Over the course of several years in which the marketplace for D&O insurance has been highly competitive, the scope of coverage available has continued to evolve and expand.  Terms and conditions are available today that were not available even a short time ago, as carriers attempt to distinguish themselves in a crowded marketplace. The marketplace is a buyer’s market, but in order to ensure that corporate insurance buyers obtain the best coverage available, it is important for them to understand the options available. In an interesting December 6, 2017 Law 360 column entitled “D&O Insurance Coverage Tips for Financial Institutions” (here) Robert Long and Nanci Weissgold of the Alston & Bird law firm examined the issues and options involving several key areas of D&O liability insurance coverage.
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californiaMost D&O insurance policies have conduct exclusions precluding coverage for fraudulent, criminal, or willful misconduct. However, mere allegations are insufficient to trigger this exclusion. If allegations alone were enough, then many claims that would otherwise be covered under the policy would be precluded from coverage, because many D&O claims involve allegations of fraudulent, criminal, or willful misconduct. These days, the conduct exclusions in most D&O policies require a judicial determination in order for the exclusion’s preclusive effect to be triggered. Exactly what is constitutes a sufficient judicial determination is a matter of policy wording. A recent California intermediate appellate court considered a policy that required a “final adjudication” in order for the exclusion to be triggered and determined that the exclusion did not apply to preclude coverage while the insured person’s appeal remained pending, despite the insured person’s criminal securities fraud conviction. The opinion provides an interesting insight into operation of the conduct exclusion with wording of a type found these days in many D&O insurance policies.
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delawareIn an August 27, 2015 post-trial opinion (discussed here), Delaware Vice-Chancellor Travis Laster found that Dole Foods CEO David Murdock, and the company’s General Counsel and Chief Operating Officer, C. Michael Carter, had committed “fraud” in connection with a November 2013 “going private” transaction. However, according to a December 21, 2016 Delaware Superior Court decision in the subsequent insurance coverage litigation, because Laster’s findings of fraud were not part of the subsequent post-settlement final judgment in the case, the fraud exclusion in Dole’s D&O insurance program did not preclude coverage for the settlement. Anyone interested in understanding how the fraud exclusion in a D&O policy operates will want to read this opinion. A copy of the Delaware Superior Court opinion can be found here.

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nystateA recurring theme on this blog is the problem that the late provision of notice creates for policyholders. Insurers frequently will seek to deny coverage when the policyholder does not provide timely notice of claim. As anyone with day-to-day claims involvement knows, there are a lot of reasons why policyholders fail to provide timely notice of claim. Sometimes the delayed notice is the result of a conscious decision, as, for example, when the policyholder decides that the claim isn’t all that serious. Sometimes, the failure to provide timely notice is the result of an oversight, as, for example, when the policyholder fails to recognize that the matter might be covered by insurance. That this type of oversight might happen is hardly surprising, since even very sophisticated business managers may not be fully aware of what their insurance might cover. When this happens, you would hope that the company’s attorneys would be looking out for them and would ask about the company’s insurance, as a way to help their clients to maximize available insurance protection.

As illustrated by a recent case from New York, it is an all-too-frequent occurrence that a company’s outside counsel fails to ask about the insurance or to inquire whether insurance might be available to protect the company. In discussing the New York case here, I have no interest in encouraging claims against companies’ counsel. Rather, my hope is that by highlighting these issues I will encourage both policyholders and their counsel to include the discussion of insurance into their standard routines at the outset of a claim, as a way to help ensure that policyholders avoid late notice problems and take full advantage of the insurance coverage for which they have paid. A copy of the May 11, 2016 New York intermediate appellate court case, Soni v. Pryor, can be found here. A June 14, 2016 memo from the Pullman & Comley law firm about the decision can be found here.
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nystateOne of the standard features of D&O insurance policy is the fraud exclusion, which these days typically provides that the exclusion is triggered only after a “final” judicial determination that the precluded conduct has occurred. But what is it that makes a determination “final”?

On June 23, 2015, in a decision that has a number of important implications, the New York (New York County) Supreme Court, Appellate Division, First Department, applying New York law, held that the imposition of a post-conviction criminal sentencing constitutes a “final judgment” that not only triggered the fraud exclusion in a D&O insurance policy but also required the convicted individual to reimburse the carrier for amounts it had already paid – even though the individual’s appeal of his criminal conviction was pending.

As discussed below, the court’s opinion has some important lessons for D&O insurance practitioners. A copy of the court’s opinion can be found here.
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nystate1In the latest round in the long-running battle over whether there is D&O insurance coverage for the amounts Bear Stearns paid in settlement of an SEC enforcement action for alleged market timing, the D&O insurers may have finally found an issue on which they may be allowed to try to dispute coverage. Even though, in

virginiaIn a detailed April 23, 2014 opinion (here), Eastern District of Virginia Judge Liam O’Grady, applying Virginia law, held that the guilty pleas of executives of Protection Strategies, Inc. triggered four separate exclusions in the D&O coverage section of PSI’s management liability policy and that the management liability insurer was entitled to

On August 19, 2013, in connection with its entry into a settlement with New York-based hedge fund adviser Phillip Falcone and his advisory firm Harbinger Capital Partners, the SEC for the first time implemented its new policy requiring defendants seeking to settle civil enforcement actions to provide admissions of wrongdoing, in contrast to the long-standing

Lee Farkas, the criminally convicted former Chairman and majority shareholder of  the defunct Taylor Bean and Whitaker Mortgage Corporation, must repay the nearly $1 million in defense fees the company’s D&O insurer had advanced on his behalf, according to an April 11, 2013 Fourth Circuit opinion. The terse three-page appellate opinion adopts the ruling of

The typical D&O insurance policy precludes coverage for loss arising from fraudulent misconduct. But when an insured has been convicted of fraud, whose coverage is precluded? In the second case in recent days to address the consequences for the insured entity of the criminal conviction of one of the entity’s principals, Judge James L. Graham