A frequently recurring claim that many companies face is a lawsuit brought by a competitor after the company hires the competitor’s former employee. Depending on how the competitor’s lawsuit is framed, these kinds of claims can be an awkward fit with the defendant company’s D&O insurance policy. A recent insurance coverage dispute in Delaware state court illustrates the kinds of coverage issues that can sometimes arise in connection with these claims. As discussed below, there are ways that D&O insurance policies can be revised to try to address at least some of the coverage issues. Delaware Superior Court Judge Eric Davis’s May 2, 2018 in the insurance coverage litigation can be found here.
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Guest Post: Plaintiffs Can Keep Their D&O Claims But They Cannot Touch The Insurance Proceeds
D&O insurance issues can be particularly difficult in the bankruptcy context. A number of issues can arise in the bankruptcy context that are not usually involved in ordinary claims circumstances. In the following guest post, Trinitee Green of the Bryan Cave Leighton Paisner law firm reviews and analyzes a particularly complicated set of circumstances that occurred post-confirmation in a bankruptcy proceeding. I would like to thank Trinitee for allowing me to publish her article as a guest post 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 Trinitee’s article.
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D&O Insurance: Special Event Exclusion Does Not Preclude Subsequent Litigation Coverage
As I have frequently noted, a recurring and vexing D&O insurance issue is the question of relatedness between different claims. Another frequent D&O insurance coverage issue is the question of the applicability of a special event or prior litigation exclusion. A recent Southern District of Indiana decision, applying Indiana law, addressed both of these issues in the course of determining that a Special Event Exclusion in Emmis Communications Corp.’s D&O insurance policy did not preclude coverage for the defense costs the company incurred in defending a shareholder suit relating to the company’s preferred stock. The decision is very fact specific, but because of the range of issues involved, the opinion is interesting and it also underscores the critical importance of the precise wording used in exclusionary clauses. The March 21, 2018 opinion can be found here.
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Prior Acts Exclusion Does Not Preclude Coverage Where Subsequent Claim Independent from Alleged Prior Acts
In a January 23, 2018 unpublished decision (here), the Eleventh Circuit held that a D&O insurance policy’s prior acts exclusion does not preclude coverage where the subsequent claim against insured persons is “independent” from the alleged wrongful acts that occurred prior to the policy period. The appellate court’s opinion, in which it affirmed a district court’s ruling rejecting a D&O insurer’s argument that the exclusion precluded coverage for the FDIC’s claim against the former directors and officers of a failed bank, underscores the necessity for a link between the prior wrongful acts and the subsequent claim in order for the exclusion to preclude coverage for the claim. The Carlton Fields law firm’s February 26, 2018 memo about the decision can be found here.
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Guest Post: Court Requires Insurers to Advance Insureds’ Defense Costs
In the following guest post, Syed Ahmad, Brittany Davidson, and Andrea DeField of Hunton & Williams LLP take a look at a very interesting New York trial court decision relating to D&O insurers’ duty to advance defense costs. I would like to thank the authors for their willingness to allow me to publish their article as a guest post on my site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ guest post.
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Second Circuit: Professional Services Exclusion Precludes D&O Coverage for NASDAQ’s Facebook IPO Claims
A recurring D&O insurance issue is the question of whether or not coverage for a particular claim is precluded under the relevant policy’s professional services exclusion. A recent decision by the Second Circuit addressed questions concerning the applicability of a professional services exclusion in a D&O insurance coverage dispute arising out of the mistake-plagued Facebook IPO. In a January 22, 2018 opinion (here), the appellate court affirmed the district court’s ruling that coverage for the settlement of Facebook IPO investors’ claims against NASDAQ was precluded by the NASDAQ’s D&O insurance policy’s professional services exclusion. The opinion includes some interesting discussion of considerations relevant to the exclusion’s applicability.
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Key D&O Insurance Coverage Appeals to Watch This Year
Over the last few days, I have published several posts looking back at 2017. In addition to looking back, this is also the time of year for looking forward as well. Among other things to watch out for this year is a series of D&O insurance coverage cases that are now pending in the appellate courts. In a January 9, 2018 article (here, subscription required), Law 360 author Jeff Sistrunk identifies three of these cases to watch this year. As discussed below, these cases not only are worth watching but could have important ramifications as well.
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Guest Post: The Year in Review: 2017 Key D&O Insurance Coverage Decisions
In the following guest post, Jennifer Bergstrom, Esq., Senior Claim Counsel, Hiscox USA, Elan Kandel, Esq. and Jennifer Lewis, Esq. of Bailey Cavalieri take a look at the key D&O insurance coverage decisions of 2017. I would like to thank the authors for allowing me to publish their article. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ guest post.
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D&O Policy Rescission Upheld Despite Poorly Written Application Question and Arguably Correct Answer
Insurance policies are of course written documents, dependent upon standard conventions of grammar and usage in order to establish their meaning. A recent unpublished opinion from the Ninth Circuit wrestled with the grammar rules involved when an insurance application’s question and answer created a double negative. Even though a literal reading of the application question using the relevant grammar rules arguably establishes the applicant answered the question truthfully, a majority held that the overall context of the question established that the applicant did not answer the question truthfully, and therefore that the insurer was entitled to rescind the policy based on the application misrepresentation. The dissent disagreed, contending that in light of the application question’s actual wording, the applicant had completed the question truthfully, and therefore that the insurer was not entitled to rescission. The Ninth Circuit’s January 2, 2018 opinion in the case can be found here.
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D&O Insurance: Coverage Carve-Backs in the Insured vs. Insured Exclusion
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.
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