A coverage defense that insurers frequently raise is the assertion that the amount for which the insurance payment is sought represents uninsurable disgorgement. Beyond the more general question of whether or not disgorgements are or are not insurable is the more specific question of whether or not the amount for which coverage sought represents disgorgement. In an interesting July 30, 2018 opinion in a case involving the investment firm TIAA-CREF, the Delaware Supreme Court, applying New York law, rejected the firm’s insurer’s argument that the amount the firm paid in settlement of three underlying class action lawsuits represented uninsurable disgorgement. The Court expressly distinguished a series of three decisions in which New York courts had ruled that settlement amounts paid in settlement of regulatory enforcement actions represented uninsurable disgorgement. The Delaware Supreme Court’s July 30, 2018 order can be found here.
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Second Circuit: Computer Fraud Coverage Section Covers Fraudulent Email Funds Transfer
In a much anticipated decision, on July 6, 2018 the Second Circuit, applying New York law, affirmed a district court ruling that the computer fraud provisions of a commercial crime coverage section covered the losses Medidata incurred when the company’s employees transferred funds in response to a spoofed email. The appellate court’s opinion could prove valuable for other policyholders seeking to establish that their crime policies provide coverage for losses incurred as a result of social engineering fraud (also known as payment instruction fraud). The Second Circuit’s July 6, 2018 opinion can be found here.
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Guest Post: Another Court Applies New York’s “Sufficient Factual Nexus” Test to Related Claims
As I have frequently noted on this blog (for example, here), problems involving relatedness between claims present recurring coverage issues under D&O insurance policies. In the following guest post, Maurice Pesso and Greg M. Steinberg of the White and Williams LLP law firm take a look at a recent decision out of the Northern District of Illinois applying New York law to a D&O insurance dispute involving related claims issues. I would like to thank Maurice and Greg for their willingness to allow me to publish their article 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 Maurice and Greg’s guest post.
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Insurance for Fraudulent Misconduct Does Not Violate Delaware Public Policy
The insurance coverage litigation arising from the settlement of the shareholder claims filed in connection with the Dole Food Company’s November 2013 “going private” transaction continues to grind on. In the latest development in the coverage dispute, a Delaware Superior Court judge has entered a number of interesting rulings, deciding among other things that an underlying determination that an insured committed fraud does not make the claim uninsurable as a matter of Delaware law. Delaware Superior Court Judge Eric Davis’s March 1, 2018 opinion in the Dole Foods coverage litigation can be found here.
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Failure to Maintain Insurance Exclusion Precludes Coverage for Defense Costs Incurred in a Lapsed Life Insurance Dispute
In a recent insurance coverage lawsuit arising out of an underlying dispute over who was responsible for the lapse of a key man life insurance policy, a court determined that coverage for the attorneys’ fees a management consulting firm incurred in defending against the underlying claim was precluded by the failure to maintain insurance exclusion in the consulting firm’s professional liability insurance policy. Because coverage disputes involving a failure to maintain insurance exclusion are relatively rare, the court’s decision provides an opportunity to consider the exclusion and how it might affect the availability of coverage in certain claims situations.
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“Other Insurance” Issue is Not the Policyholder’s Problem
When two or more insurers’ policies potentially cover a single loss, “other insurance” questions can arise. Over the years, courts have developed a number of rules of the road to apply when multiple policies potentially cover the same loss. But these principles govern the obligations and responsibilities between the insurers, and not between the insurers, on the one hand, and the policyholder, on the other hand. These principles were well-illustrated in a recent case out of the Southern District of South Carolina in which Judge Henry Herlong held that the possible application of another policy of insurance did not entitle an insurer to a pro rata apportionment of its loss payment to its insured. The case provides a good example from which to consider the insurer’s rights and obligations are in these situations. Judge Herlong’s November 7, 2017 Opinion in the case can be found here. The Wiley Rein law firm’s November 17, 2017 post about the decision on its Executive Summary blog can be found here.
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Guest Post: Fee Exclusion Precludes Coverage with No Allowance for Defense Costs
In prior posts (most recently here) I have reviewed cases in which courts considered the question of insurance coverage for a bank’s obligation to repay allegedly improper overdraft fees. The following guest post discusses a recent overdraft fee coverage case from the Seventh Circuit. BancorpSouth v. Federal Insurance Co. (the opinion can be found here). In this guest post, Chris Graham, a founding partner of Jones Lemon Graham LLP, and Shelly Hall, an attorney at the firm and business law adjunct professor, provide an overview of the Seventh Circuit case and also provides a chronology of other overdraft fee coverage cases. A prior version of this article previously appeared on the law firm’s website (here). I would like to thank Chris and Shelly for their willingness to allow me to publish their article as a guest post. 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 an article. Here is Chris and Shelly’s guest post.
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On the Meaning of “War”
Many insurance policies contain a war exclusion precluding coverage for loss caused by war. But in world where violent conflicts involve a wide variety of different groups and parties, what exactly constitutes “war”? In a recent coverage dispute presenting this issue, a federal judge concluded that the 2014 armed conflict between Israel and Hamas disrupted its film production activities involved both “war” and “warlike action,” and therefore that coverage for the Universal Cable Production for the costs it incurred as a result of the conflict was precluded under the company’s insurance policy. The case raises a number of interesting issues that are likely to recur in our current unstable and violent world. Northern District of California Judge Percy Anderson’s October 6, 2017 decision in the Universal Cable case can be found here.
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What Happens When the Policy Doesn’t Say What was Intended?
During the insurance placement process, important policy terms and conditions are often the subject of negotiation. If things go as intended, the policy that is later issued accurately reflects the outcome of the negotiations. A frequently recurring question is what to do if it is later contended that the policy as issued does not accurately reflect what was negotiated.
These issues were involved in a recent insurance coverage dispute in California between a law firm and its professional liability insurer. When the law firm had renewed its insurance, it had increased the limits of liability available under its professional liability insurance policy from $2 million to $4 million. In arguing that only $2 million of coverage was applicable to a subsequent claim, the insurer sought to rely on a manuscript policy endorsement the insurer argued set policy inception as the past acts date for the $2 million excess of $2 million of limits. In a May 11, 2017 order (here) holding that the full $4 million limit of liability was available for the underlying claim, Central District of California Judge Josephine Staton, called the endorsement on which the insurer sought to rely “indecipherable,” adding that the insurer “must accept the consequences of its slapdash drafting.”
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Late Notice Defense Rejected Where Insurer’s Response Undercuts Prejudice Claim
A recurring professional liability insurance coverage issue is whether or not the notice prejudice rule applies to claims made policies. In a recent decision, District of Colorado Judge Richard P. Matsch, applying Colorado law, held that the notice prejudice rule did apply to claims made professional liability insurance policy with an “as soon as practicable” notice requirement, and he also rejected the carrier’s late notice defense on the grounds that the insurer’s failure to involve itself in or even inquire about the underlying claim undermined its assertion that it had been prejudiced by the late provision of notice.
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