August 27.2014

The Napa Earthquake – The Time To Think About Insurance Coverage Is Now

by David Smith

Last weekend’s Napa earthquake served as a wake-up call for everyone living and working in the Greater Bay Area. As with all natural disasters, after the immediate clean-up is over the analysis will begin as to how to make buildings safer and how to prevent and minimize injuries and damage.

But if you have a business that was affected by the earthquake, now is the time to be looking at your insurance policies, even while you are still sweeping up the debris and are wondering what the extent of the damage is.

If you have earthquake coverage, your insurance company can be an important resource. Insurers have experience handling disasters of all types. They have a large pool of consultants and experts who can help minimize the effect of the earthquake on your business – by providing resources to help with clean-up, estimating the extent of the damage, finding contractors quickly, and generally helping you through the crisis period.

However, insurance companies don’t know your business or your premises nearly as well as you do. Insurance adjusters – particularly in times of disasters when they are flooded with claims – will sometimes try to impose “cookie-cutter” solutions on unique situations. This could be especially true in the Wine Country, given the unique nature of the items damaged, such as historic buildings or high-quality wine. An area such as Napa, replete with wineries and specialty boutiques, restaurants and businesses, is ripe for coverage disputes over the value of damaged property, even after the scope of the damage has been agreed.

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Posted in Property Insurance

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August 26.2014

$1B Temblor Should Prompt Cos. To Revisit Quake Insurance

by Dennis Cusack

The 6.0 Napa earthquake has altered business in an around the Napa Valley, and Law360 called to ask my thoughts on earthquake insurance.  While the article requires a subscription, my key point is:

“This earthquake is a reminder of what we’ve been told for some time now — that the odds of a major earthquake in Northern California over the next 20 years are very high,” said Dennis Cusack, a partner at Farella Braun & Martel LLP. “It’s a very real risk, and in some cases, a greater risk than a fire on a property. It should lead businesses to at least consider the costs and benefits of earthquake insurance.” 

Read the full article here (subscription required).

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Posted in Property Insurance

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August 11.2014

Mindful Case Management

by Dennis Cusack

We recently litigated and successfully settled an insurance coverage case that offers a model for managing a case thoughtfully. Too often, parties reflexively dive into litigation with its procedural hurdles and delays, unbounded discovery, and often unnecessary motion practice, without considering whether a more efficient but fair alternative exists. Our group regularly seeks to fashion a sensible case-specific dispute resolution process at the outset. These models also allow us to offer creative fee arrangements that build incentives to optimize the costs and recoveries for the client.

Our client company and its officers were named in an intellectual property lawsuit. The same insurer provided CGL and D&O policies. It denied coverage under the CGL. It initially agreed to defend under the D&O policy but later withdrew its defense over our objections.

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August 06.2014

Recent Developments in California Bad Faith Law and Related Trends

by Tyler Gerking

On July 29, 2014, I spoke on a panel about recent developments in California bad faith law and related trends.  My co-presenter was Robert K. Scott of The Law Offices of Robert K. Scott, and we gave the presentation at ACI’s 28th National Advanced Forum on Bad Faith Claims & Litigation in San Francisco.  The title of the presentation was “The Positions of the Policyholder’s Bar:  How insurers can avoid bad faith claims and tailoring your litigation strategies to the latest wave of first-party and third-party claims.” Some of the highlights included:  

  • the recent trend of bad faith claims handling conduct by insurers in responding to defense cost submissions by independent counsel under Section 2860, including the hiring of outside auditors to justify reduced insurer payments on defense bills;  
  • the state of the “genuine dispute” doctrine in bad faith claims arising out an insurer’s breach of the duty to defend (i.e., Mt. Hawley v. Lopez, 215 Cal. App. 4th 1385 (2013)); and 
  • 2013 case law on whether insurers have an affirmative duty to proactively seek settlement in excess-of-limits exposure cases (i.e., Reid v. Mercury Ins. Co., 220 Cal. App. 4th 262 (2013) and Travelers Indem. Of Conn. v. Arch Specialty Ins. Co., 2013 WL 6198966 (E.D. Cal. Nov. 26, 2013)).  See John Green’s article about Reid posted on this blog

These are evolving areas of law that are likely to produce further disputes between insurers and insureds.  Early insurance coverage advice can help avoid these disputes, or at least position the insured for a more favorable outcome if litigation becomes necessary.  I’ll be writing in more detail about these on this blog over the next couple months.

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Posted in Bad Faith

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July 28.2014

Court Finds Coverage For Settlement Of Restitution Claim

by John Green

Insurers often take the position that indemnification for claims for “restitution” are barred by public policy, and contend they have no obligation to reimburse a settlement of such claims. They often take this position even if the policy itself states that coverage can only be denied if there is a “final adjudication” the insured has obtained a personal profit to which it was not entitled.

This position is based largely on  Level 3 Communications, Inc. v. Federal Insurance Co., 272 F.3d 908 (7th Cir. 2001). In that case, Judge Posner ruled that indemnification of restitution was barred by public policy, and the public policy prohibition applied regardless of whether indemnification is for a judgment or settlement. Level 3, however, did not address the “Personal Profit” exclusion. We have argued that Level 3 does not apply to settlements, particularly where there is a “Personal Profit” exclusion which is expressly limited to cases in which liability is determined by a “final adjudication.”  Recently, a Federal District Court in Minnesota has reached exactly this conclusion. See U.S. Bank Nat’l. Assoc. v. Indian Harbor Insurance Company , U. S. District Court. Dist. of Minn., Case No.: 12-CV-3175 (July 3,2014). In U.S. Bank, the Court looked at Delaware law, and determined there was no Delaware public policy against indemnification for restitution. Moreover, the Court held that the “Ill-Gotten Gains” exclusion further supported coverage. 

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July 18.2014

D&O Coverage: The Devil Is In the Details

by Mary McCutcheon

A five-paragraph opinion by the New York Appellate Division suggests the potentially devastating consequences of ignoring the fine print of Directors & Officers Liability insurance policies. In Associated Community Bancorp., Inc., et al. v. St. Paul Mercury Ins. Co., 2014 NY Slip Op 04697 (App. Div., First Dept.), the court held that a bank caught up in the Madoff debacle had no coverage, not even for defense costs, for investor claims.

The court devoted one paragraph to each of the four exclusions which it found eliminated coverage for the investors’ claims. Three of those exclusions are fairly unique to Bankers Professional Liability Insurance Policies and are not found in most D&O policies. However, the Court’s final ground for denying coverage was the policy’s “Personal Profit and Advantage Exclusion” (often called the Profit/Advantage Exclusion).

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Posted in D & O

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July 02.2014

California Supreme Court Refines the Tort of Commercial Disparagement

by Tyler Gerking

On June 12, 2014, the California Supreme Court issued its decision in the closely watched case of Hartford Casualty Insurance v. Swift Distribution, Inc., S207172.  I reported on the Court of Appeals decision last year on this blog in the post "California Supreme Court to Decide Scope of Implied Disparagement; Implications for Coverage in IP and False Advertising Cases" and related article "California To Draw The Lines In Disparagement Liability"

The Court affirmed the Court of Appeals ruling that an insurer did not have a duty to defend its insured against allegations that it had infringed a competitor’s trademark and patents by producing and selling a similar looking music equipment cart with a very similar name (“Multi-Cart” vs. “Ulti-Cart”). Id.  The insured argued that there was a potential for covered damages, and hence a duty to defend, because the underlying complaint alleged facts supporting a claim of implied disparagement, and its general liability policy covered damages because of the publication of material that “disparages a person’s or organization’s goods, products or services.”  The Court found no potential for liability based on disparagement, either express or implied, reasoning that the insured was not alleged to have identified the competitor or its product, or to have “necessarily referred to and derogated” the claimant’s product. 

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Posted in General Liability Policies, Intellectual Property Claims

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June 26.2014

Halliburton Decision May Drive Up Litigation Costs and Impact Settlement

by Amanda Hairston

The U.S. Supreme Court’s recent decision in Halliburton Co. v. Erica P. John Fund, Inc. is not the game changer for securities litigation that some hoped for, but D&O insurers will be keeping a close eye on securities cases to see whether the decision increases defense costs or changes settlement calculations. 

In Halliburton, the Supreme Court refused to overturn its decision in Basic Inc. v. Levinson, which held that plaintiffs in securities class actions do not need to prove that the class members actually relied on the alleged misrepresentations at issue.  The Court did rule, however, that defendants can now challenge the presumption that the alleged fraud affected share prices at the class certification stage.  The ruling does not give defendants a new right as they were free to challenge the “price impact” presumption after class certification through summary judgment or at trial, but it does mean that defendants can mount this challenge earlier.  Doing so would increase up-front litigation costs, resulting in self-insured retentions being eroded more quickly and implicating D&O coverage at an earlier point.  

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Posted in D & O

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June 19.2014

Newly-Published Regional Steel Case Raises More Questions Than It Answers

by Erica Villanueva

In May, California’s Second Appellate District affirmed a summary ruling that a Commercial General Liability insurer did not have a duty to defend a subcontractor who supplied faulty “seismic tie hooks” that were encased in concrete shear walls.  The case is Regional Steel Corporation v. Liberty Surplus Insurance Corporation, Cal. Ct. App. 2d Dist. B245961, and the court has just granted Liberty’s request to certify the case for publication. 

The Second Appellate District declined to follow the “incorporation doctrine,” adopted by the First Appellate District in cases such as Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co., 45 Cal.App.4th 1 (1st Dist. 1996), Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., 78 Cal.App.4th 847 (2000).  At issue in Armstrong was the cost of removing asbestos-containing building materials, which had been installed in larger structures.  At issue in Shade Foods was a supply of ground almonds that was contaminated with wood chips, but had been incorporated into “nut clusters” for breakfast cereal.  In both cases, the First Appellate District held that the mere incorporation of these faulty products or material into third-party property constituted covered “property damage.” 

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Posted in Construction Insurance, General Liability Policies

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April 23.2014

Panel Discussions on Mitigating Cyber Risk

by Tyler Gerking

Earlier this month, I gave a presentation with Irfan Saif, principal of Deloitte & Touche, on cyber insurance at the Institute for Advance Corporate Counsel (iACC) in Burlingame, CA.  We discussed how companies can analyze their data-related risks and develop strategies to mitigate those risks, including through the purchase of insurance.  Because cyber insurance is still a developing market, insurance policy forms are far from standardized and often can be negotiated.  As a result, it is important to carefully analyze your company’s data security risks and the proposed policy forms when considering the purchase of cyber insurance.  This is particularly critical when the company’s risks are related its data held by third-parties or computer systems that rely on third-party systems, as the scope of coverage for these risks varies widely among the policy forms currently available.

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