insurance coverage litigation

Ninth CircuitDuring the course of the wave of failed bank litigation following in the wake of the global financial crisis has been a raft of related coverage litigation addressing the question of whether coverage for claims by the FDIC as receiver of the failed bank against the bank’s former directors and officers is precluded by the D&O insurance policy’s Insured vs. Insured exclusion. A number of courts have found the exclusion to be ambiguous and therefore that the exclusion does not preclude coverage for the FDIC-R’s claims (for example, refer here), while other courts have found the specific exclusions at issue to unambiguously preclude coverage (refer for example here). In the most recent court decision to address these issues, the Ninth Circuit, in a short unpublished October 19, 2016 per curiam opinion (here) affirmed the holding of the district court finding the Insured vs. Insured exclusion applicability to claims brought by the FDIC as receiver is ambiguous, and therefore the exclusion cannot be applied to preclude coverage for the FDIC’s claims against the former directors and officers of the failed Pacific Coast National Bank.
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Anderson_Roberta (1)Cyber liability insurance is a relatively new product and case law interpreting the policies is only now just developing. However, even at this relatively early stage, there have been some important coverage decisions, and more are coming, as more coverage disputes arise. In the following guest post, Roberta Anderson takes a look at the steps companies can take to decrease the likelihood of a coverage denial and of litigation. Roberta is an Insurance Coverage partner in the Pittsburgh office of K&L Gates LLP and co-founder of the firm’s global Cybersecurity, Privacy and Data Protection practice group. A version of this article previously appeared on Law 360.

 

I would like to thank Roberta for her willingness to publish her article on my site. I welcome guest posts from responsible authors on topics of interest to readers of this blog. Please contact me directly if you would like to publish a guest post. Here is Roberta’s article.

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Many insurance coverage disputes can be, should be, and are settled without the need for litigation and its attendant costs and distractions.  However, some disputes cannot be settled, and organizations are compelled to resort to courts or other tribunals in order to obtain the coverage they paid for, or, with increasing frequency, they are pulled into proceedings by insurers seeking to preemptively avoid coverage.  As illustrated by CNA’s recently filed coverage action against its insured in Columbia Casualty Company v. Cottage Health System,[i] in which CNA[ii] seeks to avoid coverage for a data breach class action lawsuit and related regulatory investigation,[iii] cyber insurance coverage litigation is coming.  And in the wake of a data breach or other privacy, cybersecurity, or data protection-related incident, organizations regrettably should anticipate that their cyber insurer may deny coverage for a resulting claim against the policy.

Before a claim arises, organizations are encouraged to proactively negotiate and place the best possible coverage in order to decrease the likelihood of a coverage denial and litigation.  In contrast to many other types of commercial insurance policies, cyber insurance policies are extremely negotiable and the insurers’ off-the-shelf forms typically can be significantly negotiated and improved for no increase in premium.  A well-drafted policy will reduce the likelihood that an insurer will be able to successfully avoid or limit insurance coverage in the event of a claim.

Even where a solid insurance policy is in place, however, and there is a good claim for coverage under the policy language and applicable law, insurers can and do deny coverage.  In these and other instances, litigation presents the only method of obtaining or maximizing coverage for a claim.
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caliAs I have previously noted on this blog, one of the recurring D&O insurance coverage issues arising during the latest bank failure wave has been the question whether the Insured  vs. Insured Exclusion precludes coverage for claims brought by the FDIC in its capacity as receiver for a failed bank against the failed bank’s former

delaware2In a May 28, 2014 opinion (here), the Delaware Supreme Court held that an action by the bankrupt Washington Mutual bank holding company’s liquidating trust seeking a judicial declaration of coverage under the bank’s D&O insurance program for claims asserted by the trust against the failed bank’s directors and officers must be dismissed

rhode islandWell-advised professional services firms will carry both errors and omissions insurance and management liability insurance. A recurring problem under management liability insurance policies for all types of professional services firms relates to the very broad professional services exclusions often found in these polices. These exclusions preclude coverage for claims relating to the professional services firm’s