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
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
In what it described as a case of first impression, the Northern District of California ruled that a professional liability policy that excluded the insured’s “assumption of liability obligations in a contract or agreement” did not extend to breach of warranty or false advertising claims arising out of a genetic data testing company’s marketing and sale of a personal genome service. See Ironshore Specialty Ins. Co. v. 23andMe, Inc. (July 22, 2016) N.D. Cal. No. 14-cv-03286-BLF. What is noteworthy about this case is not so much the decision, but the fact that the insurer challenged coverage on this ground. While this issue apparently has never been decided in the context of a professional liability policy, both case law and custom and practice recognize that the same phrase used in a general liability policy applies only to liabilities “assumed,” i.e. created by, a contractual indemnity agreement. Continue Reading “Assuming” the Obvious: Exclusion for “Assumption of Liability in a Contract” Does Not Apply to Breach of Professional Services
Erica Villanueva and Tyler Gerking will be presenting to the Association of Corporate Counsel (ACC) on September 14 (in San Francisco) and 15 (in Palo Alto) about private company D&O liability insurance, also known as management liability insurance. Below is a description of the program, which will touch on hot issues that many companies are dealing with right now. Use the links to view the event details and register online.
Private D&O Insurance: Things You Should Know
Companies are staying private longer and purchasing private company directors’ and officers’ liability (D&O) insurance, sometimes known as “Management Liability” insurance. When it comes to D&O coverage, most private companies focus on two things: obtaining it, and keeping the premium low. When a company faces a claim, however, it discovers there is much more complexity to private D&O insurance, and often broader coverage than a public company D&O policy. Accessing and maximizing the available coverage may require a concerted, strategic effort on the part of the company, its insurance broker, and insurance coverage counsel. This program will cover:
- Key features of management liability policies
- Common exclusions and limitations
- The practical impact of certain clauses – and widely-available coverage enhancements that can mitigate these impacts
- Implications of common pitfalls and mistakes in reporting and managing claims’”
Directors’ and officers’ liability insurance is a key resource for funding defense and settlement of claims without depleting the insureds’ assets. Private company D&O insurance, in particular, can provide exceptionally broad coverage to the company, its individual directors, officers, and sometimes even employees against shareholder litigation and derivative actions, criminal and regulatory investigations, and other business litigation claims based on negligence or breach of duty theories.
This article I wrote for VC-List presents guidelines and key policy features to ensure that the PC’s insurance provides meaningful protection to the board members and the private equity or venture capital firm.
You can read the full article on VC-List‘s website. Click here.
One of the most heavily-litigated exclusions in modern insurance coverage practice was the subject of a recent district court decision involving allegedly misleading marketing by for-profit colleges. Exclusions for claims or occurrences arising out of acts done in connection with the “rendering of, or actual or alleged failure to render, any professional services for others” – the so-called professional services exclusion – is the source of endless disputes between insurers and insureds. There are a number of reasons for this; the exclusion is somewhat vague and has been interpreted in varying ways across and even within different jurisdictions.
What has made the exclusion so troubling for policyholders is the fact that its scope and reach has been expanded so far beyond its initial underwriting purposes. The exclusion commonly appears in Commercial General Liability and D&O policies, and its intent is to exclude underlying claims that should be covered by Errors & Omissions policies. A CGL policy is not intended to cover claims for an attorney’s malpractice during litigation or an architect’s negligence in designing a building, and the professional services exclusion is included in those policies to make that clear. Continue Reading District Court Further Limits Application of Professional Services Exclusion
When a venture capital or private equity firm invests in a portfolio company (PC) and places a general partner on the PC’s board, they typically require that the PC agree to defend and indemnify the board member in any litigation arising out of their board service, and to purchase directors’ and officers’ liability insurance. However, the D&O insurance requirements are typically quite vague, and some firms may be surprised to learn of key gaps in the PC’s coverage. These gaps are usually discovered when the VC/PE firm needs the coverage most – i.e., after a lawsuit has been filed, naming their board member as a defendant. Here are two examples I’ve come across in representing venture capital and private equity firms: Continue Reading Do You Know What’s In Your Portfolio Company’s D&O Insurance?
Recently, I was asked to look at coverage for a case where the insurer had denied a duty to defend several years before. We concluded that the insurer should have been defending based on certain allegations in the complaint and asked it to reconsider. In the meantime, though, a successful partial summary judgment motion had dismissed the only covered claims. There is good law to suggest that the duty to defend should continue, but the client could have avoided an unnecessary fight had she retained coverage counsel at the outset. Continue Reading Leave It to the Policyholder Professionals – Do Not Try This at Home
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.
Policyholders seeking insurance funds to settle a case often face an insurer’s demand that some amount should be allocated to uncovered claims or parties. The issue arises often under directors and officers liability (D&O) policies, when settlements resolve the liability of covered directors and the uncovered company. But general and professional liability and errors and omissions insurers also demand to allocate settlements.