A standard D&O insurance policy provision specifies that the term “Claim” means, in part, a “written demand for monetary damages or non-monetary relief.” A recurring question that arises under this language is: what exactly is “non-monetary relief”? In a recent case, an Ohio intermediate appellate court considered the question whether a demand for a software audit from a software industry group alleging unauthorized software copying constituted a written demand for non-monetary relief; the court concluded that it did and that it therefore that the demand represented a claim under the applicable D&O policy. The court also considered the applicability of the policy intellectual property (IP) infringement exclusion. A copy of the Ohio Court of Appeals, Third Appellate District’s October 11, 2016 opinion can be found here.
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D&O Insurance: Thinking About Two Relatively Uncommon Exclusions
A couple of items crossed my desk last week that made me think about two exclusions that are sometimes found in D&O insurance policies. In each case, the exclusions, while relatively uncommon, could substantially restrict the insurance coverage available at least in certain circumstances. Precisely because these exclusions are relatively uncommon, it is important to understand the circumstances to which they apply and how they can affect coverage when they are triggered.
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D&O Insurance: What is a Claim and When Does Late Notice Defeat Coverage?
Among the key parts of a claims-made insurance policy are its definition of the term “claim” and its provisions specifying the policyholder’s notice of claim obligations. A recent Delaware Superior Court decision by Judge Eric Davis examined both of these basic policy features and considered what is required in order to meet the policy’s claim definition and in order for an insurer to raise late notice as defense to coverage. As discussed below, Judge Davis’s analysis raises some important considerations about these both of these basic policy features. Judge Davis’s September 29, 2016 opinion can be found here.
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Thinking About Exceptions and Alterations to the Insured vs. Insured Exclusion
Among the terms and conditions typically found in a D&O insurance policy is the so-called “Insured vs. Insured” exclusion, which precludes coverage for claims brought by one insured against another insured. The exclusion often figures in D&O insurance coverage disputes, as I have frequently noted on this blog. While the exclusion broadly precludes coverage for an entire category of claims, the exclusion often also has exceptions that preserve coverage for certain types of claims that would otherwise be excluded.
In a recent case in the Northern District of California, a D&O insurance policyholder tried to argue that the underlying claim came within one of the standard coverage carve-backs typically found in this type of exclusion, a provision preserving coverage for derivative claims. In a September 26, 2016 order (here), Northern District of California Judge Haywood S. Gilliam, Jr., applying California law, held that the Insured vs. Insured Exclusion applied to preclude coverage and that the underlying lawsuit did not come within the coverage carve-back. The parties’ dispute and the court’s ruling provide a useful backdrop to think about the exclusion and alternative wordings that are sometimes available in the marketplace.
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D&O Insurance: Consent Judgment Including Covenant Not to Execute Constitutes “Loss”
In order to try to resolve litigation pending against them, policyholders sometimes enter a settlement in which they agree to the entry of a consent judgment against them and to the assignment to the claimants of their rights under their insurance policy, subject to the claimants’ agreement not to execute the judgment against them. The question that often arises is whether, in light of the covenant not to execute, the policyholders have suffered a “Loss” as required to trigger policy coverage.
In a September 16, 2016 ruling in connection with a coverage dispute involving one of these types of settlement arrangements, Eastern District of New York Judge Arthur D. Spatt, applying New York law, rejected a D&O insurer’s argument that because of the assignees’ agreement not to execute on the consent judgment, the insured persons had suffered no “Loss.” The court’s determination of these questions raises some interesting issues. Judge Spratt’s September 16, 2016 opinion can be found here.
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Guest Post: Professional Services: What Does this Term Mean in an Exclusion Clause?
As I have noted in several posts on this site (most recently here), one of the recurring D&O insurance coverage questions is the extent of the preclusive effect of the professional services exclusion. In the following guest post, Rehana Box and Marie Vlassis of the Ashurst law firm take a look at judicial developments in Australia regarding this issue. This article previously appeared in the LexisNexis Australian Insurance Law Bulletin. I would like to thank Rehanna and Marie for their willingness 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 publish a guest post on this site. Here is Rehana and Marie’s guest post.
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No D&O Insurance Coverage for Costs of Responding to Informal SEC Investigation
Among the most frequently recurring D&O insurance coverage issues is the question of the carrier’s obligation to pay for costs incurred in connection with an informal SEC investigation. Indeed over the years, numerous policy revisions have been adopted in various forms by various carriers to address certain aspects of this issue. Yet the issues continue to arise, as shown most recently in District of Colorado Judge Robert E. Blackburn’s August 4, 2016 opinion (here), in which he held that the D&O policy at issue did not provide coverage for the insured company’s expenses incurred in responding to an informal SEC investigation. The opinion raises a number of issues, as discussed below.
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D&O Insurance: More About the Professional Services Exclusion Problem
Regular readers know that one of my recurring private company D&O insurance coverage concerns has to do with the professional services exclusion and the way many carriers seek to phrase, interpret, and apply the exclusion, particularly with respect to insured companies engaged in service businesses. My concern is that all too often the exclusion is written over-broadly and applied over-broadly in a way that threatens to entirely swallow up coverage under the policy. A July 28, 2016 coverage decision by District of Maryland Judge J. Frederick Motz expressly addresses several of my recurring concerns about the professional services exclusion, as I discuss further below. A copy of the July 28, 2016 opinion can be found here.
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Insurer’s Coverage Denial Relieves Policyholder’s Obligation to Obtain Consent to Settlement
In the latest development in the long-running battle of J.P. Morgan Chase, as successor in interest to Bear Stearns, to try to obtain insurance coverage for amounts Bear Stearns paid to resolve an SEC investigation of alleged deceptive market timing and late trading activities, a New York state court judge has held that because its D&O insurers had “effectively disclaimed coverage,” Bear Stearns was excused from its policy obligation to obtain the insurers’ consent prior to its settlement with the SEC. However, the court declined to resolve the question of whether or not the settlements were “reasonable.” The now years-long insurance coverage battle will continue to go forward on the remaining issues. A copy of July 7, 2016 of New York (New York County) Supreme Court Charles E. Ramos can be found here.
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D&O Insurance: Prior and Pending Litigation Provisions Do Not Undercut Interrelated Claims Provision
In a June 6, 2016 opinion (here), Middle District of Florida Judge Sheri Polster Chappell, applying Florida law, held that subsequent claims filed in 2011 and 2012 were interrelated with claims first made in 2008, and therefore deemed made at the time of the initial claim. Because the initial claim was filed before the relevant policy incepted, there is, Judge Chappell concluded, no coverage for the claims under the relevant policy.
In reaching these conclusions, Judge Chappell rejected the policyholder’s argument that the policy’s related claim provision conflicted with the policy’s prior and pending litigation provision (which had a May 2003 date), and therefore should be construed against the insurer and disregarded in light of the prior and pending litigation date. Judge Chappell’s opinion quite sensibly and correctly rejects arguments that other courts (applying different jurisdiction’s law) have accepted, as discussed below. A July 22, 2016 post on the Wiley Rein law firm’s Executive Summary Blog about Judge Chappell’s opinion can be found here.
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