D & O Insurance

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A standard exclusion found in most private company directors and officers insurance policies precludes coverage for claims brought by one insured against another insured – the so-called Insured vs. Insured exclusion. The exclusion typically includes several coverage carve-backs preserving coverage for certain types of claims for which the exclusion would otherwise preclude coverage. One relatively standard coverage carve-back preserves coverage for claims brought by a former director or officer after the individual’s service to the company terminated. While the inclusion of this type of coverage carve-back is fairly standard, the wording of the carve-back can and sometimes does vary in ways that can significantly affect whether or not coverage is available for particular claims.

In a December 13, 2017 decision (here), Central District of California Dean D. Pregerson concluded that an underlying dispute between a former director and his former company did not fall within the coverage carve-back to the Insured vs. Insured exclusion in the company’s D&O insurance policy and therefore that there was no coverage under policy for the underlying claim. The decision highlights the importance of the specific language used in the coverage carve-back.
Continue Reading D&O Insurance: Coverage Carve-Backs in the Insured vs. Insured Exclusion

Over the course of several years in which the marketplace for D&O insurance has been highly competitive, the scope of coverage available has continued to evolve and expand.  Terms and conditions are available today that were not available even a short time ago, as carriers attempt to distinguish themselves in a crowded marketplace. The marketplace is a buyer’s market, but in order to ensure that corporate insurance buyers obtain the best coverage available, it is important for them to understand the options available. In an interesting December 6, 2017 Law 360 column entitled “D&O Insurance Coverage Tips for Financial Institutions” (here) Robert Long and Nanci Weissgold of the Alston & Bird law firm examined the issues and options involving several key areas of D&O liability insurance coverage.
Continue Reading Key D&O Insurance Policy Wording Issues and Coverage Concerns

Most professional liability insurance policies are written on a claims-made basis – that is, they cover only claims first made during the applicable policy period. A recurring issue under these kinds of policies is the question of when a claim was first made. This question can be particularly complicated if there were pre-policy period communications about a subject that subsequently results in a lawsuit. The question is whether the claim was first made at the time of the prior communications or at the time of the subsequent lawsuit. Two recent cases reached different conclusions about whether not pre-policy period communications represented a claim. As discussed below, these diverging decisions raise interesting issues.
Continue Reading Claims Made Policies: The Problem of Pre-Policy Period Dispute Communications

D&O insurance policies typically specify that the insurer’s written consent is required for a policyholder to settle a claim, such consent not to be unreasonably withheld. This consent-to-settlement clause is the not infrequent source of coverage disputes, usually involving circumstances where the policyholder has gone ahead and settled a claim without seeking the requisite consent. A less frequent but no less troublesome circumstance involves the situation where the policyholder sought consent but the insurer declined to consent. The question then becomes whether the insurer’s withholding of consent was (or was not) reasonable.

In an interesting recent ruling, an Arizona district court judge held that Apollo Education Group’s D&O insurer’s withholding of consent to the company’s $13.125 million settlement of an options backdating-related securities class action lawsuit was reasonable. There are a number of interesting aspects to this ruling, as discussed below. Judge Stephen Logan’s October 26, 2017 decision in the Apollo Education Group coverage lawsuit can be found here.
Continue Reading D&O Insurer’s Withholding of Settlement Consent Held Reasonable

As I have detailed on this blog (most recently here), due to two Delaware court decisions — the Delaware Supreme Court’s 2015 decision in Corwin v. KKR Financial Holdings LLC  (here) and the Delaware Chancery Court’s January 2016 court decision in the In re Trulia Shareholder litigation (here)—deal litigation that in the past would have been filed in Delaware is now being filed elsewhere. But while the deal litigation in Delaware generally may be declining, in recent years there has been a significant uptick in Delaware appraisal litigation. As these cases have become more common in recent years, the question of whether or not D&O insurance covers the costs companies incur in defending appraisal actions has become increasingly common as well. Indeed, in the October 11, 2017 Advisen Quarterly D&O Claims Trends Webinar (refer here), the question of D&O insurance coverage for appraisal claim-related defense expenses was a key topic of conversation. In the following post, I review the issues involved in the question of whether or not a D&O insurance covers the costs defendants incur in defending appraisal claims.
Continue Reading D&O Insurance Coverage and the Rise of Appraisal Litigation

The insurance available under a D&O insurance policy does not protect insured individuals for all of their activities; rather, the policy protects the individuals only for their actions undertaken in their capacities as officer or directors of the insured organization. The policy does not protect the individuals for actions undertaken in their personal capacity or for actions undertaken as a result of their involvement with entities other than the insured organization.

A recent decision out of the District of North Dakota and applying North Dakota law illustrates the coverage-determinative importance of the question of capacity. In an October 3, 2017 opinion (here), District of North Dakota Judge Daniel Hovland held that because the allegations against the individual who was seeking coverage did not involve alleged actions undertaken in an insured capacity, the individual was not entitled to coverage under the policy. The ruling underscores the importance of capacity issues and also highlights how challenging these issues can sometimes be when individuals are acting in multiple capacities.     
Continue Reading D&O Insurance and Insured Capacity

The difficulty with pure “claims made and reported” coverage – where the claim must both be made and reported during the policy period in order for coverage to be triggered – is that it can lead to harsh outcomes, as I have noted in prior posts. A recent unpublished Ninth Circuit decision, in which the court held that coverage was precluded for a claim made in one policy period but reported in a subsequent renewal period, provides yet another example of the kinds of harsh coverage outcomes that can sometimes under these kinds of policies. The Ninth Circuit’s August 22, 2017 opinion can be found here. The Wiley Rein law firm’s September 25 2017 Executive Summary Blog post about the decision can be found here.
Continue Reading More About the Problems with Pure Claims Made and Reported Policies

In an insurance coverage dispute arising out of the high-profile and long-running SEC investigation of and enforcement action against the investment firm Patriarch Partners and its CEO Lynn Tilton, a federal district court judge has ruled that coverage under Patriarch’s excess D&O insurance policy is precluded under the policy’s “Pending and Prior Claim” exclusion, because the investigation pending at the time the excess policy incepted represented a “Claim” under the relevant policy language. The court’s analysis includes an interesting discussion of the interaction between the SEC’s investigative actions and the applicable definition of the term “Claim.” The court’s analysis also involves a consideration of the implications for coverage purposes of the various stages within the SEC’s investigative processes. Southern District of New York Judge Valerie Caproni’s September 22, 2017 opinion can be found here.
Continue Reading Ongoing SEC Investigation is a “Claim” Sufficient to Trigger Prior Claim Exclusion

An acquired bank’s D&O insurer’s defense cost obligation to the bank’s directors and officers in connection with merger-related litigation continued after the merger transaction closed and was owed to the acquiring bank, a federal district court judge has held, rejecting the policy-based arguments on which the insurer relied to contend that its payment obligations ceased at the time of the deal closing. District of New Jersey Judge John Michael Vazquez’s unpublished September 18, 2017 opinion containing his ruling can be found here.
Continue Reading D&O Insurer Must Continue Defense Expense Reimbursement Post-Merger

One of the perennial D&O insurance coverage questions is the issue of whether or not the D&O policy provides coverage for costs incurred in responding to a subpoena, as I have discussed in prior posts (refer here and here). Increasingly these days, policies expressly address the issue through language specifying that a subpoena is a “claim” within the meaning of the policy. However, other policies do not includes this language, and even when the policy’s definition of the term “claim” expressly addresses subpoenas, other questions may arise, as discussed below.
Continue Reading Insurance Coverage for Subpoena Response Costs