D&O Insurance coverage

Francis Kean

Regular readers of this blog know that class action litigation is an important part of the Australian liability environment. Although comparisons between the Australian class action system and the U.S. system are frequent, there are important differences in class action litigation in the two legal systems, particularly with respect to securities class action litigation. In the following guest post, Francis Kean, Executive Director in Willis Towers Watson’s FINEX Global, takes a look at important differences in claims against issuer companies between the two legal systems and the important implications of these differences for purposes of D&O insurance coverage. This guest post is based on Francis’s original post on the Willis Towers Watson Wire blog. I would like to thank Francis 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 Francis’s guest post.
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In the following guest post, Jennifer Bergstrom, Esq., Senior Claim Counsel, Hiscox USA, Elan Kandel, Esq. and Jennifer Lewis, Esq. of Bailey Cavalieri take a look at the key D&O insurance coverage decisions of 2017. I would like to thank the authors for allowing me to publish their article. 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 the authors’ guest post.
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Peter Gillon
Eric Gold

In the following guest post, Peter Gillon and Eric Gold of the Pillsbury Winthrop Shaw Pittman law firm take a look at one of important drop down features of Side A DIC insurance coverage, the coverage that is triggered when an underlying carrier denies coverage. I would like to thank Peter and Eric for their willingness to allow 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 site’s readers. Please contact me directly if you would like to submit a guest post. Here is Peter and Eric’s guest post.
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Umesh Pratapa

In the Companies Act 2013, India’s parliament incorporated a provision allowing for the “compounding” of offenses. “Compounding” is a way for an accused violator to avoid litigation. It is a settlement process by which the accused pays a fee instead of undergoing prosecution. In the following guest post, Umesh Pratapa takes a look at the Companies Act’s compounding provisions, and examines the question of the availability of D&O for amounts paid in a compounding process. I would like to thank Umesh for his willingness to allow me to publish his article here. 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 Umesh’s guest post.
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GaRegular readers know that one of my hobby-horse issues is the way that some D&O insurers try to deny coverage for claims in reliance on an overbroad assertion of the professional services exclusion typically found in most private company D&O insurance policies. A D&O insurer’s sweeping assertion of exclusion’s preclusive affect can be a particular challenging for companies in services industries, because just about everything a services company does involves its services. When applied this way, the professional services exclusion exerts a preclusive reach that potentially could operate to swallow up the coverage available under the policy.

A recent decision from the Northern District of Georgia addressed these issues in a coverage dispute in which a private company D&O insurer had relied on the professional services exclusion to deny coverage for an underlying claim against a real estate listing Service Company. The Court concluded in its opinion granting the policyholder’s motion for summary judgment that because the underlying claim did not claims relate to the real estate listing service company’s “specialized knowledge,” the professional services exclusion did not apply. A copy of the March 22, 2016 opinion in the case can be found here. A May 26, 2016 memo from the Phelps Dunbar law firm about the decision can be found here.
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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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Ninth Circuit bitmapPublic 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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Donna Ferrara

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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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. 
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tenthcircuitIn an important decision concerning D&O insurance coverage in connection with failed bank claims, the Tenth Circuit, applying Kansas law, held that a D&O policy’s insured vs. insured exclusion unambiguously precluded coverage for claims brought by the FDIC as receiver of a failed bank against the bank’s former directors and officers. The Tenth Circuit’s decision arguably contrasts with the Eleventh Circuit’s December 2014 decision in the Community Bank & Trust case (about which refer here), in which the Eleventh Circuit had held that the insured vs. insured exclusion at issue in that case was ambiguous with respect to the question of whether it precluded coverage for FDIC’s failed bank claims. However, the specific language in the exclusion at issue in this case precluding coverage for claims brought a “receiver” of the insured company – language not present in the policy the Eleventh Circuit considered — was a dispositive factor in the Tenth Circuit’s conclusion about the exclusion’s applicability. A copy of the Tenth Circuit’s August 6, 2015 decision can be found here.
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