Over the last few days, I have published several posts looking back at 2017. In addition to looking back, this is also the time of year for looking forward as well. Among other things to watch out for this year is a series of D&O insurance coverage cases that are now pending in the appellate courts. In a January 9, 2018 article (here, subscription required), Law 360 author Jeff Sistrunk identifies three of these cases to watch this year. As discussed below, these cases not only are worth watching but could have important ramifications as well.
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Guest Post: The Year in Review: 2017 Key D&O Insurance Coverage Decisions
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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Key D&O Insurance Policy Wording Issues and Coverage Concerns
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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Professional Services Exclusion Precludes Coverage for All Insureds, Not Just Those Performing Services
If a D&O insurance policy exclusion precludes coverage for loss arising out of the performance of professional services, does the exclusion preclude coverage for all insureds or just the insureds who performed the services? In a July 5, 2017 opinion (here), the Eleventh Circuit, applying Florida law in a case related to the Rothstein law firm Ponzi scheme scandal, held that a bank’s D&O insurance policy’s professional services exclusion’s preclusive effect applied jointly and therefore precluded coverage for all insureds, not just for the individuals delivering the services. The decision raises some interesting issues, as discussed below.
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Policyholder Group Supports Appeal Involving Professional Services Exclusion
Regular readers know that one of my hobby-horse issues is what I perceive as insurers’ overbroad application of the professional services exclusion typically found in private company D&O insurance policies, particularly with respect to policyholders in services businesses. Because of this long-standing concern, I was interested to see that a policyholders’ rights group has filed an amicus brief in the Ninth Circuit in support of a policyholder’s appeal of a district court ruling that coverage under a D&O insurance policy for the underlying claim was precluded by the professional services exclusion. While the amicus brief may help focus the appellate court on the problems involved in what is a recurring situation, the larger point may be that as an industry we need to address a problem that affects all industry participants.
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Guest Post: Professional Services: What Does this Term Mean in an Exclusion Clause?
As I have noted in several posts on this site (most recently here), one of the recurring D&O insurance coverage questions is the extent of the preclusive effect of the professional services exclusion. In the following guest post, Rehana Box and Marie Vlassis of the Ashurst law firm take a look at judicial developments in Australia regarding this issue. This article previously appeared in the LexisNexis Australian Insurance Law Bulletin. I would like to thank Rehanna and Marie for their willingness to publish their 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 publish a guest post on this site. Here is Rehana and Marie’s guest post.
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D&O Insurance: More About the Professional Services Exclusion Problem
Regular readers know that one of my recurring private company D&O insurance coverage concerns has to do with the professional services exclusion and the way many carriers seek to phrase, interpret, and apply the exclusion, particularly with respect to insured companies engaged in service businesses. My concern is that all too often the exclusion is written over-broadly and applied over-broadly in a way that threatens to entirely swallow up coverage under the policy. A July 28, 2016 coverage decision by District of Maryland Judge J. Frederick Motz expressly addresses several of my recurring concerns about the professional services exclusion, as I discuss further below. A copy of the July 28, 2016 opinion can be found here.
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Professional Services Exclusion Not Triggered Where Allegations Did Not Involve Specialized Knowledge
Regular 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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Two Things D&O Insurers Regularly Get Wrong
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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D.C. Appellate Court Reverses Ruling that Professional Services Exclusion Bars Coverage for Failed Investment Firm’s Claims
The problems that can arise from the wording of the professional services exclusion in a service company’s D&O insurance policy are perennial issues and a recurring topic on this blog (see for example here). When the exclusion in a service company’s management liability policy is interpreted broadly the exclusion can sweep so extensively that it can preclude coverage for the very types of claims the management liability policy was intended to insure. A recent decision from the District of Columbia’s highest court highlights these concerns.
In a February 11, 2016 District of Columbia Court of Appeals decision (here), the appellate court, applying District of Columbia law, reversed a lower court ruling that the professional services exclusion in the management liability insurance policy of defunct Carlyle Management LLC precluded coverage for the various claims that had been asserted against Carlyle, related entities, and its senior officials. The Court of Appeals did not affirmatively conclude that the underlying claims were covered; rather, it held only that the broadly worded professional liability exclusion was ambiguous, and that the question of coverage is properly a question for a factfinder. While the appellate court did not affirmatively find coverage, the court’s opinion underscores the concerns with interpreting and applying the professional liability exclusion in a service firm’s management liability insurance policy too broadly.
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