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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

Umesh Pratapa

As many insurance industry observers know, one of the great concerns within the industry now is the possible impact of “silent cyber” – that is, the potential for cybersecurity-related coverage outside of purpose-built cyber insurance policies. In the following guest post, Umesh Pratapa takes a look at the silent cyber phenomenon.  A version of this article previously was published on Umesh’s website (here). Umesh is an independent insurance consultant based in India. I would like to thank Umesh for allowing me 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 Umesh’s article.
Continue Reading Guest Post: Silent Cyber – Is it Deafening?

Francis Kean

Earlier this month I published a guest post in which John McCarrick and Paul Schiavone suggested various policy terms and conditions they proposed should be revisited as D&O insurers seek profitability. My comments on their proposals appeared as an appendix to John and Paul’s article. John and Paul’s article has provoked a series of responses. Last week, I published a second guest post in which Paul Ferrillo provided his thoughts in response to John and Paul’s article. And in yet another guest post, Gil Isidro provided his comments as well. Now, as set out below, Francis Kean adds his voice to the dialog. Francis is Executive Director FINEX Willis Towers Watson. I would like to thank Francis for allowing me to publish his comments. Here is Francis’s article.
Continue Reading Guest Post: D&O Insurance: A Crisis of Complexity

Many of you probably saw the news this past week that Target has filed a lawsuit against one of its insurers over losses the company sustained in connection with the company’s 2014 data breach. The Target lawsuit is the latest in a series of high profile insurance battles in which companies are seeking to recoup losses resulting from cybersecurity incidents. However, as my friend, colleague, and Cyber insurance maven Mickey Estey pointed out to me, in its lawsuit Target is in fact not seeking to recover its claimed losses under a cyber insurance policy; rather, in its latest lawsuit, Target is seeking to recover for certain of its losses under its general liability policy. The Target lawsuit is only the latest in a series of high-profile insurance disputes in which companies that have sustained losses from a cybersecurity event are seeking coverage under a variety of different types of policies.
Continue Reading Seeking Insurance for Cybersecurity-Related Losses

Dan Wolf

As I discussed in a recent post, in July 2019, a Delaware Superior Court judge held that an appraisal action is a Securities Claim within the meaning of the applicable D&O insurance policy. While this part of the court’s ruling was noteworthy, there was another part of the court’s ruling that was also important. In addition to the Securities Claim issue, the court also determined that policy provided coverage for pre-judgment interest on the fair value payment in the appraisal action, even though the policy did not provide coverage for the payment itself.

In the following guest post, Dan Wolf, an associate at the Gilbert law firm, takes a look at the pre-judgment interest aspect of the recent Delaware opinion. Among other things, Dan suggests that this aspect of the court’s decision changes defendants’ analysis of whether or not to prepay appraisal claimants. A version of this article first appeared on his firm’s blog, here. I would like to thank Dan for his willingness to allow me 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 blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Dan’s article.
Continue Reading Guest Post: Delaware Court Ruling Creates New Wrinkle for Defendants Evaluating Appraisal Claims

One way or the other, I have been doing D&O for more than 35 years. One of the reasons I love what I do is that there is always something new and so I am always learning. This week’s new thing is a recent ruling by a federal district court ruling that a debtor’s insurer could not rely on a bankruptcy exclusion in the debtor’s D&O policy to deny coverage for an underlying claim because the exclusion violates the bankruptcy code’s probation against ipso facto provisions in executory contracts. In all my years, I don’t believe I have ever run across the bankruptcy code’s ipso facto provision prohibition, so the district court’s ruling in this case was a learning opportunity for me – and I suspect it will be for most readers as well.
Continue Reading D&O Policy’s Bankruptcy Exclusion is a Prohibited Ipso Facto Provision and Unenforceable

In the latest development in nearly decade-long legal battle, a New York intermediate appellate court has held in light of the U.S. Supreme Court’s 2017 decision in Kokesh v. SEC that amounts Bear Stearns paid under an SEC disgorgement order represent a “penalty” for which coverage is precluded under the bank’s insurance policy. This ruling, which overturned a trial court order holding that the disgorgement amount was covered, represents a substantial reversal of fortune for the claimants in this long-running and high-profile insurance coverage dispute. While further proceedings in the case seem likely, the ruling nevertheless represents a setback for policyholders seeking to establish insurance coverage for disgorgement amounts. The intermediate appellate court’s September 20, 2018 opinion can be found here.
Continue Reading N.Y. Appellate Court: Coverage Precluded for Disgorgement “Penalty”