Geoffrey B. Fehling
Michael S. Levine

In the following guest post, Geoffrey B. Fehling and Michael S. Levine review and analyze a September 2, 2021 Fifth Circuit decision in which the appellate court reversed a lower court ruling and held that a D&O insurance policy must cover a settlement related to a social engineering loss. Geoffrey is a counsel in Hunton Andrews Kurth’s Boston office and Michael is a partner in the firm’s Washington, D.C. office. 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.
Continue Reading Guest Post: 5th Circ.: D&O Insurer Must Cover Firm for Social Engineering Losses Despite Professional Services Exclusion

In  a prior post in which I discussed the “basic value proposition” of D&O insurance, I noted that among the five indispensable elements required in order for coverage under a D&O insurance policy to exist is the requirement that the individual seeking coverage must have been acting in an Insured Capacity. The prerequisite that the Insured Person must have been acting in an Insured Capacity at the time of the alleged Wrongful Act arises from the fact that individuals act in a number of different capacities; it is only conduct undertaken in their capacity as an officer or director of the insured company for which the insurance policy provides coverage.

A July 3, 2021 decision by Southern District of New York Judge Gregory H. Woods, applying New York law, provides a good illustration of how individuals may be acting in multiple capacities, and underscores the fact that while the insurance under a D&O policy is only available when the insured is acting in his or her capacity as a director or officer of the insured company, coverage is not entirely precluded if the individual is acting in dual or multiple capacities. A copy of the Judge Woods’s opinion can be found here.
Continue Reading Individuals Acting in Multiple Capacities Entitled to Defense for Acts Undertaken in Insured Capacity

As everyone involved in D&O insurance claims knows, there are a number of frequently recurring coverage issues. But while many coverage issues often recur, the applicable legal principles continue to develop and change. There are resources (such as, for example, this blog) where important developments can be tracked, but sometimes what is called for is a single resource that collects the relevant developments in a single place. Fortunately for D&O insurance practitioners, there is resource that does just that. It is the “Directors & Officers Liability Insurance Deskbook” (about which refer here), an American Bar Association publication written by attorneys from the Clyde & Co. law firm and edited by Martin J. O’Leary of Clyde & Co. The book’s recently published Fifth Edition is a timely update. Every D&O liability insurance practitioner and indeed anyone looking for a quick and ready resource on D&O liability insurance coverage issues will welcome this updated edition.
Continue Reading Book Review: Directors & Officers Liability Insurance Deskbook (Fifth Edition)

One of the recurring D&O insurance issues is whether an insurer seeking to deny coverage for a claim based on the insured’s late provision of notice must show that the late notice prejudiced the insurer. In the following guest post, Peter Selvin, the chair of the Insurance Coverage and Recovery Department at Ervin Cohen & Jessup LLP, takes a look at a recent federal district court ruling that supports policyholder’s arguments that the notice-prejudice rule applies under certain circumstances. A version of this article previously was published in the LA Daily Journal. I would like to thank Peter for allowing me 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 Peter’s article.
Continue Reading Guest Post: New Decision on Late Notice

Most D&O insurance policies specify that the insurer’s advance written consent is required for claim settlement, such consent not to be unreasonably withheld. A frequent insurance coverage battleground issue is whether an insurer’s decision to withhold consent is or is not unreasonable. In the long-running insurance coverage dispute between for-profit education firm Apollo Education Group and its D&O insurer, Apollo contends that the insurer’s refusal to consent to Apollo’s $13.125 settlement of an options backdating-related securities suit was unreasonable. The coverage dispute eventually made its way to the Ninth Circuit, which certified a question of law to the Arizona Supreme Court on the question of the standard of law to be applied to the consent to settlement provision.

In an interesting February 17, 2021 split decision that could have important implications, the Arizona Court held that the objective reasonableness of the insurer’s decision to withhold consent is to be assessed from the perspective of the insurer, not that of the insured. A copy of the Arizona Supreme Court’s opinion can be found here.
Continue Reading Arizona Sup. Ct.: Reasonableness of Insurer’s Refusal to Consent to Settle Determined from Insurer’s Perspective

In a closely watched insurance coverage dispute, the Delaware Supreme Court reversed a lower court rulings and held that an appraisal proceeding is not a “Securities Claim” within the meaning of the defendant company’s D&O insurance policy and therefore that the proceeding is not a covered claim under the policy. Because it ruled there is no coverage, the Court did not address the other more controversial aspects of the lower court’s ruling. The Supreme Court’s October 23, 2020 opinion in In re Solera Insurance Coverage Appeals can be found here.
Continue Reading Delaware Supreme Court: Appraisal Action Not a “Securities Claim” and Therefore Not Covered by D&O Insurance

In a recent decision following a bench trial, a California state court judge held that a D&O insurance policy’s “bump up” exclusion applies to preclude coverage for the settlement of claims by shareholders of the acquired company who claimed they had received inadequate consideration for their acquired shares. The judge’s decision, which reflected her reading of the specific exclusionary language involved as well as the testimony of several witnesses about the meaning of the provision, is interesting in that the “bump up” exclusion fights usually involve claims against the acquirer for paying inadequate consideration, not claims that the acquired company’s investors received inadequate consideration.

The court’s opinion is detailed but merits a full reading. The Court’s October 1, 2020 decision can be found here. (It should be noted that, under applicable procedural rules, the court’s decision is “tentative,” meaning that the parties have 15 days in which to file objections.)
Continue Reading “Bump-Up” Exclusion Blocks Coverage for Inadequate Consideration Paid for Insured Company’s Acquisition

As I have noted in prior posts (most recently here), an important concern these days for insurance industry observers and commentators is “silent cyber” — that is, the coverage for cyber-related losses under traditional property and casualty insurance policies, as opposed to purpose-built cyber insurance policies. For example, in one recent case (discussed here), a court found coverage for cyber losses under a business owner’s policy. While the possibility for finding cyber coverage under several other types of coverage is frequently discussed, one line of coverage that is not frequently considered is fiduciary liability coverage. However, a recent lawsuit, in which a corporate benefits plan participant lost funds to a cyber thief, suggests a way in which a cyber loss potentially could trigger a fiduciary liability policy.
Continue Reading “Silent Cyber” and Fiduciary Liability Claims

A deceased small business owner’s widow sued the business’s two other co-owners for breach of fiduciary duty for failing to apply a life insurance payout to the company to buy out her deceased husband’s shares. The two co-owners submitted the claim to their company’s management liability insurer, which denied coverage for the claim, relying in part on the policy’s contractual liability exclusion. The two co-owners sued the insurer seeking coverage. The district court granted summary judgment for the insurer. On February 19, 2020, the Eighth Circuit, applying Kansas law, affirmed the district court in an opinion that, as discussed below, raises some interesting issues. The Eighth Circuit’s opinion can be found here.
Continue Reading No Contract Claims Asserted, Yet Contractual Liability Exclusion Precludes D&O Insurance Coverage

One of the hot topics for mainstream P&C insurers these days is dealing with “silent cyber” – that is, the coverage for cyber-related losses in traditional property and casualty insurance policies. There are a number of initiatives underway in the insurance underwriting community as insurers try to address silent cyber. However, as noted in an interesting January 14, 2020 memo from the Covington law firm entitled “The Noise About ‘Silent Cyber’ Insurance Coverage” (here), these initiatives have important implications for policyholders. Among other things, these initiatives potentially could result in a gap in policyholders’ coverage for cyber-related losses, as discussed below.
Continue Reading Addressing “Silent Cyber” and the Risk of Coverage Gaps