Earlier this month I published a guest post in which John McCarrick and Paul Schiavone suggested various policy terms and conditions they proposed should be revisited as D&O insurers seek profitability. My comments on their proposals appeared as an appendix to John and Paul’s article. John and Paul’s article has provoked a series of responses. Last week, I published a second guest post in which Paul Ferrillo provided his thoughts in response to John and Paul’s article. And in yet another guest post, Gil Isidro provided his comments as well. Now, as set out below, Francis Kean adds his voice to the dialog. Francis is Executive Director FINEX Willis Towers Watson. I would like to thank Francis for allowing me to publish his comments. Here is Francis’s article.
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Under claims made insurance policies, policyholders must provide timely notice of claim to their insurers in order to trigger coverage. Late notice is among the most common reasons that insurers deny coverage for claims. In order to try to avoid a coverage denial for late notice, policyholders have tried to argue that late notice should not preclude coverage where the policyholder renewed the coverage and where successive policies with the same insurer are in place. In a recent decision, an Ohio appellate court, applying Ohio law, rejected a policyholder’s attempt to rely on this kind of continuity of coverage argument. The court’s decision raises some interesting issues, as discussed below.
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. 
