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.
Insurer’s Obligation to Pay Reasonable Settlement When It Refuses to Defend
Despite their legal obligations to defend any claims with even a potential for coverage under a policy, insurers often fail to abide by that standard, looking for any excuse to deny a defense. Litigating to obtain policy benefits can take years in some cases, so the underlying action is often resolved before the battle for coverage comes to a close. When that underlying action is resolved via settlement, the denying insurer is obligated to reimburse the policyholder, even if the claim would not have met the standard for indemnity coverage. A number of cases in jurisdictions across the country have addressed this issue and reached the same conclusion.
When Timely Notice Isn’t Enough and When It Isn’t Even Necessary
Policyholders must be diligent in providing notice of potential claims to their insurers. Many policyholders, and even insurance brokers, make the mistake of assuming there will be no coverage for a particular matter and fail to do so. This is a mistake. Another mistake can be made by failing to provide notice according to the procedure required by the policy. Though ultimately resolved in favor of the policyholder, one Illinois case had to be litigated up to the state’s Supreme Court to secure coverage, all of which could have been avoided by providing notice according to the terms of the policy.
Lawsuits Filed Prior to Policy Inception May Still Be Covered
Many policyholders operate under a mistaken belief that a lawsuit filed prior to acquiring insurance can never be covered by that policy. Insurers would be quick to assure them they are correct in that assumption. The truth, however, is more nuanced. Insurance Services Office (“ISO”) Commercial General Liability (“CGL”) policies provide coverage for claims asserting continuous tortious conduct, and general principles of insurance law allow that coverage to extend even to claims where the conduct began before inception of an “occurrence” based policy.
Challenges in Securing Coverage for Antitrust Litigation
Aside from insurance policies secured by a larger corporation that directly address antitrust litigation exposure, there is no express coverage for “antitrust litigation” in Commercial General Liability (“CGL”), Umbrella, Excess, Errors and Omissions (“E&O”), or Directors and Officers (“D&O”) policies. Rather, coverage extends to “categories of wrongdoing,” which includes a list of offenses under “personal and advertising injury” coverage. This offense-based coverage is often implicated by the allegations accompanying business tort claims. It is of no moment that the conduct alleged is intentional as the offenses covered in such CGL policies expressly include intentional conduct such as malicious prosecution, disparagement, and defamation.
Insurer’s Rights and Obligations Surrounding Settlement Negotiations
The vast majority of civil litigation in America ends with a settlement rather than a judgment. As the most likely endgame for any given claim, policyholders should understand their rights during the settlement process. It is almost important to know how those rights are affected both by an insurer’s acceptance of its duty to defend and by a denial of coverage.
No Discovery Is Appropriate in Addressing Coverage for IP Disputes
Three distinct approaches are implicated in determining what the facts are for purposes of insurance coverage analysis: the “complaint allegations,” “facts known to the insurer,” or “facts available to the insurer” rules. Forum selection, which will require adoption of one rule over another, may be result-determinative in a coverage dispute where facts beyond the pleadings are essential to either establish or eviscerate potential coverage.
Insurers’ Failure to Research Applicable Law Is a Failure to Investigate
Upon signing an insurance agreement, insurers take on a duty to investigate claims reported to them. In the case of first-party claims (i.e., claims in which the policyholder suffers injury), that duty requires the insurer to investigate the factual circumstances of the claim. For third-party claims (i.e., claims in which the policyholder caused another party to suffer injury), the duty extends to investigating the latest legal authorities to determine whether the insurer has a duty to defend or indemnify its insured. Many insurers, however, fail in this duty, relying on outdated or inapplicable case law to support to denials. This is especially true in the context of “advertising injury” policies, which turn many of the general rules for coverage law on their head.
California Courts Cannot Base Coverage Analysis on Arbitration Results
In most states, an arbitrator’s conclusions can be used by insurers as the basis of a coverage denial. California, however, represents an exception to that general rule. In Vandenberg v. Superior Court, 21 Cal. 4th 815, 836–37 (1999), the California Supreme Court determined that arbitration results should not be usable by non-parties unless both arbitrating parties specifically agree otherwise. The impact of this decision should not be underestimated, particularly in the context of Employment Practices Liability Insurance (“EPLI”) coverage where employer-employee disputes so often turn to arbitration as a first option for a resolution.
First-Party Bad Faith under California’s “Genuine Dispute” Doctrine
Policyholders are generally eager to include a bad faith count along with breach of contract whenever a dispute with an insurer rises to the level of litigation. This is understandable as a successful bad faith claim can open the door to much greater recovery, including some forms not otherwise obtainable for simple breach of contract. The most viable for opportunity for recovery is typically limited to Brandt fees, which cover only the portion of fees incurred by counsel to establish the insurer’s obligations under the contract.
Insurers Escaping Duty to Defend Mixed Actions with New Exclusion Language
Many cases address some claims that are potentially covered by insurance and some that are clearly outside coverage. The rule in California (and generally throughout the country) is that these “mixed actions” must be defended in their entirety. Some jurisdictions allow the insurer to recover defense expenses associated with the non-covered claims. In order to avoid these obligations, however, some insurers incorporated expansive exclusions that eliminate any coverage for an entire suit if any claims asserted fall within a stated exclusion.
Insurer Orchestrated Settlements Purporting to Eliminate Coverage Are Suspect
In our previous blog, we discussed how policyholders can potentially weaponize poorly drafted policies. This tactic of course relies upon an underlying complaint with sufficient fact allegations to trigger potential coverage, which occurs more often than insurers are prepared to admit. Complaints, however, can be amended. So what would happen if an insurer were to conspire with the plaintiff to remove all allegations triggering potential coverage, thereby leaving the policyholder stranded without a defense?
Turning Ambiguous Draftsmanship Against the Insurer
Insurance policies are notoriously difficult to understand. Many policyholders fail to realize that this applies to insurance brokers and adjusters as much as it does to anyone else. Even on the rare occasions that an insurance worker is fully informed of all the legal contours of a policy’s coverage provisions, they obviously have a bias clouding their view of how it would apply to a costly claim.
Potential Liability from Use of ChatGPT’s Responses
ChatGPT has made frequent appearances in headlines lately for its ability to quickly draft lucid responses that feel much less “artificial” than the content normally associated with artificial intelligence programs. The answers it provides are so good that many have begun wondering how they might take advantage of the tool for promoting themselves or their businesses. As is so often the case for insurance lawyers, this is the part where we have to advise caution and consider the potential liability that might stem from proposed activity.
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.
Finding Appropriate Media Policy Coverage
Businesses beyond obvious multimedia categories, such as advertisers, producers, publishers, or others like them, may need to acquire media liability coverage to protect against the rising use of and threats associated with integrating social media and online business operations. Social media is becoming a key aspect of business operations for advertising and making virtual connections to consumers and partners which calls for more attention for the need to secure coverage of media risks.
Why Policyholders Should Retain Insurance Coverage Savvy Counsel
Intellectual property litigation proceeds through a variety of causes of action. They can include a number of distinct factual allegations that often trigger insurance policy benefits entitling policyholders to a defense at their insurer’s expense. While the most common form of business insurance to secure coverage remains the Commercial General Liability (“CGL”) policy, securing defense benefits under such policies presents increasing challenges.
To secure that benefit, the parties may evaluate facts beyond the complaint (“extrinsic evidence”) that clarify how the claims asserted implicate insurance coverage. Enlisting the assistance of insurance-coverage-savvy policyholder council who are also intellectual property litigators enhances the prospects for securing insurance policy benefits.
Ten Common Mistakes Policyholders Make Re IP Claims
IP claims are misunderstood even by most people in the insurance industry, so it’s no surprise that policyholders also struggle with them. This blog addresses the most common mistakes I’ve seen clients make and tries to offer some advice on how to avoid them.
First Circuit Finds Coverage Where District Court Did Not
The First Circuit’s recent Lionbridge decision followed the recent trend of federal appellate cases correcting district courts improperly rejecting policyholders’ arguments of potential coverage. Much like the Ninth Circuit in My Choice, the First Circuit ruled that an exclusion had been interpreted too broadly by the district court. The court’s statements suggested that this error stemmed from looking too closely at the labels given to the causes of action in the underlying complaint rather than the factual allegations therein.
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.