Readers familiar with my background know that while I have spent the last ten years representing policyholders, I spent the first 25 years or so of my career on the insurer side of the aisle, first as a lawyer representing insurers and later as an insurer employee. Because of that long prior experience, I am generally able to see the insurer’s side of most issues, even when I am advocating on behalf of a policyholder. Though I generally can see where the insurer is coming from, there are two issues that I think the insurers regularly get wrong. Both of these issues arise in the context of private company D&O insurance. The first relates to the wording of the contractual liability exclusion. The second involves the wording of the professional liability exclusion. I discuss both of these issues below.
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Private Company Management Liability Insurance Tune-Up Tips
The private company management liability insurance environment is constantly changing. The liability environment is constantly evolving. Because of the changes in liabilities and exposures and because of the competitive nature of the insurance marketplace, the available terms and conditions are constantly changing as well. Unfortunately, all too often, some private companies simply renew their management liability insurance programs year after year, without ensuring that their policies contain the most up-to-date terms and conditions available. In order for companies assess whether their policies are current, I have listed some of the important items for companies to look for in their policies. I have added some additional comments below, as well.
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Despite Swiss Forum Selection Clause, U.S. Court Orders FIFA’s Insurers to Advance Insured’s Defense Expense
One of the key current concerns in the global D&O insurance marketplace involves questions of cross-border implementation of insurance policy responsibilities and requirements. This concern is usually presented as a problem for policyholders, as they must determine how their insurance might respond to claims arising outside their home jurisdictions. However, a recent decision in the Eastern District of New York and involving one of the individuals caught up in the FIFA improper payments scandal show that the problems involved with cross-border policy implementation represent a challenge for insurers, as well.
In an April 27, 2016 ruling (here), Eastern District of New York Judge Raymond J. Dearie determined that, notwithstanding a provision in FIFA’s D&O insurance policy requiring insurance disputes to be litigated in a Swiss forum, he had the authority to enter a preliminary injunction against FIFA’s insurers requiring them to advance the defense fees of Eduardo Li, one of the defendants in the FIFA criminal proceedings.
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Guest Post: Please Buckle Your Seatbelts and Check Your D&O Insurance: A Gloomy Forecast Is Ahead
Complicated coverage issues frequently arise in connection with D&O claims, and that is particularly true with respect to claims arising in bankruptcy. In the following guest post, Paul Ferrillo and Ronit Berkovich of the Weil, Gotshal & Manges law firm take a look at the key D&O insurance considerations that companies heading into bankruptcy should keep in mind. I would like to thank Paul and Ronit for their willingness to publish their 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 Paul and Ronit’s guest post.
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O.K., The Notice Prejudice Rule Applies, But What Constitutes “Prejudice”?
One of the recurring battles in the continuing wars about whether or not a policyholder’s late provision of notice of claim precludes coverage is the question whether or not the “notice prejudice” rule applies. The notice prejudice rule specifies that the insurer can assert late notice as a coverage defense only if the delayed notice prejudiced the insurer. But if the notice prejudice rule applies, what constitutes “prejudice”? In an April 14, 2016 decision (here), the Fourth Circuit, applying Maryland law, addressed this issue and held that where the policyholder did not provide notice until after a $98.5 million default judgment had been entered in the underlying claim, the insurer was prejudiced and coverage under the policy was precluded. As discussed below, the ruling raises a number of interesting questions and also has wording implications for policy notice provisions.
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Guest Post: Court Holds Insured vs. Insured Exclusion Unambiguous, Precluding Coverage
As I have frequently noted on this blog, most recently here, the question of whether or not the Insured vs. Insured applies to preclude coverage is a frequently recurring D&O insurance coverage issue. In the following guest post, Peter Webster of the Carlton Fields law firm takes a look at a recent Florida intermediate appellate court decision interpreting and applying a D&O insurance policy’s Insured vs. Insured exclusion. Peter and his Carlton Fields colleague Patricia Thompson represented the insurer in the proceeding. I would like to thank Peter for his willingness to publish his article as a guest post on this 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 Peter’s guest post.
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Insured vs. Insured Exclusion Bars Coverage for Liquidation Trust’s Claim Against Bankrupt Firm’s Execs
Many issues become complicated in the bankruptcy context. That is certainly true of D&O insurance coverage issues. A recent coverage decision out of the Western District of Michigan illustrates this point. In a March 31, 2016 opinion (here), Judge Janet Neff, applying Michigan law, held that the relevant D&O insurance policies’ Insured vs. Insured exclusion precluded coverage for a claim that was first transferred by a bankrupt company to a Liquidation Trust and then asserted by the Liquidation Trust against the company’s former directors and officers.
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D&O Insurance: Regulator’s Previous Threat to File Action Triggers Prior Litigation Exclusion
Many D&O insurance policies contain specific prior litigation exclusions precluding coverage for claims made during the policy year related to proceedings commenced prior to the policy inception. A question that can arise is the issue of what type of prior proceedings or actions triggers this exclusion. The Second Circuit recently considered whether a Maryland attorney general’s office’s letter threatening that it “may” bring an enforcement action triggered an exclusion precluding coverage for a claim “involving” any prior “demand, suit or other proceeding.” In a March 7, 2016 summary order (here), the appellate court, applying New York law, affirmed the district court’s ruling that the AG’s prior letter was a “demand,” and therefore that the policy unambiguously precluded coverage for the insured’s defense fees incurred in a later U.S. Department of Justice action.
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D&O Insurance: Regulatory Exclusion Listed on Binder but Omitted From Policy Does Not Bar FDIC Claim Coverage
Suppose a troubled bank went to renew its D&O insurance in the throes of the financial crisis. Suppose further that the bank’s D&O insurer refused to renew its primary policy without a regulatory exclusion. Suppose that the primary insurer’s renewal binder specified that the renewal was subject to a regulatory exclusion. However, suppose further that when the insurer issued the policy, the insurer omitted the regulatory exclusion. Suppose the insurer noticed the omission of the exclusion a month later – coincidentally, the same day regulators closed the bank and the FDIC was appointed the bank’s receiver – and sent the bank’s insurance agency an endorsement intended to add the omitted exclusion to the policy.
As you might well imagine given these circumstances, when the D&O insurer later denied coverage for the FDIC’s claims against the failed bank’s former directors and officers based on the regulatory exclusion, coverage litigation ensued.
On March 18, 2016, in an interesting opinion that is both very fact-intense and highly dependent on a federal statute specifying what kinds of agreements can be enforced against the FDIC as receiver of a failed bank, Northern District of Georgia Judge Thomas W. Thrash, Jr. denied the insurers’ motions for summary judgment and granted the summary judgment motions of the FDIC, holding that the regulatory exclusion could not be enforced. A copy of Judge Thrash’s March 18, 2016 opinion and order granting the FDIC’s motion can be found here. His separate March 18, 2016 opinion and order granting the individual directors’ and officers’ motion for partial summary judgment can be found here.
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D&O Insurance: Late Notice and Excess Coverage
Everyone involved with D&O insurance knows that it is important to keep up with case law developments, in order to appreciate how courts are interpreting and applying various policy terms and conditions. But sometimes there is an additional reason why it is a good to keep up with court decisions – sometimes the cases provide practical lessons in the form of cautionary tales. That was certainly the case in a recent decision in which the Sixth Circuit, applying Kentucky law, affirmed a lower court ruling that late notice of claim precluded coverage under an excess D&O insurance policy. The policyholder had provided timely notice of claim to the primary carrier, but failed to provide notice to the excess carrier until six months after the policy had expired. The court’s conclusion that the late notice precluded coverage under the excess policy may not be surprising, but nevertheless the practical lesson – that is, that notice of claim should be provided to all of the carriers in the D&O insurance program – is an important one, as discussed further below. A copy of the Sixth Circuit’s February 29, 2016 opinion can be found here.
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