Worrying Trend: Ninth Circuit Expansively Interpreting Exclusions
In previous blogs, we have discussed several rulings by federal courts in New York that improperly deviated from standards of coverage law established by state decisions. In recent years, several Ninth Circuit panels have fallen victim to this same poor practice. Three decisions in the span of just over a year evidence a pattern of flawed analysis that is depriving California policyholders of the full protection that should be afforded under the terms of their insurance agreements.
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.
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.
Insured vs. Insured: An Exclusion Often Conspicuous by Its Absence
An Insured vs. Insured Exclusion is, as the name suggests, a policy provision that precludes coverage for lawsuits where people or organizations insured by the policy appear on both sides. They are virtually omnipresent in Directors & Officers (“D&O”) and Errors & Omissions (“E&O”) policies, but they are far less common in other policies that can potentially cover business litigation. Knowing all the coverage options under your own policies is obviously important as a defendant, but defendants are also advised to consider the plaintiffs policies.
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?
Insurance Coverage During Mergers & Acquisitions
When considering mergers and acquisitions (“M&A’s”), a company must assess the potential liability it could be taking on. Whether such liability transfers as part of the process is an entire topic of its own, but let’s skip past that and assume that potential liability has developed into a lawsuit. Who’s going to pay for it? Luckily, the answer doesn’t have to be “you.” With the right insurance policy, M&A liability can be an insurer’s problem instead.
Alternative Approaches to Stays of Coverage Suits and Underlying Actions
Our previous blog focused on the California approach to this issue, which stems from the California Supreme Court case Montrose Chemical Corp. v. Superior Court. The Montrose ruling permits policyholders to avoid the complications that would arise if the merits of the claims against them were litigated. Coverage benefits are not impaired by requiring the policyholder to forfeit its rights to protect its defense to the claims asserted against it in the underlying action.
Several states have adopted similar policies. Others have taken the exact opposite stance. They opt instead to grant stays in the underlying action, allowing the coverage suit to be resolved first. Additional factors are also implicated in the common scenario where a coverage suit for Declaratory Relief brought in federal court to address the insurer’s obligations to defend a policyholder in an underlying state court action.
Stay of a Coverage Suit Due to Overlapping Facts
California courts have recognized that where the underlying action and coverage action both address the same “substantive issues,” a duty to defend, delaying the adjudication of the coverage issues by issuing a stay is appropriate. In the case of Aspen American Insurance Co. v. Harry William Ou, the court employed this doctrine to stay the coverage case addressing the plaintiff’s right to independent counsel due to the overlap of facts that could prove the plaintiff’s liability with those that might prove the applicability of a policy exclusion.
Insurers Must Establish That Exclusions Apply in “All Possible Worlds”
Insurers’ often combat policyholders’ quests for potential coverage of lawsuits by asserting exclusions that bar a defense based on the “gravamen” of the suit. The principal focus of a lawsuit characterized by insurers as “what the suit is about” or equivalent phrasing purportedly bars a defense because of various exclusions. Courts, which typically look to the tort claims asserted to discern what the lawsuit is about, believe that determining if potential coverage exists requires no more than a common sense view of what the lawsuit is about. That approach, however, is not the legal test in evaluating the duty to defend. It is therefore not uncommon for appellate courts to routinely reverse district court decisions that fail to apply the proper legal analysis called for in addressing whether there is any possibility that coverage will arise.
Recovery of Pre-Tender Defense Fees When Notice Is Late
Many intellectual property lawyers routinely litigate copyright lawsuits and immediately provide notice to a Commercial General Liability (“CGL”) insurer. Thereby, they secure defense fees for “Personal and Advertising Injury – offense (g)” “infringement of copyright, trade dress or slogan in your ‘advertisement,’” which broadly defines the term “advertisement.” But what if the covered claim is inchoate such as fact allegations that evidence trade dress claims not labeled as such?
What Insurers Do Not Want You to Know About the Policies They Sell
Insurance policies are difficult to read at the best of times. This is a calculated move by the insurance providers in the hopes that policyholders will not avail themselves of all the protections contained therein. On occasion, however, the insurers’ tactics can be turned upon them. The twisting, complicated language can sometimes open the door for policyholders to argue for coverage in areas the insurer may not have intended to provide it. Careful lawyering and receptive judges have codified several of these expanded coverage areas over the years, and a few such examples are presented below.
Directors & Officers Coverage for Government Investigations
The availability of insurance coverage for investigation defense costs is unclear leading to apparent inconsistent decisions. The policyholder, however, that actually pursues coverage for those claims often succeed. The failure to notify the insurers of the claims will deprive insured of any potential coverage where the investigation proceeds to a “Claim.” At minimum, these interactions should be reported to the present D&O carrier as a potential claim under the policy provisions allowing the report of a “notice of circumstance.”
Battling for Equity-Securing Appropriate Fee Rates in C. C. §2860 Disputes
The rates insurers pay their appointed counsel to defend similar actions in similar communities sets the benchmark when California Civil Code § 2860 is applied. To pay a rate less than the reasonable rate virtually every other forum requires strict and complete compliance with California Civil Code § 2860.
Deadline Looms for Business Interruption Insurance Coverage COVID-19 Claims
Counsel who seek to benefit from any coverage recognition by their property insurer to secure business interruption loss reimbursement arising from COVID-19 events must make a critical decision soon. Drafting a complaint in an appropriate forum is critical before the deadline. For most property policies, that is 3/19/2022 — two years from civil authority shut down.
Coverage for Restitutionary Relief Based on Disgorgement
While many insurance policies define “Loss” to include settlements, judgments, damages, and litigation expenses, restitutionary awards for disgorgement are on occasion expressly excluded from the definition of “Loss” where it is deemed “uninsurable” under the statutes and laws of the controlling jurisdiction of the lawsuit. Where no policy provisions address this issue, jurisdictions vary on the rules that govern insurance coverage for restitutionary relief. Insurer’s argument that disgorgement claims are overbroad especially where the intuition monies secured were not obtained illegally.
Are Insurance Policy Applications Traps for the Unwary?
When applying for insurance coverage, the policyholder must complete a policy application. Completing the policy application can be a tedious process containing a number of questions that, to the average person, can seem convoluted and confusing. This is especially the case as policyholders face questions that do not have objective answers. The complicated nature of policy applications raises serious issues where insurers have the ability to rescind the policy contract if the policyholder misrepresents information provided in their policy application.
WHAT A CEO NEEDS TO KNOW ABOUT INSURANCE
When is the last time you thought about your company’s insurance coverage? How broad is its scope? How might it address litigation which could arise out of the company’s operations?
Insurance concerns are rarely a priority for CEOs. But, a CEO brings a unique perspective to the oversight of insurance acquisition and use. CEO involvement is inescapable where a Lawsuit becomes an “existential” concern for the Company.
Insurance Recovery for Restitutionary Intellectual Property Claims
Insurance recovery in intellectual property lawsuits is often not limited to “compensatory damages”. Claimants who suffer a Loss in an intellectual property dispute may secure recovery that is not limited to “compensatory damages”. Licensing revenue is commonly recoverable in the successful pursuit of trademark infringement lawsuits.
Narrowly Construing COVID-19 Business Interruption Insurance Coverage
A 4th District, Division 1, California Court of Appeals panel, in The Inns by The Sea v. California Mutual Ins. Co., decided that civil authority coverage cannot be implicated because “bodily injury” or “property damage” was not the triggering event, but rather the authority’s announcement of a shutdown in mid-March of 2020. The court’s analysis emphasizing the non-event essential espouses that the egg came into life, full force, without the chicken.
TRIGGERS FOR RECOVERY OF PREJUDGMENT INTEREST
Where an insurer had denied a claim and many years have ensued until an adjudication of its duty to defend, prejudgment interest recovery can be significant. This, in turn, can make choice of the forum to pursue a coverage case, as well as what law that forum may apply, a critical decision element for coverage litigation.