We recently wrote an article for Private Company Director on how disputes between shareholders may not be governed by fiduciary duties but could be covered by insurance.
Disputes regarding ownership interests often arise in the context of closely held corporations, particularly when directors, officers, or majority shareholders sell or acquire ownership interests in the company.
In Verizon Communications Inc. v. National Union Fire Insurance Co. of Pittsburgh, Pa.[1] the Delaware Superior Court ruled that Verizon was entitled to a defense under its D&O policy for fraudulent transfer claims. Although the decision relies on unique facts and specific policy language, it provides guidance on how to exploit minor but critical differences in policy language to expand the company’s coverage beyond claims involving securities fraud.
The opinion also rejected the insurers’ efforts to limit coverage under a separate policy, based on their contention that the subsidiary out of which the liabilities arose was not a subsidiary when the policy was purchased. And finally, it handed policyholders a practical and valuable gift of universal application, holding that an insurer who wrongfully refuses to defend a claim cannot contest the reasonableness of the fees incurred by the policyholder to defend the case.
Whether or not it is successfully challenged on appeal, the Verizon decision is an important reminder not to make assumptions as to what is or isn’t covered under any type of insurance policy. Coverage depends on the particular language of the policy under review and the particular facts for which claims are sought.
Continue Reading In Verizon Decision Careful Review of Insurance Policies Expands Coverage
Two phrases combined in a single exclusion—“alleging, arising out of, based upon or attributable to any violation of any law…” and “as respects… unfair trade practices” could inspire carriers to make trouble for policyholders seeking coverage for consumer protection claims. Fortunately, a recent federal decision recognizes that California rules of policy construction limit the scope of this exclusion, in line with a policyholder’s reasonable expectations of coverage.
Continue Reading “Unfair Trade Practices” Exclusion Does Not Extend to Consumer Protection Claims
Over the last few weeks we have seen a number of informative articles discussing the crucial issue of coverage for business interruption claims arising out of government shutdowns of businesses to inhibit the spread of COVID-19, here. As the economic disruption from these efforts continues, however, we are likely to see impacts in the Directors & Officers Liability market – not only from claims that trigger D&O policies, but also additional challenges in placements and renewals of D&O programs.
Continue Reading Directors & Officers Liability Issues and the Coronavirus: Is That a “Thing”?
I recently moderated a Bar Association of San Francisco Insurance Section program co-sponsored with the Cannabis Law Section. The program highlighted recent changes to local insurance requirements and market availability of coverage for cannabis businesses.
Local insurance requirements vary greatly by city and county, and it is important to take this into account—especially if you will be doing business throughout California. While certain coverages are still unavailable (i.e., true outdoor crop insurance) or prohibitively expensive (i.e., quality D&O insurance), one point of optimism is that the insurance market is actually adapting quickly and well to the demand for insurance for this industry. As a result, the panel recommended reviewing and updating your insurance portfolio often with the assistance of a broker who is well versed in the cannabis space.
Continue Reading Insurance for the Cannabis Industry Program Takeaways
I recently participated in a panel at the Association of Business Trial Lawyers Annual Meeting – “Bad News Delivered: The Board Meeting and Crisis Management.” Among other topics, the panel discussed the role of insurance counsel in crisis management, and addressed the following questions:
Who Is The Client?
When meeting with a board in a time of crisis, it is critical to identify whether your client is the company or the board. And if it is the company, the board must understand that while they are the decision-makers for your client, they themselves are not your clients.
Depending on whom you represent, your advice and strategy may differ. Although acting on behalf of the company and bound by fiduciary duties and the duty of loyalty, in a time of crisis board members may be concerned about how the company’s insurance can be used to protect their interests, as opposed to the company’s. If counsel is representing the company, the strategy may focus on preserving the coverage to settle a nasty case, fund burdensome defense or investigation costs, or protect individuals who are critical to the company’s on-going business strategies. And if the company is in bankruptcy, the debtor in possession or trustee may want to preserve the assets for claims against the estate, as opposed to lower priority indemnity claims or non-indemnifiable claims against individual insureds such as board members.
If counsel is representing an individual, he or she may have the luxury of an indemnification from the company – assuming the company is able to fulfill it. If not, counsel may need to invoke Side A or other provisions in the policy to preserve the policy limits for the individual directors or officers, and access to much-needed defense costs.
Continue Reading Insurance in a Time of Crisis: Role of Insurance Counsel in Crisis Management
Farella’s Insurance Recovery Group lawyers regularly collaborate with and learn from different players and functions within the insurance industry. To provide more value to our readers, we have reached out to a series of insurance brokers to create the Insurance Broker Series Q&A.
Our latest installment is with John M. Orr, Managing Principal – West Region Financial Lines Practice Leader with Integro Insurance Brokers.
Continue Reading Insurance Broker Series: John Orr, Integro Insurance Brokers
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
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