April 15.2015

Don’t Be the Scapegoat for a Failed Investment or Business Strategy

by Tyler Gerking

I will be speaking tomorrow at BASF (301 Battery Street, 3rd Floor, San Francisco) about insurance coverage issues arising out of legal malpractice claims. The presentation is “Don’t Be the Scapegoat for a Failed Investment or Business Strategy.”  I will be co-presenting with John B. Sullivan of Long & Levit, LLP and Matthew S. Kahn of Gibson, Dunn & Crutcher LLP.  A link to the flyer for the presentation is here. Please join us tomorrow for an engaging discussion about legal malpractice and related insurance coverage issues.

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Posted in Speaking Engagements

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April 03.2015

Mind the Gap! Avoiding Unexpected Gaps in Insurance Programs

by Mary McCutcheon

No one insurance policy covers all liability risks. Risk managers expect to purchase several types or layers of insurance to cover different types of insurance liabilities, to provide sufficient limits for a catastrophe loss, or to provide coverage over multiple policy years. They may be surprised to learn however, that what they thought was a comprehensive and seamless program in fact contains glaring but avoidable gaps.

Consider the following: 

  1. A social networking site for minors purchases an insurance policy which contains a “Technology, Media and Professional Services” component defining “Professional Services” as “providing advertising services for others, for a fee.” The same policy also includes a D&O component which excludes coverage for any claim “based upon, arising out of, attributable to, directly or indirectly resulting from, in consequence of, or in any way involving the rendering or failing to render professional services.” “Professional services” is not defined in the D&O component. Consumers complain that the site contains inappropriate content, and the State Attorney General sues the site for false advertising, alleging it misrepresented its efforts to protect minors from inappropriate content. The insurer denies coverage under the Technology, Media, Professional and Services component of the policy because the claim does not relate to the site’s “paid provision of advertising to others,” i.e., the claims do not allege covered “Professional Services” (the defined term).  It also denies coverage under the D&O component on the grounds that the “professional services” (the undefined term) exclusion extends to all services involved in operating the website. Surprisingly, the liability does not fall under either policy because the coverage grant in the professional services coverage was not broad enough to pick up the services the court found were excluded under the D&O coverage.

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Posted in D & O, General Liability Policies, Risk Management

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February 02.2015

A Zealous Defense Can Affect Insurance Coverage

by Dennis Cusack

A law firm asked us for advice a few months into a fast-moving intellectual property lawsuit.  The complaint alleged trademark and copyright infringement claims against the company and two of its officers.  They noted that while the defense was being provided under the D&O policy based on the allegations against the individual officers, plaintiff had only served the company.  The judge was now putting pressure on plaintiffs to “clean up the pleadings” and either serve the individuals or dismiss them. 

We immediately told defense counsel to call plaintiffs and offer to accept service on behalf of the individuals.  Why?  Because private company D&O policies provide broad coverage for the individuals, including for intellectual property claims.  For these claims, individuals are covered but the company is not.  A dismissal of the individuals would give the insurer an excuse to withdraw the defense.  Unfortunately, plaintiffs that same day had already filed a dismissal of the individuals without prejudice.  As expected, the insurer withdrew its defense over our protests.

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Posted in D & O

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December 22.2014

CA Court of Appeals Confirms that Insured Need Not Accept 2860 Rate Caps For Work Done After Tender, But Before Insurer Accepts Defense

by Erica Villanueva

A recent unpublished decision from California’s Second Appellate Division highlights one of the most common mistakes lawyers make when obtaining insurance coverage for the defense of a lawsuit:  accepting the insurer’s ultra-low hourly rate caps for charges incurred before the date on which the insurer actually acknowledged its defense obligation and began defending.

The case is City Arts, Inc. v. Superior Court (Travelers Property Casualty Company of America), B256132 (issued Dec. 9, 2014).  There, Travelers agreed that its obligation to defend an underlying lawsuit against City Arts was triggered no later than April 2009.  However, Travelers did not actually agree to begin reimbursing defense costs until February 2010.  (In the intervening 10 months, Travelers and City Arts exchanged a series of letters arguing about whether Travelers had a duty to defend, before Travelers finally relented in February 2010.)  Nevertheless, Travelers claimed that it could impose its hourly rate caps on all charges incurred from April 2009 forward.

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October 21.2014

Data Breach and Liability Insurance: Managing the Potential Risk and Addressing Claims

by Tyler Gerking

On November 12, 2014, I will be participating in a webinar “Data Breach and Liability Insurance: Managing the Potential Risk and Addressing Claims” through the Commercial Law Web Advisor. I’ll be joined by two insurer-side attorneys at Sedgwick LLP, Alex Potente and Eryk Gettell. We’ll be discussing coverage under commercial general liability policies for third-party liability claims arising out of data security breaches and the recent Sony decision in the New York trial court (now on appeal), recent case law addressing the meaning of “publication” in “personal and advertising injury” offense coverage for “oral or written publication of material that violates a person’s right of privacy”, and the insurance industry’s push this year to endorse general liability policies to limit coverage for data security breaches.  

We gave a similar presentation in July and all thought it would be of interest to our clients and contacts. I really enjoyed this format, which allowed us to present the material in a point-counterpoint debate that I thought helped flesh out the interesting coverage and practical issues raised by these claims with a fair amount of depth.  

For more details and to register for the webinar, please go to the Commercial Law Web Advisor website.

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Posted in Speaking Engagements

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October 08.2014

Accessing The D&O Liability Coverage of a Bankrupt Corporation

by Mary McCutcheon

An automatic stay in bankruptcy prevents anyone from accessing the property of the debtor estate, including the directors’ and officers’ liability (D&O) policies which insure individual directors and officers of the estate as well as the debtor.  That does not mean, however, that the policy limits can be treated as a slush fund to satisfy creditors’ claims against the estate.  The policy limits (or proceeds) remain available to settle covered liability claims against the covered individuals or, if they exist, covered liability claims against the company which survive the bankruptcy proceeding. 

In deciding whether the D&O policy proceeds are subject to the stay, courts look to whether the policy only provides coverage to directors and officers (Side A coverage), or whether it also provides coverage to the debtor (Side B coverage or Side C coverage).  In the former case, the proceeds are not considered property of the estate.  However, if the individuals and the company both maintain legitimate claims for coverage under Side B or C of the policy, the result can turn on the specific facts unique to the case.  See In re Mila, 423 B.R. 537, 543 (9th Cir. BAP 2010).  Where the individuals and the estate have legitimate competing claims against the policy, “the bankruptcy court must balance the harm to the debtor if the stay is modified with the harm to the directors and officers if they are prevented from executing their rights to defense costs.”  Even in cases where the D&O policy proceeds are considered property of the estate, courts may nonetheless grant relief from the stay “to allow the insurer to advance defense costs payments when the harms weigh more heavily against the directors or officers than the debtor.”  Id. at 544.

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Posted in D & O

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September 17.2014

Setting Up a Successful Negotiation Regarding “2860 Rates”

by Erica Villanueva

“The insurer’s obligation to pay fees to the independent counsel selected by the insured is limited to the rates which are actually paid by the insurer to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended.” 

The above sentence appears in California Civil Code section 2860(c); it limits a defending insurer’s obligation to provide independent counsel of the insured’s own choosing in cases where the insurer’s reservation of rights gives rise to a potential conflict of interest between the insurer and the insured. 

In California, insurers routinely insist that they pay no more than $225 per hour (or even less) to their retained defense counsel, and refuse to pay higher hourly rates to independent counsel. Clearly, the statutory language itself can be used to create leverage points in a negotiation with insurers about “2860 rates,” as it places the burden on the insurer to demonstrate that it routinely pays those rates to defend similar actions in that community. 

But before the insurer even announces its intent to impose 2860 rate caps, there are things an insured can do to place itself in a strong bargaining position regarding defense costs issues. By drafting a thoughtful and thorough notice letter, an insured can lay the groundwork (and create leverage) for future negotiations. 

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Posted in General Liability Policies

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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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