opportunities. But the younger professionals who approach me are looking for more than just a few words of encouragement. They are also looking for advice and information. They are not always sure what in particular they are looking for when they approach me, but I know after many of these conversations one thing they usually need – that is, they need to know what to talk about when they talk about D&O.
Continue Reading What to Talk About When You Talk About D&O Insurance

In a recent case in the Fifth Circuit, a retail merchant sought to establish that its D&O insurer was required to provide a defense to a data breach-related claim that had been brought against the merchant. The appellate court held that the trial court erred in granting the insurer’s motion for judgment on the pleadings and ruling that the policy’s contractual liability exclusion precluded coverage. The ruling, which suggests at least the possibility of coverage under the D&O policy for at least some of the claims against the merchant, raises a number of important issues, as discussed below. The Fifth Circuit’s June 25, 2018 opinion in the case can be found here. A July 11, 2018 memo from the Crowell & Moring law firm about the decision can be found here.
Continue Reading Fifth Circuit Reverses Dismissal of Data Breach Coverage Suit Against D&O Insurer

Claims made insurance policies provide coverage for claims first made during the policy period. So if the claim is made during the policy period, there’s coverage, right? Not so fast; there’s a catch. Under most claims made policies, the claim also has to be reported during the policy period or within a short period after the policy period ends. In many jurisdictions, the insurer can deny coverage for the late notice even if the delay did not prejudice the insurer in any way. The policy’s notice clause operates as a “Mother May I” provision –  even though you paid your premium, you don’t get coverage unless you say “Mother May I” and provide notice within the time limits. The problem is that policyholders muff the notice requirements all the time. We all know that. Late notice happens all the time. As a result, policyholders often get no coverage for the claims but the insurers keep the premium.
Continue Reading Why Late Notice Cases Bother Me