The insured vs. insured exclusion is a standard exclusion in most management liability insurance policies. The exclusion precludes coverage for claims brought by one insured against another. The IvI exclusions in most management liability insurance policies typically include a number of exceptions to the exclusion preserving coverage for claims that otherwise would be excluded. In a recent decision, a Texas intermediate appellate court found that the IvI exclusion in an investment management firm’s policy did not preclude coverage for an arbitration award because the underlying dispute arose out of an employment practices claim and therefore the dispute – including even the derivative claims the claimant asserted in the arbitration – came within the exclusion’s coverage carve-back for wrongful employment practices claims. As discussed below, the court’s opinion has a number of interesting features.
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7th Circ.: Contract Exclusion Renders Coverage “Illusory”
I have long believed and said that the typical professional liability and D&O liability insurance policy contractual exclusion written with the broad “based upon, arising out” preamble sweeps too broadly and precludes coverage for the very kind of claims for which policyholders buy the insurance. The Seventh Circuit has now said what I have long been saying; the appellate court found that the contractual liability exclusion in an E&O insurance policy renders coverage under the policy “illusory” and therefore the policy must be reformed to match the policyholder’s “reasonable expectations.” I hope everyone involved in the professional liability and D&O liability insurance industry will take the time to familiarize themselves with this recent decision. I also hope this decision means the end of contractual liability exclusions using the broad “based upon, arising out of” preamble.
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Late Notice of Claim Precludes Coverage
Readers know that it doesn’t take much to get me up on my hobby horse about insurers trying to deny coverage based on the late provision of notice. In general, I am against a mere procedural fault causing a complete coverage forfeiture. Every now and then though there is a case where the policyholder’s lack of diligence makes the case against the insurer’s coverage defense very tough. A recent decision out of the District of Minnesota provides an example where the extent and nature of the policyholder’s delay in providing notice of claim made the argument in favor of coverage very difficult. But while the insurer’s denial of coverage based on policyholder’s late provision of notice arguably was justifiable in the case, the circumstances involved still present some important lessons both about notice of claim and about the policyholder’s obligations under the policy.
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Cal. Sup. Ct.: Notice-Prejudice Rule Represents a Fundamental Public Policy
Under the so-called “notice-prejudice Rule” applicable in some jurisdictions, insurers can deny coverage for claims based on the policyholder’s late provision of notice of claim only in the event that the late notice materially prejudiced the insurer. In a recent decision, the California Supreme Court, ruling on questions certified to the Court from the Ninth Circuit, held that the notice-prejudice rule represents a “fundamental public policy” under California law potentially sufficient to override the choice of law provision in the parties’ insurance contract. The Court also held that the notice-prejudice rule also applies to the consent to incur expense provisions in first-party insurance policies. As discussed below, there are a number of interesting aspects to the court’s ruling. The California Supreme Court’s August 29, 2019 decision in Pitzer College v. Indian Harbor Insurance Company can be found here.
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Guest Post: No Choice of Law in Delaware Coverage Disputes?
In the following guest post, Jeremy Salzman and Kylie Tomas of Sompo International and Ommid Farashahi and Jonathan Cipriani of BatesCarey LLP discuss a recent series of Delaware court decisions in which the courts applied Delaware law in addressing insurance coverage disputes. In their article, the authors question Delaware law appropriately should have been the law applied in those cases. I would like to thank the authors for allowing me 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 the authors’ article.
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Guest Post: Marijuana: Big Opportunities and Challenges for Insurers
One of the more interesting businesses to emerge in recent years has been the legal marijuana industry. Because of lingering legal issues, this industry’s emergence has been accompanied by a host of complications. These complications in turn raise a number of challenges for insurers seeking to get involving in this industry. In the following guest post, Paul T. Curley takes a look at the opportunities and challenges for insurers in connection with the legal marijuana industry. Paul is a partner in the Insurance Coverage and Coverage Litigation Group at Kaufman Borgeest & Ryan LLP. I would like to thank Paul for allowing me 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 blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Paul’s article.
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Coverage Complications for Prior Acts Under Claims Made Insurance Policies
Theoretically, claims made insurance coverage applies to claims made during the policy period regardless of when the underlying acts took place. The claims made arrangement contrasts with the framework under an occurrence policy, where coverage applies according to when the underlying acts took place, regardless of when the claim is made. But even though claims made coverage is intended to apply to claims made during the policy period, there are sometimes claims made policy provisions that can preclude coverage for some or all of the past acts alleged. These coverage limiting provisions can under certain circumstances substantially limit the past acts coverage available under a claims made policy.
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Insurance Coverage: Thinking about the Duty to Cooperate
As I noted in one of the posts in my Nuts and Bolts series about the basics of D&O insurance, the typical D&O insurance policy includes not only obligations for the insurer, but also obligations on the part policyholder as well. Among these policyholder obligations is the duty to cooperate. In most claims, the cooperation duty is not an issue, as the insurer’s requirements and the policyholder’s responses do not lead to conflicts. Unfortunately, from time to time conflicts do arise with regard to the policyholder’s cooperation duty.
In a recent insurance dispute involving the cooperation duties under a CGL policy, the Fifth Circuit held that the cooperation requirements the insurer sought to impose on the policyholder exceeded the policy’s requirements. The decision raises a number of important implications about the cooperation requirement – and about its limits. The Fifth Circuit’s February 26, 2019 opinion in Mid-Continent Casualty Company v. Petroleum Solutions, Inc. can be found here. The Barnes & Thornburg law firm’s April 8, 2019 memo about the decision can be found here.
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The Critical Issue of Private Company D&O Insurance Coverage for Competition Law Claims
One area of potential legal exposure facing corporate executives – including even executives of private companies – is the risk of liability under laws designed to protect competition, including (but definitely not limited to) state and federal antitrust laws. Claims asserting liability under these various legal provisions not only represent a significant liability exposure for corporate executives, but they also present a number of potentially significant issues when it comes to questions of coverage under the typical private company D&O insurance policy. As discussed below, a recent paper discussed a number of these issues; I discuss additional issues below, as well.
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E&O Coverage Barred for Options Trading Losses
In a ruling that turned on the interpretation of a technical financial term, a federal district court concluded that the Options Trading exclusion in an investment firm’s E&O policy precluded coverage for investor claims arising out of a financial transaction gone bad. In concluding that the exclusion precluded coverage, the court applied a standard financial industry definition to interpret the meaning of a specific policy term. The court’s opinion makes for interesting reading and provides food for thought about the policy placement process generally and about the process of policy interpretation. District of Utah Judge Dale Kimball’s March 1, 2019 opinion in the case can be found here.
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