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.
District Court Ignored Narrow Exclusion Construction Case Authority
Exclusionary provisions in insurance contracts must be narrowly constructed to provide coverage for policyholders. So what happens when “arising out of” is included in an exclusion? The issue came to a head in the Texas case SXSW, LLC v. Fed. Ins. Co., No. 1:21-CV-900-RP, 2022 U.S. Dist. LEXIS 183423 (W.D. Tex. Sep. 29, 2022).
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?
Ten Misconceptions Re Insurance Coverage for Employment-Related Claims
MISCONCEPTION 1.
No effective coverage for employment practice claims is available outside of employment practice liability insurance policies.
REALITY:
Commercial General Liability (“CGL”), Employee Benefits Liability, Errors and Omissions (“E&O”), Directors & Officers (“D&O”), as well as Fiduciary Liability policies have all been held to trigger a duty to reimburse defense fees in employment related disputes.
Ten Recurring Questions on How to Use Policyholder Counsel
PROBLEM 1.
Who is going to pay your bill if we use you to assist us?
ANSWER: Our firm’s blended hourly rate experience is $350–$400 for the pursuit of insurance coverage issues. We have, on multiple occasions, secured recovery of the lion’s share of our insurance coverage fees where the insurer’s denial of coverage evidences unreasonable conduct.
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.
When Does Appointed Counsel Not Discharge an Insurer’s Duty to Defend?
Insurers often fall short of properly discharging their duty to defend by not providing the counsel demanded by the law and the terms of the policy. In some instances, insurers will deny coverage but still provide a “courtesy defense.” In other cases, the insurer may agree that a claim triggers the duty to defend but only provide attorneys who are ultimately loyal to the insurance company, despite the conflicts of interest created by that loyalty. In either situation, the insurer is attempting to take advantage of the policyholder’s ignorance and failing to hold up its end of the agreement.
The Coverage Attorney’s Role as Expert Witness in Proving Damages Against an Insurer
Historically, insurance coverage counsel have had a limited role as testifying experts. Typically, testimony of defense counsel who incurred the defense fees whose recovery is sought suffices to prove their reasonableness. But when insurers challenge their analysis, testimony from experts inform that determination. A pair of recent Texas decisions demonstrate when expert witnesses can aid in resolving damage recovery disputes. An earlier decision applying California law and several assessing New York law also explore the limitations on use of expert testimony in addressing defense fee recovery issues. Indeed, one New York court specifically identified jurisdictional differences, one of the primary complaints of America Can! plaintiffs, as the reason for entirely discounting expert reports.
Searching for a Unicorn: Unearthing Buried Trade Dress Claims
Standard Commerical General Liability (“CGL”) insurance policies typically exclude claims for the most well-known intellectual property claims: copyright, trademark, trade secret, and patent infringement. However, they also include an exception for infringement of copyright, trade dress, or slogan in your “advertisement,” with the term “advertisement” broadly defined. Fact allegations for unfair competition typically included with trademark or patent infringement, and on occasion trade secret or copyright infringement claims, may implicate the duty to defend under the exception IP torts, such as trade dress infringement. Thus, policyholders often scramble to establish the applicability of the trade dress coverage with mixed results.
Controlling What Coverage Law Controls: A Tale of Three Venues
The first consideration in choosing where to sue an insurer is whether the Commercial General Liability (“CGL”) policy itself contains a choice of law provision. Few insurance policies do. Those that contain them are typically Directors & Officers (“D&O”) policies. Courts generally respect them. But when they specify a state law but do not incorporate the application of its substantive law, then only its choice of law rules may be enforceable.
Insurance Coverage of BIPA Claims – The Next Frontier
In recent years, privacy law has exploded both here in America and abroad. Two of the most prominent examples include the California Consumer Privacy Act of 2018 and the General Data Protection Regulation in the European Union. Likely because of the focus of these well-known pieces of legislation, most people tend to associate modern privacy laws with internet history and data stored in phones or other devices. Some privacy laws, however, concern a much more personal type of data—your physical features.
Beware of “Insurers Bearing Gifts”
Your insurers are not necessarily your friends. Their practical goal is to avoid paying money on any claim made by the insured. Despite the friendly, customer-first appearance they cultivate, many seemingly generous offers are often illusionary. A few common traps to be wary of are: (1) re-definition of policy terms which imbed limitations to coverage without expressly adding policy exclusions; (2) withholding of advice that an insured is entitled to independent counsel despite issuing a comprehensible reservation of rights that allows the insurer to change its mind about coverage as new facts come to light; and (3) reticence to truly pay defense fees or to advance payment of necessary sums to settle.
Securing Policy Benefits Beyond Insurer Shell Games
What’s the best approach to choosing an insurer based on policy language or service? As policy holder insurance coverage counsel, I am occasionally asked to assist policy holders in procuring coverage. In that capacity, I have analyzed a number of risks under CGL/Umbrella/Excess, D&O, E&O, Media, Cyber Media, Technology, IP, EPLI, Fiduciary, Crime, and a host of other forms of insurance coverage. My primary focus is policy language. That is what a court must interpret. Nonetheless, insurers that allow policyholder to retain independent counsel, where the law allows it, at rates they validate, and extend authority to resolve litigation within policy limits receive my recommendation.
Disputes Over Control of Counsel Between Policyholders and Insurers
Because the insurer has a duty to defend if a claim is even potentially covered, insurers usually take on defense of a claim that may be covered. However, if an insurer disputes coverage, it may initiate a Declaratory Judgment Action to determine whether it owes a duty to defend the policyholder in the underlying action. Alternatively, it could simply decline coverage altogether, in which case the policyholder may file a declaratory judgment action (or a third-party declaratory judgment claim in the underlying action) or wait until the underlying litigation ends and file suit against the insurance company seeking reimbursement (also called recoupment of defense).
Why Evaluating Coverage for Intellectual Property Is Challenging
Courts analyzing CGL policies have wrestled with how to discern whether coverage under these policies may extend to IP claims. The vast majority of these cases address when coverage may be triggered under the CGL policy’s “personal and advertising injury” coverage. At the inception of that coverage in 1976, it was initially an add-on element to the standard form policy, offering coverage for the offenses of “piracy” and “unfair competition.” In 1986, the “personal and advertising injury” coverage was integrated into the policy as a whole. It included the offense “misappropriation of an advertising ideas or style of doing business.” In 1998, that offense was replaced by “use of another’s advertising ideas in your ‘advertisement’” with the term “advertisement” broadly defined.
All those offenses under the progressive CGL policies are notable for a common failure—they fail to use terms that have any clear or definable limits in contrast to traditional torts that have legally defined parameters established by case law. Thus, courts have had to assess the scope of these no-singular torts labeled offenses when analyzing what intellectual property torts be covered.
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.”
Settlement May Be Recoverable Against a Non-Defending Insured Without a Trial
If the underlying case settles before judgment is issued, the court assessing the insurer’s duty to indemnify monies paid in settlement may not have the benefit of adjudication for liability or damages in the underlying action. Such an insurer, therefore, must assess the its obligation to compensate the insured for amounts it paid in settlement based on the insured's potential for liability in the underlying action. This determination is made based on the facts established in the case at the point of settlement, including the facts that were assumed by the parties and formed the basis for the settlement.
Do Not Accept No for an Answer If Insurers Deny Coverage for IP Claims
Commercial General Liability policies (“CGL”) have wrestled with articulating limits for coverage triggered under its “advertising injury” coverage since its inception in 1976 as an add-on element to the standard form CGL policy. As such, courts have had to assess their scope when analyzing what intellectual property torts might fall within their ambit. Especially where facts, not labels, are causes for actions that control and the duty to defend is adjudged from the layman’s perspective in reading policy language, this has led to inconsistent decisions, reversals upon further review of the nature of the torts claims asserted and their intersection with the insured’s coverage law, and uncertainty.
Coverage for Patent Infringement Lawsuits under CGL Policies
Most Commercial General Liability (“CGL”) policies do not explicitly include patent infringement as a covered offense. Also, many policies expressly exclude patent infringement coverage in an Intellectual Property (“IP”) exclusion. Based thereon, insurers will often deny coverage for patent infringement claims because they fall outside the coverage scope of its CGL policy. Patent infringement claims, however, can still secure coverage under various pathways.