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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Guest Post: D&O What to Know: A Guide to the Evolution of Directors and Officers Insurance from 1933 to the Present
After attending the PLUS D&O Symposium some years ago, several colleagues at Partner Re thought it might be worthwhile to provide D&O insurance professionals with historical overview of the evolution of Directors and Officers insurance (D&O) in the US marketplace. As a result, Brian Sabia, SVP Senior Underwriter Specialty lines; Catherine Rudow, SVP Senior Underwriter Specialty Lines; and Nicholas DeMartini, AVP Senior Underwriter Specialty Lines, all of Partner Reinsurance Company, drafted the following article, which starts with the Securities Act of 1933 and progresses through the relevant Acts, key court rulings, and the ups and downs that have driven the D&O insurance market and the evolving features of the D&O insurance policy. Their complete paper can be found here.
I would like to thank Brian, Catherine and Nicholas 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 submit a guest post. Here is the authors’ guest post.
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This paper provides an historical overview of the evolution of Directors and Officers insurance (D&O) in the U.S. market since 1933, taking you through the relevant acts, key court rulings, ups and downs of the market, as well as the evolving coverage features of D&O insurance. This paper is intended for the insurance professional as an additional introduction to this increasingly relevant and ever evolving management liability product.
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Answering Bank Directors’ D&O Insurance Questions
Bank directors often have many questions about their D&O insurance coverage, and rightly so. If significant reversals at the bank result in liability claims against the company’s senior officials, the bank’s D&O insurance could be the directors’ last line of defense. In this post, I address two issues that bank directors often ask about: first, does the bank’s D&O insurance cover civil money penalties? And, second, as the credit crisis retreats further into the past, when is the D&O insurance marketplace for banks going to “return to normal”?
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D.C. Appellate Court Reverses Ruling that Professional Services Exclusion Bars Coverage for Failed Investment Firm’s Claims
The problems that can arise from the wording of the professional services exclusion in a service company’s D&O insurance policy are perennial issues and a recurring topic on this blog (see for example here). When the exclusion in a service company’s management liability policy is interpreted broadly the exclusion can sweep so extensively that it can preclude coverage for the very types of claims the management liability policy was intended to insure. A recent decision from the District of Columbia’s highest court highlights these concerns.
In a February 11, 2016 District of Columbia Court of Appeals decision (here), the appellate court, applying District of Columbia law, reversed a lower court ruling that the professional services exclusion in the management liability insurance policy of defunct Carlyle Management LLC precluded coverage for the various claims that had been asserted against Carlyle, related entities, and its senior officials. The Court of Appeals did not affirmatively conclude that the underlying claims were covered; rather, it held only that the broadly worded professional liability exclusion was ambiguous, and that the question of coverage is properly a question for a factfinder. While the appellate court did not affirmatively find coverage, the court’s opinion underscores the concerns with interpreting and applying the professional liability exclusion in a service firm’s management liability insurance policy too broadly.
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N.J. Sup. Ct.: Notice Prejudice Rule Does Not Apply to “Sophisticated” Insured’s Claims Made Policy
As anyone involved in D&O insurance knows, policyholders’ late provision of notice of claim is a recurring problem. All too often, delays in providing notice result in a preclusion of coverage, an outcome that I find in many cases to be troubling. Because of concerns about policyholders’ loss of coverage, some courts have held that an insurer must show that the late provision of notice prejudiced its interests in order to disclaim coverage. However, a number of other courts have also held that the “notice prejudice rule” does not apply to claims made policies.
Along these lines, on February 11, 2016, the New Jersey Supreme Court held that, at least where a “sophisticated” insured is involved, an insurer that contends that it was not provided with timely notice of claim under a claims made insurance policy does not have to show that it was prejudiced by the delayed provision of notice in order to disclaim coverage. The New Jersey Supreme Court’s opinion can be found here.
As I commented at the time when the intermediate appellate court reached the same conclusion in this case, I have some issues with this case and the way it all played out.
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D&O Insurance: Whose “Securities” Must a Claim Involve to Trigger Securities Claim Coverage?
Public company D&O insurance provides coverage for “Securities Claims.” But whose securities must be involved in a claim in order for coverage to be triggered? Must the claim involve the securities of the corporate policyholder itself? Or can coverage be triggered by a claim involving mortgage-backed securities the corporate policyholder issued as part of its financial operations?
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Guest Post: The Danger of Unfounded Assumptions
In the following guest post, Donna Ferrara, Esq., Senior Vice-President, Managing Director, Management Liability Practice, Arthur J. Gallagher, takes a look at a recent federal appellate court decision highlighting the problems that can arise when anyone – including outside counsel – makes assumptions about insurance without actually looking at the relevant policies. Donna also examines the lessons that can be learned from this unfortunate case. My thanks to Donna for her willingness to publish her 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 submit a guest post. Here is Donna’s guest post.
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