Photo of Dennis Cusack

Dennis Cusack has devoted his legal career to recovering money owed to companies and individuals under commercial and professional liability and property insurance policies, including general liability, aviation, technology errors and omissions, cyber liability, directors and officers, professional liability, employment practices and commercial property.  He has chaired Farella Braun + Martel’s Insurance Recovery Group since 2008.

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

On December 16, 2015, the California Department of Motor Vehicles (CA DMV) issued draft regulations for the deployment (not just testing) of autonomous vehicles. When adopted, they may be the first such regulations in the country. The National Highway Transportation Safety Administration (NHTSA) is moving ahead with testing of self-driving technologies in anticipation of setting safety standards. Meanwhile, Google and virtually every major car manufacturer has stepped on the innovation gas pedal to develop self-driving technologies. Will regulators be ready when the cars are? How will the regulation of autonomous vehicles impact the liability landscape and, in turn, how that liability will be insured?
Continue Reading

Toyota announced that it plans to invest $1 billion in a Silicon Valley research center for artificial intelligence (November 6, 2015). On November 10, Volkswagen said it had hired away from Apple its lead expert on self-driving cars. (Yes, Apple too has a secret car project.) While analysts’ views differ on when, most agree that it is only a matter of time before fully autonomous vehicles become mainstream.

The US Department of Transportation called recent innovations by car manufacturers a “revolution in safety.” Historically, automakers (strongly encouraged by insurers) have focused on engineering vehicles to enhance occupant protection in the event of a crash. That’s why automobiles today have a range of airbags – front, rear, side and even curtains – as well as a long list of safety enhancements, including structural reinforcements to the passenger compartments and advanced safety belts.

Today, vehicle safety has expanded into technologies that help prevent or mitigate crashes. Vehicles can automatically brake to avoid or minimize accidents, self correct steering if the driver wanders out of his or her lane, and can parallel park better than many humans. They do this by means of a variety of sensors, connected to a central computer running sophisticated software. By use of sensors and cameras, today’s modern car can “see” round corners, keep a steady (and safe) distance from the vehicle in front, and anticipate and prevent a crash. All of these technologies, though, still require an attentive driver with hands on the wheel.


Continue Reading

Self-driving cars are coming.  In fact, Tesla Model S owners woke up on the morning of October 15, 2015 to discover that a software download to the cars has made them capable of steering and changing lanes at high speed, slowing and stopping, and self-parking, in “Autopilot” mode.  The future is now, and self-driving cars bring with them a host of unanswered questions relating to safety, liability, and the insurance for protecting against liability.

Over the next few months we’re going to produce a series of articles looking at issues affecting insurance raised by autonomous vehicles, and how those issues may develop and change as the degree of autonomy – and the number and types of autonomous vehicles on the roads – grows.  For many years the insurance industry has been a prime mover in the field of vehicle safety.  One of the main concepts behind the drive to develop autonomous vehicles is to reduce crashes, particularly ones that result in serious injury.  95% of fatalities from car crashes result from human error.  How will the insurance industry keep up, and how will it adapt to the changing scenarios?


Continue Reading

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

On April 30, 2015, we blogged about Hartford Casualty Insurance Company v. J.R. Marketing, LLC, Case No. S211645, then set for oral argument in the California Supreme Court. [see the prior post: California’s “Independent” Cumis Counsel Regime Faces a Novel Challenge] The Court decided the case on August 10, 2015, ruling that Hartford could seek reimbursement of unreasonable or excessive fees directly from Cumis counsel. We’ll outline here the implications of the ruling and suggestions for how policyholders and Cumis counsel might respond. 

On the one hand, the Court took pains to describe its ruling as very narrow. Hartford had denied coverage and resisted paying the defense invoices even after the trial court found it owed a duty to defend. Squire Sanders, representing J.R. Marketing, then obtained an enforcement order requiring Hartford to pay its invoices within thirty days, but giving Hartford the right to seek reimbursement of uncovered fees and costs, including unreasonable or excessive fees, once the case was over. By the end of the case, Squire had been paid $15 million. The Court repeated that its decision was grounded in the enforcement order, which Squire had drafted and gave Hartford an express right to reimbursement. In that context, the Court held that allowing Hartford to recover from Squire in the first instance was consistent with the law of unjust enrichment and would not interfere in the attorney-client relationship. Running through the decision, including Justice Liu’s concurring opinion, is an undercurrent of suspicion that Squire, with an unsophisticated client and an enforcement order in hand, felt it had carte blanche to bill to its heart’s content. 


Continue Reading

Insurance policies covering data breach liability began appearing roughly ten years ago. We noted then a troublesome provision in some forms that seemed to exclude coverage for the insured’s failure to maintain data security – in other words, the very risk the insured was seeking to insure. We’ll call it the “Mistake Exclusion.”  One AIG form from 2006, for example, excluded coverage arising out of “your failure to take reasonable steps to use, design, maintain and upgrade your security.” A 2009 Darwin form excluded coverage for any claim arising out of  “any failure of an Insured to continuously implement the procedures and risk controls identified in the Application for this insurance.” But isn’t liability insurance supposed to do just that – protect against the insured’s mistakes, innocent or negligent? We hoped and expected that as the market for these policies matured, savvy brokers and risk managers would insist that these Mistake Exclusions be removed or substantially narrowed. But that has not happened.

We now have the first case we are aware of by an insurer seeking to enforce a Mistake Exclusion. In Columbia Casualty Company v. Cottage Health Systems, filed May 7, 2015 in the U.S. District Court in Los Angeles, Columbia seeks to enforce an exclusion barring coverage for a data breach claim arising out of any “failure of an Insured to continuously implement the procedures and risk controls identified in the Insured’s application for this Insurance and all related information submitted to the Insurer in conjunction with such application whether orally or in writing.” Columbia’s complaint arises out of a class action suit against Cottage alleging that, for a period of two months in 2013, 32,500 patient records were accessible via the Internet. Cottage had hired a third-party vendor to store Cottage’s records electronically and that vendor mistakenly set the File Transfer Protocol settings to allow public access. Columbia funded Cottage’s defense and settlement, but is suing to recover all of its payments from Cottage.


Continue Reading

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 liability insurers also demand to “allocate” settlements, suggesting, for example, that half of the settlement is uncovered because the complaint alleges both negligent and intentional conduct.  Surprisingly, California courts have not clearly addressed the issue outside of the D&O context.  How should you respond? 

For D&O policies, courts first recognized the “larger settlement rule” in Harbor Ins. Co. v. Cont’l Bank Corp., 922 F.2d 357, 368 (7th Cir. 1990).  The question there was how to allocate a settlement between the potential liability of the covered directors and officers, and of the uncovered company.  The court held that the insurer is liable for the entire settlement, except for the amount, if any, by which the settlement was made larger because of claims against uninsured parties.  In other words, if the same dollars were paid to settle the potential liability of both, those dollars must be allocated to the covered claims against the directors and officers.

The Ninth Circuit affirmed the larger settlement rule in Nordstrom, Inc. v. Chubb & Sons, Inc., 54 F.3d 1424, 1433 (9th Cir. 1995) (Washington law); and Safeway Stores, Inc. v. Nat’l Union Fire Ins. Co., 64 F.3d 1282, 1287 88 (9th Cir. 1995) (California law).


Continue Reading

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.


Continue Reading

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