D&O, Management and Professional LiabilityMission Statement 2022-2023 Co-Chairs Selected Presentations & Papers: Delaware Court: Pre-Merger Target Company Execs Are Insured Persons Under SPAC’S Post-Merger Tail Policy A Delaware Superior Court Judge has held that a SPAC’s post-merger runoff policy provides coverage for the defense fees of former directors of the pre-Merger target company for alleged Wrongful Acts that the occurred prior to the merger – even though the former directors were not directors or officers of the SPAC at the time they allegedly committed the alleged Wrongful Acts. Read more.
Viacom's Insurers Must Face Coverage Suits Over CBS Merger A Delaware state judge ruled that several of Viacom's directors and officers insurance carriers must face the media company's suits seeking coverage for litigation stemming from its merger with CBS, deeming the dispute ripe for consideration. Read more.
Fifth Circuit Affirms Judgment in Favor of Insured Under a Funds Transfer Fraud Endorsement of a Crime Protection Insurance Policy This case involves a denial of coverage for a claim due to a fraudulent routing number supplied to the insured escrow agent. Following a denial of the insured’s proof of loss on the basis that the loss was not covered by the funds transfer fraud endorsement in the insured’s crime protection insurance policy, the insured filed suit after and won a ruling on coverage in the district court. On appeal, the Fifth Circuit affirmed holding that the only interpretation of Clause A of the policy that does not render Clause B meaningless is that coverage is triggered under the funds transfer fraud endorsement for a loss caused by a written instruction being forged or altered by someone other than the insured without the insured’s knowledge or consent prior to being issued by the insured. Read more.
This decision came after McDonald’s shareholders sued the company’s former head of human resources, alleging that the officer breached his duty of oversight by “allowing a corporate culture to develop that condoned sexual harassment and misconduct.” Read more.
For the second time in recent days, a court has held that a D&O insurance policy provision operates to preclude coverage for claims against an insured company and its executives that the consideration to be paid for the acquisition of the insured company is inadequate. The Seventh Circuit in a recent decision held that the “inadequate consideration” exclusion (sometimes referred to as the “bump-up” exclusion) in the applicable D&O insurance precludes coverage for a claim that disclosure in the company’s proxy statement omitted information that could have been used to negotiate a higher price. As is often the case, the specific policy language was key to the decision. Read more.
Insured Fails to Provide Timely Notice of Claim and Prior Knowledge Exclusion Bars Coverage in Subsequent Policy
New York Federal Court Applies Kentucky Law and Denies Coverage Based on Insured vs Insured Exclusion The United States District Court for the Southern District of New York, applying Kentucky law, has held that an insured v. insured exclusion bars coverage for a lawsuit brought by both insured and non-insured security holders as well as a non-security-holder, non-insured entity. The court found that an exception to the exclusion did not apply because an insured provided substantial assistance in bringing the case against the company’s directors and officers. Gregory v. Navigators Ins. Co., No. 2022 WL 17551995 (S.D.N.Y. Dec. 9, 2022). Read more.
Two Claims Related But Deemed Made During the Later Claim’s Policy Period A Delaware court holds, in reliance on policy language the court found to be clear and unambiguous, that two related claims were deemed first made not at the time the earlier claim but rather during the policy period of the policy in force at the time the later claim was made. Read more.
Bump Up Exclusion Bars Coverage for Insured Company’s Acquisition Underpayment A California court interpreted an unusually worded bump up exclusion that arguably applied to preclude coverage whether or not the insured company was the acquiror or the acquisition target, the court held that the exclusion unambiguously precluded coverage for the settlement of a claim that the directors of Onyx Pharmaceuticals, the insured company, had breached their duties by accepting an inadequate amount for the sale of their company. Read more.
Execs Covered For Sears Bankruptcy Claims, Del. Judge Says Two excess directors and officers insurers must defend a real estate investment trust and its executives from underlying bankruptcy litigation accusing them of siphoning billions of dollars from Sears, a Delaware Superior Court judge said in a decision unsealed this month. The Court held that the insureds sufficiently demonstrated an alternative claim for coverage for an adversary proceeding as a "non-securities claim" and found that coverage can't be denied because the proceeding is related to a previous action. Read more.
Delaware Supreme Court Sides With Insurers In $20M D&O Dispute over Appraisal Costs The Delaware Supreme Court upheld a ruling that a mining company doesn't have insurance coverage for its $20 million-plus legal bill stemming from a 2017 stockholder appraisal lawsuit, rejecting the company's argument that Montana law should apply to the dispute. A three-justice Delaware high court panel said in an opinion Thursday that the insured can't rely on Montana's coverage by estoppel remedy to argue that insurers must cover the company's defense costs for appraisal litigation under directors and officers policies. Read more.
Insurer Fights Law Firm's Bid For Malpractice Case Coverage Based on Failure to Disclose Claim An insurance company has told a Tennessee federal court it shouldn't have to honor the $1 million liability policy it sold to a law firm because when the firm president renewed the policy, he didn't disclose that a malpractice claim could be coming. Read more.
D&O Diary’s 10 Ten D&O Stories of 2022
Kentucky Supreme Court Rules Suit Not Excluded by Prior Notice Exclusion Kentucky Supreme Court in Ashland Hospital Corp. v. Darwin Select Insurance Co. ruled that a policyholder's tender of a government subpoena to its directors and officers liability insurer a few years before it was named as a defendant in related civil litigation did not trigger a prior-notice exclusion in its professional liability policy. The found the exclusion inoperable where the insurer previously advised the policyholder that its notice of a government investigation did not constitute adequate notice of circumstance that might give rise to a claim; and the insurer failed to inform the policyholder upon renewal that any claims related to the investigation would be precluded by the policy's prior-notice exclusion. Read more.
New Jersey Supreme Court Clarifies an Insurance Brokers' Duty To Inform The New Jersey Supreme Court ruled that an insurance broker has to tell members of a limited liability corporation if they are not covered for workers' compensation, but isn't liable for damages unless his failure to inform arose from "willful, wanton, or grossly negligent" misconduct.
In Hanover Insurance Co. v. R.W. Dunteman Co., the U.S. Court of Appeals for the Seventh Circuit, interpreted Illinois law on the aggregation provisions in a claims-made D&O liability insurance policy. The court concluded that an initial complaint seeking relief only against the company and a later amended complaint that introduced individual defendants and new allegations of serious wrongdoing constituted the same claim. This led to a finding of no coverage for the policyholders due to untimely notice of the initial complaint to the insurer. Read more.
Prior Antitrust Action Held Interrelated with Later Securities Suit In a November 18, 2022 opinion, a Western District of North Carolina Judge applying North Carolina law held that the antitrust and securities actions were interrelated; that the securities claim was deemed first made prior to the policy period of the excess insurer’s policy; and therefore that the settlement of the securities claim was not covered by the policy at issue. Read more.
Harvard’s Notice of Admissions Suit Held Untimely A federal judge has held that Harvard University will have to pay the legal tab it racked up during the affirmative-action case recently argued before the U.S. Supreme Court because the school was late in notifying its insurer of the landmark suit. Rejecting Harvard’s argument that the policy’s notice provision is a mere technicality, the federal district court held that “courts 'leave no wiggle room' to excuse an insured's noncompliance with the notice provisions of a claims-made policy." Read more.
Delaware Court Holds D&O Insurance Covers Fraudulent Transfer Claim Settlement In the latest development a long-running D&O insurance coverage dispute, a Delaware Court has held that Verizon’s D&O insurance program covers the company’s $95 million settlement of a bankruptcy Trustee’s fraudulent transfer claim. In reaching this conclusion, the Court held, among other things, that the fraudulent transfer claim was a “Securities Claim” within the meaning of Verizon’s primary D&O insurance policy. Read more.
Kentucky Supreme Court Holds that insurer can't rely on a government subpoena issued to the hospital as a basis for triggering their policies' prior-notice exclusions. In a 5-1 opinion on Thursday, Kentucky justices said a subpoena the U.S. Department of Justice served didn't trigger the "prior notice of events" exclusion in its professional liability policies. The justices said the subpoena wasn't sufficiently related to Kentucky state court lawsuits filed against the hospital, so it didn't count as something that would trigger the prior-notice exclusion when the insured sought coverage for those suits. Read more.
Most D&O insurance policies preclude loss resulting from fraudulent or criminal misconduct. However, most policies specify that the exclusion applies only if there has been a judicial determination that the precluded misconduct has taken place. What specific judicial determination is required in order to trigger the exclusion is a matter of policy wording. In an interesting recent ruling, Southern District of New York Judge Denise Cote reaffirmed her prior conclusion that a credit union executive’s criminal conviction precluded coverage for the executive’s cost of appeal – even though his appeal remains pending and even though the applicable policy had the “final adjudication” language. Read more.
Warranty Letter Bars Coverage for Claim Against Chief Legal Officer Arising From CEO’s Alleged Fraud The United States District Court for the District of Nevada, applying Nevada law, has held that a warranty letter executed by the insured’s CEO prior to the issuance of an excess D&O policy barred coverage for a claim made against the insured’s chief counsel. See Ironshore Indem. Inc. v. Kay, 2022 WL 4329790 (D. Nev. Sept. 16, 2022). Read more.
What Del. Officer Exculpation Law Means For D&O Insurance The Delaware General Assembly has amended the Delaware General Corporation Law Section 102(b)(7), effective August 1, 2022, to permit the exculpation of corporate officers. In the following guest post, Bryan Coffey and Peter Gillon of the Pillsbury Winthrop Shaw Pittman LLP law firm examine the new statutory provision and consider the provision’s D&O insurance implications. Read more. D&O Insurer Must Cover Mortgage Broker’s $15 Million Settlement of Alleged False Claims Act Violations A Delaware court recently granted summary judgment to a mortgage broker targeted in a federal government investigation for alleged False Claims Act violations, holding that the company’s directors and officers liability (“D&O”) insurer was required to indemnify more than $15 million in settlement costs with the U.S. Department of Justice. Guaranteed Rate, Inc. v. ACE American Insurance Company, No. N20C-04-268 MMJ CCLD (Del. Super. Ct. Sept. 6, 2021). Read More.
No Coverage For SEC Investigation Costs, Insurer Says Great American Insurance Co. urged a Nevada federal court to rule that it does not have to reimburse an appliance recycling business for defense costs incurred after a U.S. Securities and Exchange Commission investigation because the SEC's actions occurred after its policy expired. Read More.
Basketball Hall of Fame and Chubb Insurer Hit the Court Over D&O Coverage The Basketball Hall of fame (BHoF) is suing Chubb Group subsidiary Federal Insurance Co. to have the insurer defend and indemnify it in a case accusing it of attempting to unlawfully secure funds for renovations to its facility. Read More. Posted 9/14/2022 Delaware Superior Court Issues Noteworthy D&O Coverage Opinion Regarding Choice of Law, Covered Loss, Antitrust Exclusion and Fines and Penalties Another Delaware court has issued a noteworthy management liability insurance coverage opinion. In a detailed September 12, 2022 opinion in a dispute between Godiva Chocolatier and its management liability insurers over coverage for underlying consumer protection claims against the company, Delaware Superior Court Judge Mary M. Johnston rejected many – but not all — of the insurers’ coverage defenses. Read More
Interrelated Wrongful Acts: ZOOM Alleges Insurers Relied on Unstable Connection To Support Denial Zoom Video Communications, Inc. recently filed suit against four of its insurers alleging that it is owed their policy limits due to paying over $90 million in litigation costs stemming from several underlying lawsuits -- a government investigation and subsequent lawsuit and several other private lawsuits. All of the underlying lawsuits claimed data security breaches and consumer protection violations against the company. Zoom argues that the insurers wrongfully denied coverage for these lawsuits by improperly relying on “loose” interrelated acts language in their policies. Posted 8/26/2022 11th Circuit Holds D&O Insurer Liable for $3 Million in Prejudgment Interest on Top of Policy Limits Lloyd’s of London underwriters must pay more than $3 million in pre-judgment interest in addition to the $10 million the syndicate has already paid in damages for the wrongful acts of the former directors of a bank that was declared insolvent during the 2008 financial crisis, the 11th Circuit Court of Appeals ruled. Read More: Lloyd’s Owes $3M in Prejudgment Interest for Late Payment of D&O Claim (claimsjournal.com)
When a management liability insurance policyholder seeks to increase the limits of liability of their insurance program, the insurers will typically require a statement warranting that the policyholder is not aware of any facts or circumstances that could give rise to a claim. This warranty statement typically specifies that if there is a subsequent claim based on facts or circumstances of which the applicant has knowledge, the subsequent claim is precluded from coverage. This warranty exclusion is often referred to as the prior knowledge exclusion. In an interesting August 15, 2022 opinion in an insurance coverage dispute, Delaware Superior Court Judge Eric Davis held that as a result of the insured’s failure to disclose a pending SEC inquiry in a warranty letter, the prior knowledge exclusion in the letter precluded coverage for the underlying matters. Read more
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