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John Green is a commercial litigator with three decades of experience in recovering money from insurance companies under insurance policies such as commercial general liability, directors' and officers' liability, professional E&O, technology E&O, cyber liability, commercial property and builders-risk policies.  He has litigated, arbitrated or mediated high stakes coverage matters and has helped clients obtain over $1 billion in insurance recoveries.  Mr. Green is a fellow in the American College of Coverage and Extracontractual Counsel.

image: Are you Covered?A number of companies have been sued by the FTC in recent years, alleging, for example, that the company made claims regarding the product or service without adequate substantiation. Many of these companies are small private companies with limited resources. These companies frequently have “Management Liability” or “Private D&O” coverage which may provide relief. Many insureds do not understand that these polices are different than public company D&O policies, because Management Liability policies provide broad coverage for the company itself, not just for the directors and officers. If a company is sued by the FTC, these policies may provide coverage whether individual defendants are named or not. Continue Reading There May Be Coverage for the Defense and Settlement of FTC Claims

We encounter the following scenario from time to time: The defense counsel just scored a big victory, knocking out a key cause of action. The only problem is—the carrier now says that claim was the only covered cause of action, and since that claim has been dismissed, the insurer has no ongoing duty to defend. Can that be right? 

The short answer is no. The duty to defend is based on the “potential” for coverage. That means that, if there is any “potential” that liability will ultimately be established on a covered ground, there is a duty to defend. For example, if an insured is sued for intentional battery, but could be found liable based on negligence, there is a potential the ultimate liability will be covered, and thus the insurer has a duty to defend. 

Continue Reading Insurer Must Still Defend Even if Covered Claims Are Dismissed

Several solar panel manufacturers and their distributors have been sued in class actions alleging that certain models of panels are defective and need to be replaced. Class actions can be very expensive to defend, and the ultimate liability can also be significant, depending on the number of panels at issue and the facts.

Fortunately, a manufacturer or distributor that is sued may have insurance to help defray these costs. As will be explained below, there are strong arguments that these claims are covered by general liability insurance (CGL), a type of policy purchased by virtually every business.

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Claims For Defective Solar Panels Could Be Covered By General Liability Insurance

Companies often monitor or record conversations between their employees and customers for training or quality control purposes. You’ve probably heard messages to this effect yourself. These announcements are meant to satisfy laws that prohibit monitoring or recording unless both parties to the call consent. Despite such precautions, however, companies sometimes run afoul of these laws and find themselves facing class action lawsuits alleging calls were recorded without the required notice.

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In 2003, the California Supreme Court ruled that a company’s contractual transfer of insurance rights to a subsequent purchaser was invalid, as it violated the policy condition against assignments without insurer consent. (Henkel Corp. v. Harford Accident & Indemnity Co.)  The decision was surprising to many, as Asset Purchase Agreements routinely assign insurance policies along with other assets and liabilities of the seller. Many of these companies faced enormous exposure for so-called “long-tail exposures”—claims that individuals had been exposed to an injurious substance over a substantial period of time. Such liabilities are generally covered by the historical insurance policies issued at the time of such exposure or injury, and these policies are transferred as part of the sale to provide coverage for this assumed liability. The Henkel decision frustrated the intent of these transactions. It left purchasers holding the bag on liabilities without the assets that were intended to pay for such liabilities, and it gave a windfall to insurers who had agreed to cover those liabilities. 

Continue Reading California Supreme Court: Insureds May Freely Transfer Insurance Rights

Several solar panel manufacturers and their distributors have been sued in class actions alleging the panels are defective and need to be replaced. As will be explained below, these kinds of claims are covered by general liability insurance (CGL), the type of policy purchased by virtually any business.

Claims for Defective Solar Panels Allege Property Damage

General liability policies typically cover bodily injury and property damage. “Property damage” is defined to include “loss of use of tangible property that is not physically injured.”  Claims that the panels are defective and have led to a loss of electrical generation capacity of the roof are claims for “loss of use” of the roof for that purpose.

Consumers bought solar panels so they could use their roof surfaces to generate electricity. Due to the alleged problems with the panels, class members are claiming damages for the lost use of their roof surfaces for collecting solar energy and generating electricity from it. Class members have also suffered loss of use of the inverters. Inverters are connected to the panel array and convert the DC power generated by the solar system into domestic AC power. Defective panels reduce the use of the inverter (as less current is passed through it and converted to usable AC). Moreover, inverters have minimum thresholds, and the reduced output may shut the inverter down entirely. Thus, the claims of class members would also include loss of use of their inverters.

Continue Reading Claims for Defective Solar Panels Are Covered by CGL Insurance

Companies often monitor or record conversations between their employees and customers for training or quality control purposes. California law prohibits monitoring or recording unless both parties consent. Class actions have been brought against a number of companies alleging that calls were routinely recorded without customer consent. These claims may be covered by a company’s general liability (CGL)  policy.

CGL policies generally provide coverage for “personal injury” offenses, which are defined to include “oral or written publication of material that violates a person’s right of privacy.” Call recording is prohibited by California’s Invasion of Privacy Act, which was enacted to protect  “the right of privacy of the people of this state.”  Cal. Penal Code § 630. Thus, call recording claims fall within the Personal Injury coverage for “privacy” claims.

Continue Reading Insurance May Cover Call Recording Class Actions

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. 

Continue Reading Court Finds Coverage For Settlement Of Restitution Claim

A new case from Oregon deals with a recurring problem in construction defect litigation—the absence of clear dates in the complaint regarding when damage is alleged to have occurred. Frequently, a plaintiff will allege that defects in a construction project have caused property damage to other elements of the project, but the complaint is often silent as to when the damage allegedly began. We have long argued that, since the duty to defend exists if there is any “potential” of covered liability, there is a potential that damage happened before that project was completed, or at any time after completion, triggering all policies in that time frame. This implicates the policies in effect both during the course of operations and after operations are completed. This point is particularly important if some or all of the policies exclude liability falling within the completed operations hazard. This was the situation in Breese Homes, Inc. v. Farmers Insurance Exchange, 353 Or. 112 (2012). There, the court rejected Farmers argument that a claim was excluded by a “products/completed operations hazard” exclusion unless the insured could produce facts showing that damage in fact occurred prior to the completion of the project. The Oregon Supreme Court ruled that the duty to defend was governed by the complaint, which clearly encompassed the possibility that damage occurred prior to completion, and that the insured had no burden to establish any additional facts to support that potential.

While Breese involves a simple and straightforward application of established duty to defend law, the case provides helpful authority in countering the specious positions taken by many carriers on this issue.

In a prior post, we explained how a general liability policy may cover antitrust, patent, trade secret and other business litigation claims, if there are allegations that insured made negative comments about the other party’s product or business conduct. Claims that the insured engaged in improper use of the litigation process may also lead to coverage in such cases.

The standard general liability policy covers “malicious prosecution.” The term “malicious prosecution” has been construed broadly to include other similar torts, including abuse of process. See, e.g., Lunsford v. Am. Guarantee & Liab. Ins. Co., 18 F.3d 653, 654-56 (9th Cir. 1994). Thus, coverage is not limited to claims involving the strict elements of malicious prosecution, such as “favorable termination.” This opens the door to coverage for counter-claims by a defendant that allege that plaintiff’s lawsuit is being brought for improper purposes.

Continue Reading General Liability Policies May Cover Antitrust, Patent and Other Business Litigation – Part 2