D & O Insurance

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Michael J. Biles
Just about every publicly traded company and most private companies carry D&O insurance. It is just common sense in the current litigious environment. But while most companies recognize the need for D&O insurance, not every company maximizes its investment when purchasing the insurance. In the following guest post, Michael J. Biles, a partner in the Securities Litigation Group at King & Spalding LLP, takes a look based on his perspective as a securities litigator at ten common mistakes many companies make when buying their D&O insurance. In addition to the points Mike makes in his guest post, I would add that companies are likely to avoid these and other common mistakes if they take the time to ensure that the have enlisted the assistance of a knowledgeable and experienced broker in connection with their purchase of D&O insurance. 

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I would like to thank Mike for his willingness to publish his article on this site. I welcome guest post submissions from responsible authors on topics of interest to readers of the blog. Please contact me directly if you would like to submit a guest post. Here is Mike’s guest post.

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D&O insurance is a must-have for every public company.  The risks and costs of private lawsuits or government investigations are too great for any rational person to serve as an officer or director of a company without a solid D&O insurance policy.  After nearly twenty years of defending officers and directors in securities litigation, I have experienced firsthand the hardship caused by inadequate or inappropriate D&O insurance.  Contrary to public perception, most officers and directors of public companies are not extraordinarily wealthy – the cost of financing the defense of a securities class action, derivative lawsuit or government litigation (much less of funding a settlement) is too great to bear for most individuals without D&O insurance.

The following are the top ten mistakes that I’ve seen companies make in selecting D&O insurance.  Although some of these mistakes concern complex insurance coverage issues, I’ve prepared this article for the non-lawyer, stripped of legalese, so that officers and directors can discuss these issues with their insurance brokers to avoid these mistakes.  D&O insurance is a competitive industry.  While the core language of a standard D&O policy is generally fixed, companies can, and often do, negotiate better terms in endorsements to the policy. 
Continue Reading Guest Post: Ten Mistakes Companies Make When Buying D&O Insurance –A Securities Litigator’s Perspective

eleventh cuircuit sealIn an unpublished October 5, 2015 opinion (here), the Eleventh Circuit, applying Florida law, held that a D&O insurance policy’s contractual liability exclusion precluded coverage for negligence claims asserted against persons insured under the policy. The contract exclusion was written with a broad “based upon, arising out of” preamble wording. As discussed below, the decision highlights concerns about the use of the broad preamble in D&O insurance policies’ contractual liability exclusion. An October 28, 2015 post on the Wiley Rein law firm’s Executive Summary Blog about the Eleventh Circuit’s ruling can be found here.
Continue Reading D&O Insurance: Contractual Liability Exclusion Applied to Preclude Coverage for Negligence Claim

lawboks2When I started out as a law firm associate doing D&O insurance coverage work more than three decades ago, there was virtually no interpretive case law available. Legal research in connection with D&O insurance tended to be a meagre, frustrating process. Things have changed so much in the interim that now we can have two appellate decisions from two different federal circuit courts on D&O insurance issues in just a single day. On October 21, 2015, both the Second and Fifth Circuits issued D&O insurance coverage rulings, in both cases finding that the there was no coverage under the D&O insurance policies involved for the matters in dispute.

The Second Circuit’s October 21, 2015 summary order in Nomura Holding America, Inc. v. Federal Insurance Company can be found here. The Fifth Circuit’s October 21, 2015 opinion in Martin Resource Management Corporation v. Axis Insurance Company can be found here. I discuss the two appellate decisions below.
Continue Reading D&O Insurance: Two Federal Appellate Courts Issue Rulings Confirming Carriers’ Coverage Denials

missAs part of our beat here at the The D&O Diary, we read a lot of judicial opinions. We are quite accustomed to the fact that the case outcomes can be and often are all over the map. Just the same, every now and then we read a decision that really makes us scratch our heads. That was our reaction when we read Southern District of Mississippi Chief Judge Louis Guirola, Jr.’s October 2, 2015 opinion in the Singing River Health Systems case (here), in which Judge Guirola, applying Mississippi law, held that when a fiduciary liability insurer defends its insured under a reservation of rights, the defense expense payments do not erode the policy’s limits of liability. A number of questions and concerns may fairly be raised about this decision, as discussed below. The Traub Lieberman Insurance Law Blog has an October 5, 2015 post about Judge Guirola’s decision, here.
Continue Reading Defense Costs Paid Under Reservation of Rights Do Not Erode Fiduciary Liability Policy’s Limit of Liability?

caliIn an interesting September 30, 2015 opinion, Southern District of California Cynthia Bashant, applying California law, held that a series of HIPAA-related subpoenas that the U.S. Department of Justice served on Millennium Laboratories were not interrelated with prior qui tam lawsuits that had been filed against the company, and held further that coverage under Millennium’s D&O insurance policy for the company’s costs of responding to the subpoenas was not limited by the policy’s $100,000 sublimit for Regulatory Claims. A copy of Judge Bashant’s opinion can be found here.
Continue Reading D&O Insurance: HIPAA Supoenas, Interrelatedness, and Regulatory Claim Sublimits

minnThe Insured vs. Insured Exclusion is a standard D&O insurance policy provision. The exclusion precludes coverage for clams brought by one “Insured Person” against another “Insured Person.” But what happens when the claimants suing an Insured Person include both individuals who are Insured Persons and other individuals who are not? In a September 22, 2015 opinion (here), District of Minnesota Chief Judge John Tunheim, applying Minnesota law, held that where the underlying claim involved a lawsuit by an Insured Person against other Insured Persons, the entire claim was precluded from coverage, even though the claimants in the lawsuit included other plaintiffs who were not Insured Persons.
Continue Reading D&O Insurance: Insured vs. Insured Exclusion Applies Even When Claimants Include Both Insureds and Non-Insureds?

phoneThe Telephone Consumer Protection Act (TCPA) has proven to be a fruitful source of consumer class action litigation. Plaintiffs’ lawyers are attracted by the potentially lucrative recoveries under the statue, and indeed several recent settlements in TCPA class action lawsuits have run into the millions of dollars. The volume of litigation under the statute and the potential damages associated with the claims has inevitably led to insurance coverage questions. In the past, defendants in TCPA lawsuits looked to their Commercial General Liability (CGL) policies for their defense of these kinds of claims. However, CGL carriers increasingly are expressly excluding coverage for TCPA lawsuits, which has led other companies seeking insurance for TCPA claims to look to other coverages for possible insurance protection, including their D&O insurance policies. As discussed below, carriers may contend that standard D&O insurance policy exclusions preclude coverage for these kinds of claims, but courts continue to sort out the issues.
Continue Reading D&O Insurance: The Question of Coverage for TCPA Claims

ninth circuitThe problems that can arise from the wording of the professional services exclusion in the D&O insurance policy of a service company are perennial issues and a recurring topic on this blog (see most recently here). In an unpublished August 18, 2015 opinion (here), the Ninth Circuit affirmed the district court’s conclusion that coverage for a claim under a payroll services firm’s management liability insurance policy was precluded by the policy’s professional services exclusion. While the preclusion of coverage under the professional services exclusion in services firms’  D&O policies often can be questionable, this instance seems like a situation where the exclusion was applicable. As discussed below, however, there are still some important lessons from this case.
Continue Reading Ninth Circuit: Professional Services Exclusion Precludes Coverage Under Payroll Services Firm’s Management Liability Insurance Policy

cal sup ctOn August 10, 2015, in an opinion that has already garnered a great deal of attention and commentary, the California Supreme Court ruled that an insurer that funded the payment for its insured of independent counsel (or “Cumis” counsel as independent counsel are known in California) in defense of a claim may seek to recover directly from the independent counsel law firm amounts the insurer paid that the insurer contends were excessive or unreasonable. Though the ruling represents a landmark of sorts, the California Supreme Court’s opinion is much narrower than many commentators have acknowledged, which will limit its applicability in other cases. A copy of the California Supreme Court’s opinion can be found here.
Continue Reading Cal. Supreme Court: Insurer May Seek to Recover Directly From Independent Counsel Allegedly Excessive or Unreasonable Fees

floridaIn a recent post (here), I discussed a recent federal district court ruling in which the court broadly interpreted the professional services exclusion in a bank’s D&O insurance policy in order to preclude coverage under the policy for a claim that had been made against the bank and certain of its directors and officers in a case arising out of the long-running Rothstein Ponzi scheme scandal. Southern District of Florida Kathleen M. Williams’s May 2015 opinion in the case, which I discussed in that earlier post, can be found here. As I noted in my earlier post, the case presents an example of the problems that can arise when a professional services firm’s D&O insurance policy contains a professional services exclusion with the  broad “arising out of, based upon, or attributable to” preamble language.

As discussed below, a recent law firm memo analyzing the court’s ruling called Judge Williams’s expansive reading of the language “troubling” and expressed the concern that the breadth of the court’s reading of the exclusion’s preclusive effect could render the D&O insurance policy’s coverage “largely illusory.”
Continue Reading The Problem with a Broadly Worded Professional Service Exclusion in a Service Firm’s D&O Insurance Policy