California Bad Faith Claims Cannot Be “Slapped”

The California Court of Appeal recently disposed of a novel attack on bad faith law launched by Zurich American Insurance Company. In Miller Marital Deduction Trust, et al. v. Zurich American Insurance Company, 2019 DJDAR (October 23, 2019), Zurich was called upon to defend a cross complaint arising in connection with long-tail pollution claims. Despite an extensive reservation of rights and a conflict of interest, Zurich refused to pay for independent counsel (Cumis counsel, in California parlance) and instead appointed panel counsel to defend. While the underlying environmental case was pending in federal court, the Millers filed a state court action against Zurich asserting that the insurer’s appointment of counsel answerable to the insurance company, in violation of the Millers’ right to independent counsel, constituted breach of contract and a breach of the covenant of good faith and fair dealing.

How the “Name-and-Shame Game” Highlights the Need of Electric Utilities for Appropriate Cyber Insurance

In late August, the Federal Energy Regulatory Commission (FERC) and North American Electric Reliability Corporation (NERC) issued a joint white paper proposing a “name-and-shame” approach to electric utilities that failing to meet NERC Critical Infrastructure Protection (CIP) Reliability Standards. The standards represent a baseline for protecting against cyber-attacks on critical infrastructures. FERC and NERC propose to depart from the historical practice of withholding most material details regarding CIP Reliability Standard violations, and instead to start disclosing the names of allegedly violating electric utilities in response to Freedom of Information Act requests—“naming and shaming them.” This development underscores the substantial cyber risks utilities face and, likewise, the importance of appropriate insurance for those risks.

Contractual Liability Exclusion Excised from E&O Policy for Professional Services Company

In an important decision in the world of professional liability (including D&O and E&O policies), the Seventh Circuit recently held that a “contractual liability” exclusion—i.e., an exclusion for claims “based upon or arising out of … breach of contract”—when inserted in a professional liability policy, that is, a policy intended to insure professionals for services they perform under contract, renders the coverage “illusory.” Accordingly, the appeals court held that the policy must be “reformed” to meet the policyholder’s “reasonable expectations” that coverage would be afforded for claims by clients for errors and omissions in the performance of professional services under contract, and remanded the case to the district court to apply those reasonable expectations in the pending dispute. (See Crum & Forster Specialty Insur. Co. v. DVO, Inc., No. 18-2571 (7th Cir., Sept. 23, 2019), opinion here.)

Artificial Intelligence: A Boon for Insurance Underwriting?

The digitization of business is in high gear. Although some sectors have embraced this change, others, including the insurance industry, have been slower to implement advances. While we’ve previously addressed insurance coverage for artificial intelligence (AI) risks, the risk-averse culture of the insurance industry has been particularly resistant to change in its own business.

Oddball Exclusions Are Not All Fun and Games – What the Court Got Wrong in Princeton Excess & Surplus Lines Insurance Co. v. Hub City Enterprises Inc.

Hub City Enterprises Inc. and Wall St. Enterprises of Orlando Inc. ran an event called “Rum Fest 2017” in Orlando, Fla. Sounds like fun, doesn’t it? But one of the partygoers, who apparently paid to attend the festival, was not amused. In the middle of the party, Robert Hunt saw an oversized beach ball barreling towards his head. When he reached out to deflect the projectile, he ended up suffering injuries to the ligaments in his arms. Mr. Hunt sued Hub City and Wall St. Enterprises, who tendered the claim to Princeton Excess and Surplus Lines Insurance Co., their liability carrier, for a defense. Princeton initially assumed defense of the claim, but it soon repaired to federal court seeking a declaration that it had no duty to defend the suit. In Princeton Excess & Surplus Lines Ins. Co. v. Hub City Enterprises, Inc., the Southern District of Florida ruled in favor of the insurer.

Pillsbury Insurance Insolvency Watch: Northwestern National & Highlands

Northwestern National, the successor to Bellefonte Insurance Company, was placed into liquidation by a court in Wisconsin in May. Northwestern National was previously put into rehabilitation by the Wisconsin Office of the Commissioner of Insurance in 2007 and exited rehab in 2012. Its policyholder surplus has continued to decline in recent years and does not meet the statutory minimum. A claims bar date has been set for November 2, 2019. More information and Proof of Claim forms can be found at the liquidation website.

California Supreme Court Sides with Policyholder in Critical Notice-Prejudice Case

In November 2018, we noted that the California Supreme Court had agreed to resolve Pitzer College v. Indian Harbor Insurance Company, a case that hinged on the importance and application of California’s notice-prejudice rule. On August 29, 2019, the court issued its decision: a policyholder-friendly ruling that opposes technical forfeitures of insurance coverage. Although further proceedings are needed to determine whether Pitzer will ultimately benefit from this victory, the principles it articulates are of immediate interest to policyholders in California and across the country.

Delaware Court Adopts Pillsbury’s Theories on Novel D&O Insurance Issues (Part 2)

In a prior post, we reported an important ruling of first impression by the Delaware Superior Court that a shareholder appraisal action against Pillsbury’s client Solera Holdings Inc. was a “Securities Claim” under Solera’s directors and officers liability insurance policies. In the same decision, the court ruled on two additional issues that no Delaware court had previously decided and that highlight the importance of understanding the specific terms of your company’s D&O policies.

Federal Appeals Court Punishes Policyholder for Giving Too Much Notice

When a company receives a claim or lawsuit, it is critical to provide timely notice to its insurers. But when the claim is first made, sufficient facts may not yet be known to indicate which policy will respond. Many policies also contain language that purports to shift coverage to earlier insurance policies for claims that “relate back” to earlier events. As a best practice, policyholders and their brokers often provide notice of a claim under all policies that might cover a loss, to ensure that coverage is not defeated by failure to meet any obligation to give notice. This method of first providing notice for claims to multiple insurers, and then working with insurers to determine the correct policy to respond, is a well-established practice for managing insurance claims. Once the proper policy to respond to the claim is established, exclusions in the other policies kick in to avoid double coverage.

Delaware Court Adopts Pillsbury Theory that Shareholder Appraisal Actions Are Covered Securities Claims Under D&O Policies

Pillsbury secured an important victory for its client, Solera Holdings Inc., when Delaware Superior Court Judge Abigail LeGrow held—in a matter of first impression anywhere in the country—that a shareholder appraisal action challenging the price Solera obtained for its shares when it sold itself to private equity firm Vista Equity Partners was a “Securities Claim” within the meaning of Solera’s directors and officers liability insurance policies. Last month’s groundbreaking decision in Solera Holdings, Inc. v. XL Specialty Ins. Co., may be found here.

California Puts Teeth into Confidentiality Provisions. Lawyer Gets Bitten.

Disputed insurance claims often end in confidential settlements, as do many insured liabilities. But does it matter if lawyers sign a settlement agreement approving “as to form and content”? Last month, the California Supreme Court answered that question with a resounding “Yes!” In Monster Energy Company v. Schechter, a unanimous California Supreme Court ruled that a lawyer signing such an agreement may be bound by that agreement’s confidentiality provisions.

As Investment in Esports Grows, Insurance Coverage Must Keep Up

Packed stadiums? Check.

Players and teams with huge followings? Check.

Massive social media appeal? Check.

But here, the events that spectators are so eager to attend aren’t live basketball or football games. Instead, fans are lining up to watch others competitively play video games, more commonly known as esports. In 2018, esports garnered 258 million unique viewers globally, compared to 204 million for the National Football League’s 2016 regular season. In 2019, esports are predicted to draw 299 million viewers and hit $2 billion in revenue, up from $1.5 billion in 2018. The International Olympic Committee is even considering adding esports to the 2024 Olympic Games.

Hurricane Barry: Prepare Now to Maximize Insurance Recoveries

Affected businesses and other organizations should take immediate and proactive steps to maximize insurance recovery.

Hurricane Florence: Evaluating Business Interruption Claims Following a Large-Scale Disaster

Storms like the one that recently caused widespread devastation in the Carolinas leave behind challenging questions about business interruption insurance coverage.

Hurricane Florence: Insurance Recovery Tips

In the wake of Hurricane Florence, a thorough understanding of the coverage available, the facts surrounding the loss, and the applicable law can often be key to maximizing insurance recovery.

While Hurricane Florence has left the Carolinas, it will be weeks, months or even longer before businesses will fully recover from the massive destruction left in its wake. Hundreds of roads remain closed, power is not yet fully restored, and some rivers are still rising past major flood stage level. Wide-impact catastrophes like Florence cause not only widespread physical damage but also tremendous and long-lasting economic damages.

Hurricane Florence: Maximizing Insurance Recoveries

As Florence threatens the Carolinas and beyond, affected businesses and other organizations should take immediate and proactive steps to maximize insurance recovery.

Hurricane Florence, threatening to buffet and deluge the southeastern coastline with wind and rain, represents just the latest extreme weather event that businesses must anticipate and from which they must prepare to recover. A key early step in the recovery process for businesses and other organizations is communicating losses to their insurance companies. As you take stock of your losses, plan your response, and examine your insurance policies and recovery options, you are going to face many questions: What insurance covers our losses? Have we identified all the policies that may respond? How do we measure or document our losses, including lost profits? Can we recover for our business interruption before the storm hit or if only our suppliers were impacted? Are there any government funds, such as FEMA assistance, available to aid our recovery?

After the Big Chill

Securing and maximizing insurance coverage for losses caused by winter weather early in 2018

Wildfires Rage: Insurance Advice for Recovery After the Smoke Clears

Some guiding principles, taken from decades of experience representing insurance policyholders in California and around the globe

Takeaways:

• The Wine Country fires, and the uncertainty of their cause, may complicate insurance recovery.
• As in any insurance claim, your insurance recovery may depend on how you present your claim.
• Be attuned to the deadlines and your obligations, and engage professionals experienced with your industry and the insurance recovery process.

Understanding Business Interruption Insurance and Wide-Impact Catastrophes

In the wake of Hurricanes Harvey and Irma, policyholders can expect insurers to put forward strong objections to some of the most consequential claims asserted by insureds.

Takeaways

• In construing policy language on BI claims after wide-impact events, courts typically try to avoid a “windfall” result for either side.
• Policy language matters and can drive varying results depending on how courts construe policy language.
• Policyholders ought to pay careful heed to controlling legal precedents regarding BI in wide-impact situations.

Hurricanes Harvey and Irma: 8 Key Insurance Coverage Issues Impacting the Availability and Amount of Recovery  

In the aftermath of two powerful hurricanes the process of assessing the damage and rebuilding begins.  Businesses suffered billions of dollars in losses during hurricanes Harvey and Irma, both in physical property damage and disruption of their business (i.e., lost profits).  That is precisely why businesses purchase property and other commercial insurance – to indemnify them when disaster strikes.  However, it is not uncommon for businesses to be unpleasantly surprised when they present a claim that their insurers are unwilling to stand behind the full insurance coverage they promised.  This is particularly so in the case of a substantial loss, and even more so in the aftermath of a wide-area catastrophe – such as a hurricane or other natural disaster – because such catastrophes have negative repercussions on insurers given the number of impacted policyholders.  

Internal Revenue Service Provides Helpful Relief to Hurricane Victims

IRS publications permit easier access to retirement funds and encourage leave-based charitable donation programs for those affected.

Takeaways

• IRS Announcement 2017-11 provides relief to Hurricane Harvey victims from certain limitations that would normally apply to hardship distributions and loans from tax-qualified employer retirement plans.
• IRS Notice 2017-48 encourages leave-based charitable donation programs for Hurricane Harvey victims, under which employees may be permitted to convert accrued paid leave into charitable donations. Existing guidance already permits employers to establish major disaster leave-sharing programs.
• Similar relief is likely to be extended to others impacted during the 2017 Atlantic hurricane season.

What a New Texas Insurance Law Means, and Doesn’t Mean, for Harvey’s Victims

Takeaways

• Legislative revisions tighten rules and alter penalties regarding insurers accused of wrongful delay or denial of payments.
• Companies and organizations with commercial insurance coverage need to be aware of it, but should not panic about the new legislation.
• If you know you are likely to have a potential claim, then providing written notice in accordance with your polic(ies) before the effective date of the statute is a prudent choice.

Hurricane Harvey: Insurance Implications

Takeaways

• Category 3 Hurricane Harvey is projected to have sustained winds of 120 m.p.h. and disastrous amounts of rain, with a possible storm surge.
• Business interruptions are already happening in advance of Harvey’s landfall.
• Policyholders should take key steps to maintain and maximize insurance coverage for Harvey-related losses.