Over the past few days, there has been much hand-wringing over the Second Circuit’s decision in Mehdi Ali v. Federal Insurance Co., __ F.2d __ (2d Cir. 2013) in which the court declined to extend the holding of Zeig v. Massachusetts Bonding & Insurance Co. , 23 F.2d 665 (2d Cir. 1928), to the specific facts of the case before it. Commentators are chalking it up as a major victory for insurers, claiming that policyholders have now lost a key precedent, one which had previously allowed them to argue that an excess insurer can be required “drop down” to cover losses below its attachment point.

Not so fast.

As an initial matter, the Zeig case does not stand for the proposition described above. The Zeig case held that an excess insurer could be required to pay losses above its attachment point, if the insured had actually sustained those losses. In Zeig, an insured suffered a property loss which exceeded the limits of his primary policy, but settled with that insurer for less than the full primary policy limits. The Second Circuit reasoned that, because the insured could demonstrate that it had actually suffered property losses in excess of the primary limits, the excess insurer could be required to pay that portion of the loss which exceeded its attachment point. Continue Reading Recent Media Coverage Overstates Impact of New Second Circuit Case Regarding “Drop-Down” Issue

The Ninth Circuit recently reaffirmed the California legal standards that mandate that insurers defend their insureds where the insured would reasonably expect a defense, and that a third party plaintiff’s factual allegations, not its legal conclusions, govern the duty to defend.  Goerner v. Axis Reinsurance Co., 2010 U.S. App. LEXIS 21624 (Oct. 20, 2010

The Fifth Circuit reaffirmed what has been axiomatic in California since at least Gray v. Zurich, 65 Cal. 2d 263, 278 (1966):  People buy liability policies for peace of mind, expecting to be defended in case they are sued.   Any potential for coverage at all, therefore, triggers the duty to defend, and the duty is not dependent on the “malleable, changeable and amendable” pleadings in the underlying action.  In Pendergest-Holt v. Lloyd’s, 600 F.3d 562 (2010), the Fifth Circuit extended this principle to the duty to reimburse defense costs under a D&O policy.   It held that insurers may not make unilateral factual determinations about the merits of the underlying case to justify terminating their duty to reimburse defense costs unless policy language expressly grants them that right.  Nor may they terminate their defense duties based solely on allegations in the underlying complaint.
Continue Reading Federal Court Rejects Insurer’s Discretion in Terminating the Duty to Reimburse Defense Costs Under a Directors and Officers Liability Policy

Adequate preparation is essential for any mediation, and mediations involving insurance coverage issues are no exception.  Whether the focus of the mediation is the insurance coverage dispute itself, or whether the insurer is attending a mediation of the underlying action (with an expectation that it will fund any settlement), the insured can and should take

In the recent spate of backdating lawsuits, and in the current wave of financial institution litigation, Directors & Officers (D&O) liability carriers have almost uniformly taken the position that the costs of a company’s Special Investigation (or Litigation) Committee (SC) are not covered “Loss.”  Two cases in 2009 – the first to address this issue

I spoke recently on a Webinar sponsored by Strafford Publications, entitled "Attorney-Client Privilege in Jeopardy in Insurance Litigation."  One issue addressed was whether communications between the policyholder counsel and the carrier are privileged when the insured has independent Cumis counsel. In the Cumis setting, the insured hires its own independent defense counsel, which represents