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In Part I (”When Can an Insurer Pursue a Malpractice Claim Against Defense Counsel Retained for an Insured”) of our two-part article published by the ABA’s Insurance Coverage Litigation Committee (ICLC), we addressed the circumstances in which an insurer can directly pursue malpractice claims against defense counsel. We observed that the majority of courts have allowed insurers to bring claims against defense counsel, and we discussed the three primary legal vehicles through which insurers can bring such claims. 

As we previewed in Part I, a related issue is how and when insurers can seek reimbursement of defense costs from the insured if it is later found that the insurer did not owe its insured a duty to defend. As in the cases discussed in Part I, there is a split of authority, with many jurisdictions still uncertain. 

In Part II, we discuss this split of authority and the requirements for an insurer to preserve a right to recoup defense costs, as well as practical considerations for insurers pursuing, and policyholders looking to fend off, a demand for recoupment. Although California was an early trendsetter in this area, with the decision in Buss v. Superior Court allowing a limited right to reimbursement becoming the majority view, a significant minority refuse to allow the insurer to seek reimbursement—a minority that may gain further traction in many jurisdictions. The Nevada Supreme Court split 4:3 on this issue, ruling in favor of reimbursement, but with a vehement dissent arguing against any such right. In contrast, Illinois has held that there is no right to reimbursement. Continue Reading When Can an Insurer Pursue a Malpractice Claim Against Defense Counsel Retained for an Insured? Part II: When Can an Insurer Pursue a Reimbursement Claim against an Insured?

When an insurer accepts an insured’s tender and agrees to provide a defense, it is often an afterthought as to whether the insurer can actually recoup those defense costs or indemnity payments from the insured or defense counsel if things go south. But in certain circumstances, insurance carriers can, and sometimes do, seek to recoup defense costs—and occasionally even attempt to pursue defense counsel for malpractice.

Part I of this two-part article, published by the ABA’s Insurance Coverage Litigation Committee (ICLC), addresses how and where an insurer may directly pursue malpractice claims against defense counsel. While the majority of courts that have addressed the issue allow insurers to bring claims against defense counsel, there is a split between jurisdictions over the legal bases for those claims, which can also affect the likelihood of success. The three primary vehicles, discussed below, are (1) the tripartite relationship, (2) as third-party beneficiaries, and (3) contractual or equitable subrogation.Continue Reading When Can an Insurer Pursue a Malpractice Claim Against Defense Counsel Retained for an Insured

Discussions with an insured’s insurance broker are often an important part of the negotiation process for insurance claims. Brokers can provide valuable insights on the drafting and underwriting of the insurance policy as well as the attitudes of insurers on particular issues.  But are communications between a client, coverage counsel, and the client’s insurance broker privileged? A previous post addressed California decisions finding that disclosure of privileged information to an insurance broker did not waive privilege because those disclosures were reasonably necessary to provide information to the insurers. In New York, whether such disclosure constitutes a waiver is a fact-specific inquiry.
Continue Reading Are Communications With Your Insurance Broker Privileged Under New York Law?

Unfortunately, we again write while wildfire is devouring homes and businesses in Napa and Sonoma, and threatening many more. We’ve previously posted tips about first steps that you should take in the event your business has suffered a fire loss. We want to provide this refresher, as prompt action is important to preserve your business’ rights under its insurance policies and to maximize its ultimate insurance recovery. If your business has sustained a fire loss, below are steps for you to take in working with your insurers to ensure that you receive the maximum benefits under any applicable insurance policies.
Continue Reading Maximizing Business Insurance Coverage Benefits After a Fire

Companies of all sizes have fallen victim to attacks whereby fraudsters will use deceptive communications, such as spoofed emails, to trick an employee into transferring money into the fraudsters’ control. While these increasingly prevalent schemes are an ever-present risk for businesses, the body of case law finding these losses covered under crime insurance policies continues to develop. In a previous post, we discussed decisions from the Second Circuit and Sixth Circuit that have found coverage under crime policies for phishing-related losses. Now, with its decision in Principle Sols. Grp., LLC v. Ironshore Indem., Inc., 944 F.3d 886 (11th Cir. 2019), the Eleventh Circuit has held that such losses are covered by policies insuring against fraudulent instructions.
Continue Reading Another Federal Circuit Finds Phishing Loss Covered Under Crime Policy

It is an all-too-common dilemma. As phishing schemes have become more prevalent and more sophisticated, businesses of all sizes have fallen victim to these attacks where a fraudster will use a spoofed email or other deceptive communication to trick an employee into transferring money into the fraudster’s control. While this is a difficult scenario for anyone to face, two decisions from federal circuit courts have offered policyholders some relief by finding coverage for these losses under policies insuring against Computer Fraud. In doing so, these opinions rejected insurers’ arguments that the theft accomplished through these fraudulent emails did not qualify as Computer Fraud or were not losses that were directly caused by Computer Fraud.
Continue Reading Are Losses Resulting from Phishing Incidents Covered by Crime Policies Insuring Against Computer Fraud?

A recent California appellate court decision found that a wage and hour exclusion in an Employment Practices Liability Insurance (“EPLI”) policy did not bar coverage for claims under California Labor Code sections 2800 and 2802 alleging failure to reimburse expenses. S. Cal. Pizza Co., LLC v. Certain Underwriters at Lloyd’s, London Subscribing to Policy No. 11EPL-20208, Case No. G056243, 2019 WL 4572859 (Cal. Ct. App. Aug. 27, 2019), as modified on denial of reh’g (Sept. 20, 2019). This is a significant decision. It gives policyholders an argument that insurers must defend wage and hour suits that include covered allegations of failure to reimburse expenses, as the court in Southern California Pizza found. 
Continue Reading Reimbursement of Employment-Related Expenses Is Not a “Wage and Hour” Claim Within the Meaning of EPLI Exclusion

On January 15, 2019, the Ninth Circuit certified the following question to the California Supreme Court:

Does a commercial liability policy that covers “personal injury,” defined as “injury… arising out of… [o]ral or written publication… of material that violates a person’s rights of privacy,” trigger the insurer’s duty to defend the insured against a claim that the insured violated the Telephone Consumer Protection Act by sending unsolicited text message advertisement that did not reveal any private information?
Yahoo! Inc. v. National Union Fire Insurance Company of Pittsburgh, Pa., No. 17-16452, D.C. No. 5:17-cv-0447-NC.

Yahoo! sought coverage under its general liability policies issued by National Union for a number of putative class actions alleging that it violated the TCPA by transmitting unsolicited text message advertisements to putative class members. National Union denied coverage and Yahoo! sued for breach of contract. The Northern District granted National Union’s motion to dismiss and Yahoo! appealed that order to the Ninth Circuit.Continue Reading Ninth Circuit Asks the California Supreme Court to Interpret the Scope of Personal Injury Coverage

In an unpublished decision, the Ninth Circuit affirmed the Central District of California’s interpretation of the related acts provision in a professional liability policy, holding that related acts reported in a prior policy period were not excluded from coverage in a subsequent period because that policy defined “Policy Period” to mean only the current policy period, not any policy period. Attorneys Insurance Mutual Risk Retention Group, Inc. v. Liberty Surplus Ins. Co., No. 17-55597 (9th Cir., Feb. 15, 2019). As a result, the related acts clause, which incorporated this term, could not be read to aggregate claims first made under prior policy periods with those made in the current period. The case reinforces the importance of reviewing the particular language of an insurance policy rather than relying on case law interpreting similar language. Small differences in policy language can lead to significant changes in the available coverage.
Continue Reading Claims-Made Policy Note: Policy’s Use of Defined Terms May Expand or Limit Coverage Under Related Acts Provision

In November, Tyler wrote about insurance issues raised by both the European Union’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act, which goes into effect on January 1, 2020. California’s governor Jerry Brown signed two other cyber-related laws in September, which will also go into effect on January 1, 2020 – Assembly Bill 1906 and Senate Bill 327, which address security concerns relating to devices that are capable of connecting to the internet – the so-called Internet of Things or “IoT”. See California Civil Code 1798.91.04(a) et seq.

The bills largely mirror each other and, put very simply, require manufacturers of devices that are capable of being connected to the internet to equip them with “reasonable” security features that are both appropriate to the device and require a user to generate a new means of authentication before access is granted to the device for the first time. Technologists are debating whether the laws are good or bad, and if good, whether they go far enough. Regardless, the law will become effective and manufacturers of IoT devices will have to comply with them. The law does not provide for a private right of action; it permits the state’s Attorney General to enforce its provisions.

The new California law applies to all connected devices sold or offered for sale in California. Because California is such a large market, this likely means that all such devices sold in North America and Europe will comply with California’s regulations, and older, less secure devices will be diverted to countries with fewer regulations.Continue Reading Are You Covered for California’s New IoT Laws?