D&O policies vary quite a bit from carrier to carrier, and language on “standard” exclusions can change from year to year. Accordingly, it is important to do a yearly review of your D&O policy to make sure your company has the right coverage. Three recent federal court decisions interpreting the “insured vs. insured” or “I v. I” exclusion remind us why examining specific policy language and understanding how it may apply to your business is so important. Continue Reading Trio of Recent Decisions on the I v. I Exclusion Should Remind Policyholders to Annually Review the Language in Their Policy to Avoid Losing Coverage
Ms. Hairston represents corporate policyholders in insurance coverage disputes. She has assisted clients in pursuing claims related to products liability, employment class actions, SEC investigations, shareholder litigation, intellectual property claims, technology errors and omissions, and mass casualty torts. Ms. Hairston’s clients include technology companies, health care companies, retailers, and financial services companies. She also performs insurance policy reviews and advises clients on insurance program renewals. Ms. Hairston has been named to the list of Northern California Rising Stars by Super Lawyers.
Don’t be too surprised if you see a “wage and hour” exclusion in your employment practices liability insurance policy, especially if you have employees in California. While these exclusions purport to bar coverage for claims brought under laws that govern “wage and hour” practices, lawsuits involving “wage and hour” violations often include alleged violations of other labor-related statutes. This was the scenario presented recently in Hanover Ins. Co. v. Poway Academy of Hair Design, Inc. in which a federal court was asked to decide whether a “wage and hour” exclusion applied to a claim that the insured had failed to reimburse reasonable business expenses in violation of California Labor Code section 2802. Continue Reading Claim for Failure to Reimburse Reasonable Business Expenses Not Barred by EPL Policy’s Wage and Hour Exclusion
This is the second post in our series regarding coverage issues affecting emerging companies. This post addresses the insurance application process. The application is a critical part of the process because insurance companies use it to assess whether they want to take on the risk, and if so how much premium to charge. The carrier can attempt to rescind an insurance policy if there was a material (but not necessarily intentional) misstatement or omission of fact in the application. Rescission of an insurance policy means it is as if the policy was never issued and the policyholder simply gets a refund of the premium paid and the carrier walks away.
First, it is critical to understand that an insurance application is not a form that can be completed by anybody in your organization. For many policies, the application will be attached and actually become part of the policy when it is issued. When a claim is made, the application will be one of the first places the carrier looks to see whether the insured is entitled to coverage or vulnerable to a rescission claim.
Our Insurance Recovery Group is often asked to help emerging companies understand their insurance program and assist with claims. This is the first in a series of posts that will address the insurance issues impacting growing companies. The series will cover everything from how to analyze the coverage you have and placement issues, to contractual indemnity and insurance requirements, and how to proceed if you have a claim.
Today’s post is on understanding the insurance you currently have. If you are new to your company or new to your insurance role, you should work with your insurance broker to determine what coverage the company already has in place. The broker will also guide you through new policy placements as well as renewals of existing policies. Confidence in your broker is critical, because you will be relying on their judgment regarding rates, availability, scope of coverage and exclusions, limits, size of deductibles or self-insured retentions, and pricing. It is not uncommon for companies periodically to solicit competing proposals from brokers as they continue to grow and seek advice from professionals with specialized knowledge regarding their particular industry.
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.
Many insurers are now offering “cyber liability” or “cyber risk” policies designed to protect policyholders against electronic injuries that policyholders may either suffer themselves or cause to others. Most of these policies focus on protecting policyholders in the event of a data breach. According to a recent report, the finance and insurance industries experienced the largest percentage of data breaches followed closely by information technology, retail trade, manufacturing, public administration, transportation and warehousing as well as education, government, and healthcare. Virtually no company is immune from this type of risk.
It is worth looking at purchasing cyber liability coverage because insurers have argued that “traditional policies” do not protect against this type of harm. For example, insurers have argued that there is no advertising injury coverage where there is no “publication” of the data. Today, many policies also have language excluding from the definition of “property damage” loss of or damage to electronic information and/or data. Finally, policyholders should keep in mind that CGL policies do not cover the insured’s own first-party losses, while a cyber liability policy typically does provide this type of coverage.
On July 13, 2012, the Second Appellate District handed down its decision in Travelers Property Casualty Co. of America v. Charlotte Russe, Case No. B232771 (a copy is available here). This published opinion is significant because it affirms a carrier’s duty to defend even when the covered claim is only implied by certain allegations and not expressly set forth in the complaint.
In Charlotte Russe, Travelers filed a declaratory relief action against its insured claiming that it had no duty to defend the retailer against accusations from one of its suppliers that it had improperly offered the supplier’s products for sale at severely discounted prices, resulting in “significant and irreparable damage to and diminution” of the supplier’s brand and trademark. Travelers contended that coverage was unavailable because the complaint did not expressly accuse Charlotte Russe of either product disparagement or false statement and therefore did not trigger the policy’s advertising injury coverage, which applied to claims alleging injury arising out of “oral, written, or electronic publication of material that slanders or libels a person organization or disparages a person’s or organization’s goods, products or services.”
The Second Circuit recently issued a decision in MBIA Inc. v. Fed. Ins. Co., 2011 U.S. App. LEXIS 13402 (2d Cir., July 1, 2011), finding coverage for investigative costs associated with: 1) a subpoena issued by the New York Attorney General; 2) a formal order issue by the SEC; and 3) related derivative actions.
Even when carriers agree to defend an insured, policyholders and carriers can still get locked into disputes about who will provide such a defense. Policyholders often want to choose their own counsel while a carrier has its own idea about who should defend the case. The dispute in Travelers Property v. Centex Homes, C10-02757 (N.D. Cal. April 1, 2011) illustrates this problem and shows how a dispute over defense counsel can potentially lead the carrier to argue that the policyholder has breached its duty to cooperate and that such a breach relieves the carrier of both its duty to defend and indemnify under the policy.
The California Supreme Court recently issued a decision in Century-National Ins. Co. v. Jesus Garcia, No. S179252, holding that California Insurance Code section 533, which bars coverage for intentional conduct, does not apply to coverage for innocent co-insureds. The Court examined this issue in the context of a fire insurance policy. The insureds, Jesus and Theodora Garcia, suffered substantial property damage to their home when their adult son – who was also an insured under the policy – set fire to his bedroom. Century-National denied coverage for the Garcias’ claim citing the policy’s exclusion for claims based on the intentional acts or criminal conduct of “any insured.” The trial court agreed and granted Century-National’s demurrer on the grounds that 1) the Century-National policy defined the term “any insured,” to include relatives of the insured who lived at the insured property; 2) courts generally interpret policy exclusions for intentional or criminal acts to exclude coverage for innocent co-insureds; and 3) Insurance Code section 533 expressly sets forth California’s public policy of denying coverage for willful wrongs. Continue Reading Section 533 Does Not Bar Coverage for Innocent Co-Insureds