Seventh Circuit Seeks Guidance for Interpreting “Pollution” Exclusion
In previous blogs, we have written about the unfortunate trend of federal judges ruling against policyholders based on rationale that conflicts with state court decisions. Ideally, federal courts should adopt the policyholder-friendly stance of the state courts, but a recent decision by the Seventh Circuit highlights an acceptable alternative: certification to the state’s highest court.
Independent Counsel Triggers and Requirements
When an insurer’s duty to defend is triggered by a lawsuit against the insured, the “normal” outcome is that the insurer will assume complete control of the defense by selecting counsel and paying any fees incurred. In ideal circumstances, this can work out as the insured, insurer, and appointed counsel are all theoretically aligned in their goals. In reality, complications often arise. Recognizing this, most states have articulated standards for determining when an insured is entitled to independent counsel and what an insurer must do to discharge its defense duty in those circumstances.
Businesses Operating out of Homes: Insurance Coverage Challenges and Opportunities
With the vastly increased popularity of work-from-home arrangements following the COVID-19 pandemic, more businesses than ever have elected to forego the expense of a dedicated office. Many such businesses still require a legal address, and the business owner’s residence can be a convenient solution. In addition to the basic Commercial General Liability (“CGL”) policy that all business owner’s should maintain, a Homeowner’s policy and an Errors and Omissions (“E&O”) policy should be considered for additional protection.
Lessons to Learn from Recent Lloyd’s Coverage Settlement
Since 2018, Monster Energy Company (“Monster”) has been embroiled in litigation with Vital Pharmaceuticals, Inc. (“Vital”). The dispute has generated over two dozen judicial decisions with more still to come. The related coverage action between Vital and Certain Underwriters at Lloyd’s London (“Lloyd’s”) was recently resolved via settlement. Although the settlement avoids creation of new coverage case law, helpful inferences can be made based upon Lloyd’s decision to settle. This saga also highlights an important lesson for policyholders about the importance of notifying all insurers of litigation as soon as possible.
Wrongful Denial of Coverage from Wildfire Revenue Loss
In the recent Los Angeles wildfires, many businesses suffered direct fire damage, up to and including being entirely burned to the ground. For those so impacted, coverage should be a straightforward issue under any standard Business Owner’s Policy (“BOP”). It is critical, however, for such policyholders to seek all benefits to which they are entitled. While many rightfully expect coverage for the actual damage to the business property, standard policies also include coverage for business interruptions. These “Business Income” provisions can expand coverage to those suffering a sort of “secondary” impact from the fires (i.e., businesses that did not suffer fire damage but have experienced decreased revenue due to loss of access and other circumstances).
Confidentiality in the Tripartite Relationship
The protections offered by attorney-client privilege are, in most areas of law, rather straightforward. In the context of insurance coverage, the concept can quickly grow complicated. Full disclosure is essential to obtaining quality legal counsel, and frank discussion of a case’s merits is necessary for an insurer to analyze settlement options. But what happens when an insurer uses information gathered during these necessary discussions as the basis to deny a claim? This blog examines cases addressing the nuances of insurer-insured communications and the privilege that may attach.
Best Billing Practices to Minimize Fee Disputes
You did everything right. You gave prompt notice of a claim and secured a defense from your insurer. No need to worry about the expensive legal bills anymore, right? Not so fast. Even if an insurer acknowledges its duty to defend (either willingly or following a declaratory judgment action), the carrier will carefully review every legal invoice line by line and search for expenses that are either uncovered or (in the carrier’s opinion) unreasonable.
“Pollution” Exclusion Interpretation Highlights Need for Appropriate Coverage
In St. Paul Fire & Marine Ins. Co. v. Getty Properties Corp., 213 N.Y.S.3d 185 (2024), the New York Appellate Division determined that insurers had no duty to defend or indemnify a policyholder due to the “Pollution” exclusions in the policies. The case illustrates the perils of businesses that fail to obtain insurance coverage suited to their needs.
Fourth Circuit Improperly Rejected Reasonable Construction of Exclusion
In a saga of litigation stretching back to 2021, Towers Watson continues to seek insurance coverage under its Directors & Officers (“D&O”) policy for a settlement agreement with shareholders who allegedly received below-market consideration for their shares following Towers Watson’s merger with Willis Group Holdings. The insurer, National Union Fire Insurance, argues that coverage is excluded by the policy’s “bump-up” exclusion. After initially winning in the district court, Towers Watson’s victory was reversed by the Fourth Circuit. On remand, the district court granted National Union’s Motion for Summary Judgment. Towers Watson now must take on the role of Appellant before the Fourth Circuit.
Opportunities and Pitfalls in Securing Coverage for Arbitration
Arbitration, along with mediation and other forms of alternative dispute resolution, are increasingly preferred over the traditional courthouse approach to litigation. Indeed, their use may be mandated in some circumstances. Quicker results, which in turn means reduced attorneys’ fees, are obviously desirable, but arbitration does have some complications to be wary of from an insurance coverage perspective.
Defining the Scope of “Advertising” Required for “Advertising Injury”
As in our previous blog, I am once again addressing mistakes and oversights included in an article published in DRI For the Defense.
Disparagement Coverage: Exactly as Broad as the Policy Says
In this blog, I respond to many mistakes and omissions commonly weaponized by insurer counsel that were encapsulated in an article published in DRI For the Defense. Although the authors appear to have attempted a neutral evaluation of the “implicit disparagement” doctrine in various jurisdictions, the article neglects several aspects of coverage law that protect policyholders.
Corporate Transparency Act’s Intersection with Diversity Jurisdiction Challenges
This year, effected entities must make their first filings under the Corporate Transparency Act (“CTA”). Enacted in 2021, the CTA’s purpose is curtail illicit activity such as tax fraud, money laundering, and financing for terrorism by forcing disclosure of additional ownership information for certain U.S. businesses operating in or accessing the country's market. Under the new legislation, qualifying businesses must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network. The BOI reports must provide details identifying individuals who are associated with the reporting company. Several articles have already been written discussing compliance requirements. In this blog, we wanted to discuss a different angle—how will the CTA impact diversity jurisdiction?
New York District Court Disputes Whether Settlements Clarify Potential Coverage
A recent Southern District of New York decision deviates from New York coverage law principles. Therein, the court decided that recitals in a Settlement Agreement which the insurer evaluated and concluded did not trigger a defense before the settlement was consummated did not clarify whether the underlying action implicated potential coverage. This continues a problematic trend in New York federal court decisions that have interpreted an insurer’s duty to defend more narrowly than their state counterparts, which the federal courts are bound to follow.
Assuring Coverage Counsel’s Proactive Assistance Requires Early Intervention
Currently, eleven states (and the District of Columbia) still adhere to the draconian “eight corners” analysis for the duty to defend. Under this policy, a court can only consider the policy language and the pleadings of the underlying case to determine whether the insurer’s duty is triggered. The modern trend, embraced by the remaining jurisdictions, is to consider additional “extrinsic evidence” in making the determination. Those states are split, however, in whether the duty is determined by facts known to the insurer or facts available to the insurer. The distinction being that the former requires the policyholder to proactively notify the insurer of any facts that implicate the duty to defend before the insurer’s obligations are activated. The burden is on the policyholder to supply the insurer with the information, even if the relevant facts are publicly available.
Personal and Advertising Coverage – A Year in Review
For our final blog of 2023, we wanted to look back at some of the prominent coverage cases and discuss emerging trends in insurance litigation.
“Slander of Title” Coverage under E&O Policy Unearthed by Ninth Circuit
“Slander of Title” is a commonly added cause of action in lawsuits addressing disputes over real property. Historically, such claims have had a limited intersection with insurance coverage. The principle exception is where the targeted defendant procured a Title Insurance policy providing directly applicable coverage. A recent decision by the Ninth Circuit analyzing potential coverage under an Errors & Omissions (“E&O”) Management Liability policy, however, has finally acknowledged the potential for coverage under more general policies. The decision’s rationale allows policyholders to reap policy benefits from both a Commercial General Liability (CGL”) policy as well as a Title Insurance policy if both are implicated by the fact dispute.
Securing Insurer Funded Resolution of Securities Lawsuits
Whether government investigations by the Securities Exchange Commission (“SEC”), Department of Justice (“DOJ”), another federal or state entity, or unanticipated drops in Company stock value precipitate shareholder litigation, securing the best possible insurance coverage to address the asserted claims is critical. The entity then evaluates whether actionable conduct has arisen that allows a government agency to pursue a claim. Such investigations create significant potential exposure for policyholders in investigation costs. Additionally, in responding to government subpoenas or demands for information, even before the start of an investigation, policyholders often expend significant amounts of time and money securing the information required. Luckily, reimbursement may be attained through a policyholder’s “Directors and Officers (“D&O”), Errors & Omissions (“E&O”), or Commercial General Liability (“CGL”) policy.
Coverage Based on Potential for Amendment of Underlying Pleadings
Policyholders and even general counsel often overlook the potential for coverage by only considering the causes of action in a Complaint. In truth, it is the factual allegations that govern, not the labeled causes of action. And in many jurisdictions, the original form of a Complaint is only the starting point, as insurers must consider the potential for clarifying amendments that would nudge the allegations of a poorly drafted Complaint to within the scope of potential coverage.
Enforceability of “Voluntary Payments” Provisions
Standard Commercial General Liability (“CGL”) policies contain a “Voluntary Payments” clause, which states the insurer must not “voluntarily make a payment, assume any obligation, or incur any expense for damages [or] loss[.]” Courts have recognized that this language cannot be enforced literally as it is written. Litigation over these provisions typically focuses on the actions of the policyholder, but, interpreted broadly, these provisions could allow insurers to bypass state laws requiring prejudice for late notice. Furthermore, they may incentivize insurers to delay their decisions of whether to defend in the hope that the underlying lawsuit will resolve itself. Neither of these practices should be tolerated by the courts.