Media Liability Insurance Claim Success Story


In this post, Miller Friel attorney Brian Friel discusses media liability insurance claims and how insurance carriers improperly deny media liability insurance claims.  In the example presented here, a prominent TV and radio host was sued for defamation.   The media liability insurer denied the claim based on an improper reading of an exclusion.  Turning this improper media liability insurance claim denial around involved comparing the facts of the company’s on-air statements across multiple media outlets, and the language of the policy, which indicated that the insurance company’s initial denial improper.

Please watch the video to learn more, or Contact us if you have any questions.

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Cyber Insurance Claim Denials

There have been a series of recent high profile cyber insurance claim denials.  As a result, policyholders are asking questions.  What, if anything, did we purchase?  Is our cyber coverage any good?  Were we duped by all of the marketing hype offered to sell cyber insurance products?  Why are cyber insurers denying claims?  Why are cyber insurance claim denials so common?

Policyholders rightly expect cyber insurance to respond to cyber crimes — But, insurers don’t see it that way

There are a number of reasons for the large number of cyber insurance claim denials.  First, claims determinations under cyber insurance are particularly susceptible to insurers arguing that they did not intend to cover a type of claim, even  when their policy language often tells a different story.  Second, as with many new products, cyber security insurance policies have not yet normalized around a single coverage grant and standardized exclusions.  Third, insurers are writing coverage to cover very specific types of risks, yet the types of liability policyholders are facing in the cyber world seem to be changing all the time.

This, however, is not putting a damper on sales of cyber insurance products.  With the amount of media coverage each cyber-attack receives, corporations continue to add cyber insurance to their portfolios.

Who Is Buying Cyber Insurance?

Recent estimates show that roughly one third of US companies purchased cyber insurance coverage.   The rate of penetration varies significantly across industry groups.  While healthcare and retail sectors reveal a 50% penetration rate, manufacturing is lagging behind at only 5%.  Not surprisingly, the largest claims and some of the most notorious breaches have occurred in the healthcare, finance and retail sectors, driving the interest in cyber insurance in such markets.  The highest growth rates, however, are in the manufacturing business sector, suggesting that more industries across the board are concluding that even if the internet is not the primary way they interact with customers or potential customers, such businesses may see value in purchasing cyber insurance products.

What Does Cyber Coverage Offer

Standalone cyber insurance typically provides coverage for both first party and third party losses resulting from a computer based attack or malfunction of a policyholder’s information technology systems.  Despite the lack of a standardized coverage form, the coverage grants provided by cybercrime policies are finding growing consistency.  Many offer first party coverage for costs arising from investigations of security breaches, restoring business services, notifying affected individuals, credit monitoring services, extortion and ransom payments and business interruption.  Like property coverage, many cyber policies contain sub-limits which can substantially limit available coverage for defined losses, including most often cyber extortion and “computer attack.”

Unlike standard property policies, cyber policies also include third party liability coverage. Common third party liability coverage applies to costs from defending against public or private investigations, settlements, judgments and possibly fines and fees arising from such third party claims. Again, cyber insurance policies employ sub-limits to simultaneously limit the available coverage, including limits applicable to data compromise, network security and electronic media.

While policy coverages may be becoming more consistent, policy exclusions continue to have substantial differences.  The most common exclusions were for criminal/fraudulent/dishonest activity, disregard for computer security, contractual liability and payments of fines or fees. Just from the labels one can see that such exclusions potentially apply to most common cyber-attacks.

One such example is theft coverage. Cyber policies often exclude losses resulting from theft, yet fidelity and crime policies that cover theft often limit coverage for computer fraud by excluding “electronic data.” If the data is the very thing the hacker is interested in taking, it’s possible that such thefts fall in between the cyber insurance coverage and the crime and fidelity coverage. Less common exclusions apply to limit coverage for collateral damage, failure to disclose a loss of which an executive was aware and unsolicited disseminations of communication.

Even when policies contain similar exclusions, the specific wording can differ from policy to policy meaning the scope of the exclusion similarly can differ. The differences in language can also mean that the limited judicial interpretations of these clauses may or may not apply to your specific policy wording. Be wary of insurers who argue that a case decided on another insurer’s policy language bars or limits your coverage. The policy language is not settled and the case law suffers the same difficulties. Experienced coverage counsel is required to evaluate an insurer’s efforts to avoid coverage.

Common Causes of Cyber Claims

The most common cause of cyber insurance claims are hackers, or persons or groups that use unauthorized access to computer systems and access personal data or files. Nearly as prevalent are attacks using “socially engineered malware,” where a user is tricked into running a program that delivers malware to the target, and often today that means data encrypting ransomware. Each of these two types of claims illustrate how even the most sophisticated policyholders can fall prey to improper cyber insurance claim denials.

In an all too common scam, hackers infiltrate a business’ databases and steal customer credit information or other personally identifying information. Such attacks often carry substantial costs in protecting customer credit information going forward, as well as significant fines and fees from credit providers. But insurers have issued Cyber Insurance Claim Denials for such actions by use of exclusions for theft or exclusions for fines and fees. Another common form of hacking is “spoofing,” sending an email to make it look like it came from within the company. Insurers have argued that such claims are not covered because the theft is not “direct” because someone within the company took the last step to fraudulently wire the money. But again the cases and policy language differ such that insurers are potentially attempting to deny a covered claim.

Recent cyber insurance claim denials also illustrate how insurers are limiting or denying coverage for ransomware attacks. One common practice is for insurers to limit coverage through the use of deductibles and sub-limits. The most recent ransomware deployed against the computer systems of the City of Atlanta is just one example, but hospitals and other commercial enterprises have similarly proven vulnerable to these types of hacks.

Ransom coverage is typically included in cyber insurance policies but collecting on such coverage may prove difficult. A newer trend in ransomware claims sees the extortionist making what appear to be smaller demands that may fall within standard deductibles such that the coverage does not come into play. Ransomware actors have discovered that lower demands put pressure on victims to pay, as the ransom often is several times smaller than the cost of duplicating the lost data. For example, in the attack against the Atlanta, the city was asked to pay 6 bitcoins, at current values approximately $36,000. Similarly, the “WannaCry” attack, which crippled computers across the world, resulted in a relatively small payment of $140,000 spread among multiple victims. Given the existence of deductibles, its doubtful cyber insurance played a substantial role in one of the largest attack in history.

An Overview of Cyber Insurance Claim Denials

With cyber insurance, insurers seem to be denying more claims than they are paying, and in some instances getting away with improper cyber insurance claim denials. Like any insurance policy, having a cyber insurance policy does not guarantee you coverage when a cyber event occurs. For example, in Recall Total Mgmt, Inc. v. Federal Ins. Co., 317 Conn. 46, 115 A.3d 458 (2015), the personal injury coverage applied to the electronic, oral, written or other publication of material that violates a person’s right or privacy. The insured, Recall Total, transported computer tapes carrying details of IBM personnel. The tapes were lost, and IBM incurred costs in providing identity-theft services to its employees, which it in turn sought from Recall Total. Losing hardware or other media is a common type of cyber security event.

Despite this, Federal (a Chubb/ACE company) denied the claim, arguing that there was no proof of publication. The court agreed that because there was no evidence that anyone had found and accessed the computer records, there was no evidence that they had been published so as to trigger coverage. “Publication” was not a defined term in the policy and there is no reason why “finding and accessing” the information was required or could not be presumed. The fact that the information was made publicly available and may have circulated on the “dark web” unknown to the insurer or the insured, and the fact that the insured had to bear costs to remedy the error, was not determinative, despite the fact that the insured thought it had protection for such cyber events.

Travelers tried the same arguments in Travelers Indem. Co. v. Portal Healthcare Solutions, LLC, 35 F.Supp.3d 765 (E.D.Va. 2014), where it claimed that when the insured unintentionally made third party medical records available on the internet, that action was not a “publication” of the records. Travelers claimed that accidentally allowing access was not the same as publication. Here the Court disagreed, since anyone searching a patient’s name on google could gain access to their private medical records. Since “publication” was not defined in the policy, the court rejected Travelers’ efforts to give it a narrow definition and found that “publication” occurs when information in “placed before the public.” Whether it is read or not is irrelevant to whether it was published. The same rationale would have been of significant benefit to Recall Total in their claim.

As these cases demonstrate, stand-alone cyber insurance products remain highly variable and largely untested by the Courts. As these policies gain further traction in the marketplace, and as cybercrimes expand and alter over time, these policies are very likely to lead to substantial disagreement between insureds and insurers about the application of the coverages to real world cyber events. These factors require the early involvement of coverage counsel to strategize and advocate for the insured seeking coverage under these policies.

Conclusion

Cyber insurance claim denials are far too common. Insurance carriers sell cyber insurance products into a rising tide of fear, but when a cyber insurance claim is presented, insurance carrier lawyers vigorously fight to deny or otherwise limit coverage. The cyber insurance market has not yet equalized. Cyber insurance products are flying off the shelves of insurers. While, at the same time, cyber insurers are issuing more and more cyber insurance claim denials.

Although there are reasons for this, this immature cyber insurance market will not correct itself unless policyholders evaluate and pursue cyber insurance claims. Involving insurance counsel at the earliest stage of the claims process is the first step to addressing improper cyber insurance claims denials that policyholders are facing. Additional information can be found in Computer Fraud Two Similar Scams Two Very Different Insurance Outcomes; Cyber And Intellectual Property Claims; The Wild Wild West Of Cyber Insurance; The Impossible Intersection of Baseball Cybercrime and Insurance; Strategies for Addressing Cloud Computing Risks. Please feel free to contact us at Miller Friel if you have any questions.

Notice For Governmental Investigations – Navigating Insurance Traps

Providing notice for governmental investigations is fraught with difficulty.  D&O and E&O insurance policies can provide coverage for the costs of responding to subpoenas, civil investigation demands, and defending against regulatory actions.  Yet, notice of these claims is often an issue.  The reasons for this are threefold.  First, some companies are advised by defense counsel not to provide notice.   Second, some policyholders simply don’t realize that coverage is provided.  And third, in some cases, the governmental agency directs the policyholder not to disclose the non-public investigation, because doing so could make the investigation public.

The first two of these notice for governmental investigation issues typically resolve themselves once the policyholder becomes aware of coverage.  It is difficult dealing with insurers, but the defense of government investigations is expensive, and most companies elect not to waive coverage. The final one, dealing with a governmental directive to keep quiet, is more difficult.

What if a Governmental Agency Directs the Policyholder Not to Disclose an Investigation?

One particularly tricky insurance issue for corporate policyholders seeking to provide notice for governmental investigations is providing notice in connection with “non-public” or “informal” governmental inquiries and investigations.  The Department of Justice (“DOJ”) and a whole host of other government agencies have the power to issue a subpoena or direct an informal request to a company seeking information and documents. It may be a simple issue to tender such a demand to the insurance carrier, but doing so is more difficult if the policyholder is expressly directed not to disclose the existence of the subpoena, inquiry or investigation.  Here is a real-world example:

Company receives a DOJ subpoena and related Qui Tam action during Policy Period 1. The DOJ letter accompanying the subpoena includes prohibitions against discussing the subpoena until the DOJ’s investigation is complete, with an admonition that “Premature disclosure could impede the investigation and interfere with the enforcement of the law.” Company does not provide notice to its D&O insurer at that time during Policy Period 1.  Company then receives a letter from the DOJ that its investigation is complete during Policy Period 2, at which time company promptly provides written notice to its D&O insurers under both Policy Periods 1 and 2 (claims-made and reported policies).  Both insurers deny coverage – the Policy Period 1 D&O insurer denied coverage for late notice, and the Policy Period 2 D&O insurer denied coverage pursuant to the policy’s known loss exclusion.

Unfair, yes. Unlawful, perhaps. But her is the good news. There are at least three ways to address this issue.

1.  Ignore the Government’s Directive

Under certain circumstances, and subject to certain applicable laws, a policyholder may be able to provide notice of an investigation, even if the governmental agency directs them to keep the investigation private.  Case law in other contexts suggests that a government request not to disclose a subpoena because it may impede an investigation is improper. Fed. R. Crim. P. 6(d)(2) (“No obligation of secrecy may be imposed on any person except in accordance with Rule 6(e)(2)(B),” which does not include subpoena recipients); U.S. v. Bryant, 655 F.3d 232, 237-38 (3d Cir. 2011) (finding a Rule 6(e) violation where government issued subpoenas that contained language requesting that the witnesses not disclose the existence of the subpoena, and ordering the government to notify all such witnesses by letter that they are under no obligation to keep the subpoena secret); In re Grand Jury Proceedings (Diamante), 814 F.2d 61, 68, 70 (1st Cir. 1987) (finding violation of Fed. R. Crim. P. 6(e) where cover letter accompanying a grand jury subpoena stated, “[y]ou are not to disclose the existence of this subpoena or the fact of your compliance for a period of 90 days,” and ordering the government to advise subpoenaed witnesses by letter that they are under no obligation to keep the existence of the subpoena or their compliance with it a secret); U.S. v. Blumberg, No. 3:97-CR-119(EBB), 1998 WL 136174, at *1-2 (D. Conn. Mar. 11, 1998) (same).  Thus, and subject to appropriate legal review, a company may be able to provide its insurer with notice of a subpoena despite any admonition or instruction from the government not to disclose the subpoena.

A decision to disregard the governments directive, however, should not be considered without the advice of defense counsel.  Nonetheless, it is an option worthy of discussion.  This is certainly the case because the insurers may be considered part of the defense, so disclosure may not in fact be prohibited disclosure to a third party.

2.  Cooperate and Educate

In an effort to remain cooperative with the government, a company may not want to simply disclose the existence of an investigation without the government’s input, particularly where such an investigation is under seal. Thus, for example, in claims dealing with a Qui Tam (or whistleblower) action, which are filed under seal, prior to expiration of the policy period during which the company learns of the investigation, the policyholder, through counsel, should approach the governmental agency to obtain permission to share the existence of the investigation with its insurer on a confidential (and, if necessary, redacted) basis. Indeed, providing such information will be more than sufficient to trigger an insurer’s duty to defend. See, e.g., CNA Cas. of Cal. v. Seaboard Sur. Co., 176 Cal. App. 3d 598, 606 (1986) (“[T]he insurer must furnish a defense when it learns of facts from any source that create the potential of liability under its policy”). This approach ensures that the company maintains a cooperative relationship with the regulatory or governmental agency while protecting its ability to recover under its insurance.

3.  Fix the Problem Before It Starts

Finally, a company can negotiate a “no prejudice” provision into its D&O and/or E&O liability policy, which essentially provides that “if a governmental or law enforcement agency prohibits the Insured from providing notice as required by this section, the Policy shall not be prejudiced.”  This, however, is not an option after an investigation has commenced, but it is worthy of consideration for policyholders prior to the commencement of a governmental investigation.

With such a provision in the Policy’s notice clause, if a company is unable to provide notice to its insurer based on an agency’s instruction not to, a company’s rights to coverage would be protected.  We have successfully negotiated such language into D&O and E&O notice provisions in the past.  But, it appears that many policyholders still do not know what needs to be requested.

CONCLUSIONS

Providing notice for governmental investigations is one of the most important issues policyholders face when confronted with a governmental action against them.  That is because late notice is one of the primary reasons insurance carriers use to deny coverage for governmental investigation claims.  The only way to prevent such denials is to thoroughly investigate insurance as soon as counsel is hired to handle a governmental investigation.  Given the intricacies and variability of the law in this area, most insurance brokers rightly shy away from providing advice in this area.  Here, perhaps more than in any other area of insurance, the correct course of action is dictated by the law.  Coverage counsel should be retained to determine the best course of action.  Otherwise, an insurance carrier may later claim that coverage was waived.

If you have any questions, please feel free to give us a call.

Insurance Coverage Litigation – Insurer and Policyholder Perspectives

Insurance Coverage litigation may be, by some, considered a last resort. That is, a process to enter into when all other avenues of settlement have failed. In certain situations, however, insurers file early declaratory judgment actions. In others, policyholders sue soon after receipt of a denial of coverage letter. There appear to be other considerations at play.

The stakes can be high for both insurers and policyholders, and the perspectives on litigation from both the insurer and policyholder perspectives are seldom discussed together. Here, two insurance coverage litigation adversaries candidly discuss what factors and considerations should go into insurance coverage litigation.

To understand better what goes into insurance coverage litigation cases, we put together a panel of two insurance trial experts in the field, Deborah L. Stein of Simpson Thatcher, (addressing the insurance company side of the equation), and Mark E. Miller of Miller Friel (addressing the policyholder side of the equation). The full course is available from PLI and the PowerPoint for the presentation is linked here. Insurance Coverage Litigation PLI

Six topics were covered:

  • Pre-Litigation – what goes on prior to filing suit;
  • Filing a Complaint – what drives the decision;
  • Motions to Dismiss – valuable to both sides;
  • Discovery – using it effectively;
  • Summary Judgement – a critical juncture;
  • Trial – best practices and perspectives.

At the risk of oversimplifying, here are some of the highlights on the competing  policyholder / insurer perspectives on insurance coverage litigation:

1. Pre-Litigation – what goes on prior to filing suit

INSURER PERSPECTIVE POLICYHOLDER PERSPECTIVE
Compile information;
Correspond with policyholder;
Evaluate dispute, jurisdiction, timing of claim issues.
Full evaluation of the claim – law, facts;
Send well-drafted letters to insurers refuting denials;
Compliance with policy conditions, even if waived;
Develop strategy to maximize recovery.

2. Filing a Complaint – what drives the decision

INSURER PERSPECTIVE POLICYHOLDER PERSPECTIVE
Issue of first impression;
How clean are facts and law;
Duty to defend law;
Burdens;
Duty to indemnify law;
Coverage issues vs. valuation issues;
Jurisdiction.
Key question – will filing suit maximize legal recovery. Look at:
a) Choice of law;
b) Law of jurisdiction
c) Risk of being sued first
d) Insurer reputation
e) Insurer conduct / bad faith
f) Reasons for denial (potentially legitimate vs. industry custom and practice;
g) Overall case strategy.

3. Motions to Dismiss – valuable to both sides

INSURER PERSPECTIVE POLICYHOLDER PERSPECTIVE
Case specific – be selective in filing;
Possible filings for:
a) Jurisdictional and standing issues;
b) Whether claimant is an insured;
c) Timing of injury (outside of period);
d) Undisputed law and facts;
e) Bad faith;
f) Statutory claims handling causes of action.
File if insurer filed suit in wrong jurisdiction;
Care taken so complaints cannot be dismissed.

4. Discovery – using it effectively

INSURER PERSPECTIVE POLICYHOLDER PERSPECTIVE
Build your defenses and themes from the discovery you produce and obtain, but don’t force a story;
Document Requests – think about types of documents you need; request further documents in depositions;
Interrogatories – Use strategically (identification of documents, witnesses, facts); untargeted interrogatories not helpful;
RFAs – look for discrete admissions; use for authentication;
Depositions – usually the most effective tool; prepare, prepare, prepare; remember that you are still discovering.
Focus Discovery on elements of proof at trial;
Offensive Discovery – use it to build the story of improper denial; don’t waste time taking 30(b)(6) depositions;
Defensive Discovery – this is where cases are lost; prepare witnesses properly, as insurance issues are too complex to understand without preparation; pay extra attention to those that know about insurance (risk managers and brokers);
Know the rules; be prepared;
Recognize that no document has ever spoken for itself;
Think about what documents you need authenticated, and what documents you don’t.

5. Summary Judgement – a critical juncture

INSURER PERSPECTIVE POLICYHOLDER PERSPECTIVE
Frame issues wisely;
Consider purpose: resolve dispute, avoid trial; knock out claims; obtain direction from court;
Evaluate facts and law;
Know undisputed facts necessary for motion;
Be true to record; don’t overreach.
Overall goal is to get to trial;
Consider proactive motions such as duty to defend motions;
Motions and responses need to be drafted so the Court comes to the conclusion that you are right;
Insurance jargon and insurance complexities are not your friend.

6. Trial – best practices and perspectives

INSURER PERSPECTIVE POLICYHOLDER PERSPECTIVE
“Your trial presentation wasn’t complicated enough,” said no one ever;
Focus;
Keep it simple;
Know elements and evidence; consider burdens;
Prepare order of proof;
Remember the big picture;
Humanize witnesses; don’t be over-technical and don’t stretch;
Don’t overuse documents.
Trial preparation starts on day one, as everything that is done is for the purpose of trial;
Develop case theme based on discovery;
Simplify case to its essential elements and tell your story;
Simplify;
Be likable, interesting, and nice;
You are painting a picture. You decide what to put on the canvas. Opponent will try and mess up your beautiful painting. Don’t let this happen.

Although there is enough material on any one of these topics to fill an entire CLE course, this CLE is a good start for in house counsel faced with the task of managing either insurance coverage litigation or an insurance claim.  Moreover, policyholders seldom get the insurance company counsel perspective, which is always valuable when assessing a claim. All that and more can be found in this course.

The most important information I got from presenting this course is:

  1. Claim denials can be reversed, but sending a nasty letter will not do the trick.
  2. Rather, well-crafted letters rebutting each and every error made in an insurer’s denial letter is the way to go.  This requires mastery of the facts and law.
  3. Prepare for trial from the moment you become aware of the claim.
  4. Letters are drafted for the Court.
  5. There are ample opportunities to make mistakes, and policyholder self-inflicted wounds are the most common way that insurance coverage cases are lost.
  6. Develop your story, and refine that story through discovery.
  7. Push for trial.  If an insurer wants to settle, they know who to call.
  8. When preparing for trial, think about painting a picture for the judge and jury.  You decide what colors to use, and what to put into the record.  Insurers will try and mess up your painting.  Don’t let them.

For other Miller Friel PLI presentations on the topic of insurance, please see Top Ten Insurance Issues for Non Insurance Lawyers, State of the Art D&O Insurance.

 

 

Insurance Policy Enhancements to Coverage

Best practices for securing insurance policy enhancements to coverage should not be a confusing issue.  Insurance brokers, who are essential to placing coverage, offer pre-approved insurance policy enhancements to coverage, and shop for the best price. Some corporate policyholders stop there, which is great, until a claim comes in.  When an insurer denies the claim, the policyholders rightly question why their claim was denied.  All too often, the insurer cites to an insurance policy enhancement to coverage, that was not really an enhancement to coverage, but a limitation to coverage.

Insurance Policy Placement — A One-Sided Process, Even With the Best Insurance Broker

There is nothing better than a great insurance broker.  But, not all brokers understand that the gold standard for insurance policy placement involves more than just price and adding pre-approved broker enhancements to coverage to the policy.  Depending on the company, an integrated legal /broker team may be warranted.   There, the broker focuses on price, and obtains the best language they can find. Then, the suggested program is evaluated by policyholder counsel to determine if the proposed language functions as intended.  The result is that the policyholder binds the best possible coverage for their specific needs.

This is not a complicated or expensive process, but the essential piece, legal review, can be overlooked if policyholders conclude that pre-approved endorsements are all that is needed to secure the best possible coverage.

Price is Important But Price is Not the Only Factor

Focusing only on price is a disservice to corporate policyholders. The purpose of insurance is to provide coverage for claims.  Insurers sell a promise, and that promise is only as good as the language contained in the insurance policy.  Yet, Insurance policies are one sided.  They are drafted by some of the best insurance company lawyers in the industry, and are designed to cover less rather than more.  Standard form policies are marketed to brokers and policyholders with the understanding that many corporate policyholders will accept their terms and conditions, as proposed, without alteration.

Standard Policy “Improvements” Can Create More Issues Than They Solve

Naturally, most corporate policyholders push back on policy language.  Insurers expect this and have contingencies to appease policyholders.  Insurers and brokers have developed standard pre-approved “improvements” to coverage that are added by the broker as endorsements to the policy.  The policyholder  may then be told that they have all of the improvements, and that the coverage is great.  The problem with these improvements, like the policy itself, is that they were expertly drafted by insurance company lawyers who understand insurance law in all 51 jurisdictions.   Many times, an “improvement” to coverage actually takes away coverage afforded by recent case law.   Hence, an insurance policy with all of the bells and whistles recommended by a broker in good faith,  may provide less coverage than the original policy.

Learning From Insurance Company Practices

Insurance coverage for any given claim is determined by ever changing insurance case law and statutes.  Insurers constantly monitor these developments, as it is a critical part of their business.  Policy language is adjusted based on the law.  Pre-approved forms are adjusted to limit coverage.

Policyholders, however, may unintentionally rely on insurance brokers to interpret the law and tell them what the policies cover.  Insurance companies know this as well.  But, insurance companies do not rely on insurance brokers to tell them what their policies mean.  Instead, they rely on lawyers, and they have many of them at their disposal.  See   Where Have all of the Insurance Lawyers Gone

Fixing the Problem of Insurance Policy Enhancements to Coverage

Although insurers are intently focused on insurance law when approving policy language, policyholders are at a distinct disadvantage.  Insurance brokers, upon who policyholders rely, don’t practice law and will readily admit that they cannot opine on what the policies cover .  The best they can do, is try.  And they do a valiant job at that.  But, without an understanding of the law, their proposed adjustments to policy language may not be proper.

Selecting appropriate policyholder counsel for insurance policy review, however, can be difficult. Virtually every law firm in the country advertises their ability to review insurance policies.  Most of these firms represent insurance carriers.  Some openly claim that because they wrote the policy forms for insurers, they are uniquely suited to revise them for policyholders. That could be true, but it raises questions of loyalty, and makes one wonder if such a firm would later advise an insurer on how to avoid revisions they made for a policyholder, because they are, in fact, uniquely suited to do so.  Call me old fashioned, but it does not seem right for a law firm to play on both sides of the corporate fence.

Either way, the best practice for securing insurance policy enhancements to coverage is for corporate policyholders is to not accept an insurance program without legal review.

Miller Friel represents corporate policyholders in insurance coverage disputes.  We litigate and resolve complex insurance claims on behalf of some of the world’s finest companies. We also see the worst of the worst insurance company tactics.  Some of this can be avoided if care is taken at the front end when policies are being underwritten.

The important thing is that policyholders find a corporate insurance recovery law firm to review their policies.   There are many law firms doing this, but only a few are doing it correctly.   Moreover, there are drastic differences in how effectively policyholder law firms address the problem.  The important thing for policyholders to recognize is that the process of insurance policy placement, from start to finish, is one sided in favor of insurers.

Miller Friel handles insurance policy reviews for select corporate clients with complex insurance programs.  For those we cannot serve, we are happy to recommend unbiased counsel to assist.

Insurance Broker RFPs

Insurance broker RFPs are one of the best ways for corporations to select qualified insurance brokers.   The practice of using RFPs for the selection of insurance brokers, however,  is underutilized, and, even when used, it does not always provide meaningful information.   Typical RFPs elicit a canned marketing presentation and lots of glad-handing.  Interesting, perhaps, but certainly not the best way to test broker abilities and approach.

Insurance Broker RFPs — Obtain Useful Information by Asking the Right Questions

The best way to keep brokers moving in a direction that is consistent with corporate interests is to have perspective brokers submit RFPs every several years. The problem with most insurance broker RFPs is that they seldom get to the issue of how good brokers are at placing coverage or assisting with respect to claims. To get this kind of information, RFPs need to be specifically targeted at current insurance issues.

To be useful, broker RFP questions need to be targeted.  From an insurance law standpoint, questions should be designed to address three critical issues.  First, how the insurance broker addresses important insurance policy language issues.  Second, how the broker deals with insurance provisions that are one sided towards insurance company interests.  And, third, how hard the broker pushes for policyholder (as opposed to insurer) interests.

The following select questions, for a technology company insurance broker RFP, gives an idea of just how specific RFP question need to be to elicit an appropriate response:

SAMPLE INSURANCE BROKER RFP QUESTIONS
TECHNOLOGY COMPANY

For Discussion Purposes Only
Not to Be Used Without Prior
Consent of Miller Friel, PLLC

I.  Commercial General Liability

  1. Please provide examples of the best advertising injury language you have secured for a company like [INSERT CLIENT NAME], and your opinion on whether or not you will be able to achieve similar results for [INSERT CLIENT NAME].
  2. Examples in policies of this kind where you have been able to secure patent coverage; same for trademark.
  3. Please provide examples of the best data and software coverage language you have been able to obtain for clients.

II.  Technology Errors and Omissions

  1. Examples of the best technology policies you have secured for clients, and things that you would improve with respect to that language.
  2. Please provide examples of how you have secured coverage for false advertising.
  3. Examples of whether you have secured coverage under such policies for patent claims.

III.  Directors and Officers Liability

  1. Please provide examples of the best definition of “Claim” language that you have been able to secure for clients.
  2. Please give examples of how this language was found to cover governmental investigations.
  3. Please provide examples of the best definition of “Loss” language that you have been able to secure for clients.
  4. Please provide examples of how this definition of “Loss” language was found to cover fines and penalties assessed against the policyholder.
  5. Please provide examples of how you have narrowed the scope of the bump up exception to the definition of “Loss” to avoid potential application to traditional fiduciary duty claims.
  6. Please provide the best punitive damages coverage language that you have been able to secure for clients.

IV.  Claims-Made Coverage Generally (D&O, E&O)

  1. Please provide examples of the best interrelated wrongful acts language that you have secured for clients.
  2. Please provide examples of the best prior-notice exclusions that you have secured for other clients.
  3. Please provide examples of the best prior-knowledge exclusions you have been able to secure for clients.
  4. Please provide examples of the best prior-claim notice language that you have secured for other clients.
  5. Please explain how you structure such interrelated wrongful acts, prior-notice, and prior claim exclusionary language so that insurers cannot claim that neither current nor past policies cover otherwise covered claims.
  6. Please provide examples of the best conduct exclusions you have been able to secure for clients.
  7. Please provide your position on whether applications are necessary for renewal policies, and examples of when you have instructed insurers that applications are not warranted.
  8. Please provide examples of when you have revised standard-form application language to protect the insured.
  9. Please provide examples of situations where you have had insurers waive warranty requirements; please provide examples of the same when coverage was new (not renewal coverage).
  10. Examples of when you have challenged prior and pending dates proposed by an insurer, and the outcome of such challenge.

V.  Other

  1. Your recommendations on the best additional time-element provisions for [INSERT CLIENT NAME], with examples (including extra expense, royalties, contingent time element, interruption by villi or military authority, ingress/egress, extended period of indemnity).
  2. Please provide examples of how you have revised exclusions in policies to make certain that all terrorism related activities under TRIA for certified acts of terrorism are covered, including dirty bombs and bio-terrorism.
  3. Please confirm that you will be able to secure pre-approval of defense counsel, by endorsement, for the following law firms: [INSERT NAMES OF PREFERED DEFENSE COUNSEL].
  4. Please provide examples of the best endorsements you have secured for clients providing for approval of pre-selected defense counsel, and identify what, if anything, additional you recommend adding to such endorsements.
  5. Please provide examples of the best hourly rates you have been able to secure for defense counsel.
  6. Please provide examples of how you have worked with coverage counsel both in litigation and pre-litigation to resolve claims.
  7. Please provide your recommended course of action to preserve legal privilege for discussions you may have with for [INSERT CLIENT NAME] concerning claims.
  8. Please provide examples of insurers pressuring your firm with respect to a policyholder claim, and how you dealt with it, and whether your firm will take similar action with respect to [INSERT CLIENT NAME].
  9. Please provide your examples of situations where you have challenged arbitration language in an insurance policy prior to issuance, and the outcome of such challenge.
  10. Please provide examples of the best ADR provisions you have secured for clients, and why you believe that such language is advantageous.
  11. Please provide examples of the best warranty language that you have been able to secure for clients.

Most RFPs will contain what the insurance broker believes are their strongest selling points, like, how much coverage they place. who their clients are, their great relationships with insurers, and the fact that they have claims people on staff.  This information will be provided even without an REP.  RFP questions should be designed to address something more.  In the insurance context, that more is how well the broker pushes issues to benefit the policyholder.

Insurance Policy Review 101 (Part 3)


Today’s blog post is the third video in a series by Miller Friel attorney Tab Turano discussing the kind of insurance policy reviews that are routinely conducted corporate policyholders.  This video continues with the need for a yearly audit of claims and potential claims as part of the insurance renewal process.  This video focuses on the so-called “notice-of-circumstances” clause contained in standard D&O policies.  This provision affords companies the ability to provide notice of events, circumstances or other potential wrongful acts that, although not currently the subject of any legal proceedings, may later lead to the filing of a lawsuit against the company.  The video highlights, by way of example, the benefit of reporting such potential future claims to D&O insurers prior to policy expiration, and the practical significance of such actions, including the ability to preserve the limits of liability of current D&O policies.

Please watch the video to learn more, or Contact us if you have any questions.

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Insurance Policy Review 101 (Part 2)

Today’s blog post by Miller Friel attorney Tab Turano highlights the need for companies to conduct a yearly audit of claims and potential claims as part of the insurance renewal process.  This video explains the importance of timely notice of claims under so-called “claims-made” insurance policies, such as directors and officers policies, errors and omissions policies, and professional liability policies.  While the failure to provide timely notice of a claim may be fatal to insurance coverage, in many circumstances, the need to provide such notice may not be obvious, as highlighted in the video by way of example.  It is imperative that companies focus on notice as a regular part of the process of renewing insurance coverage.  Often times, consultation is with coverage counsel is an important step in this process.

Please watch the video to learn more, or Contact us if you have any questions.

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Insurance Coverage for Opioid Litigation and Investigations

Opioid insurance coverage is now one of the most important issues faced by the pharmaceutical industry, which is now in the cross-hairs of plaintiffs lawyers.

Insurance Coverage for Opioid Claims

To date, hundreds of lawsuits have been filed, and the solution to the problem includes a variety of liability insurance policies sold to the various entities in the supply chain for legal prescription opioid pain medicine.   The issue of opioid insurance coverage has certainly gotten the attention of insurance company lawyers.  As is typical in these kinds of situations, the insurance industry is lawyered up to fight against paying opioid claims.  Based on our experience representing policyholders in the opioid crisis, many of the arguments raised by insurers are invalid, and many of the claim denials issued by insurers are improper.  A synopsis of the opioid crisis in general, and arguments for defeating insurer denials of coverage are addressed below.

1.  The Explosion of Investigations and Lawsuits Against Those in The Supply Chain of Legal Prescription Opioid Pain Medicine

Public concern over the alarming level of opioid abuse and the staggering number of opioid-related overdose deaths has driven increased legal and regulatory action at many levels.  Most of the tens of thousands of opioid deaths directly result from illegal street drugs, not prescribed opioid pain relievers.  Prescribed medicines — developed to relieve pain and suffering and approved and regulated by the government — according to some, are now being alleged to have contributed to the crisis of addiction and death.  And, as with prior public health crises (asbestos, tobacco), where there is suffering and death, plaintiffs’ lawyers will follow.  SeeThe Opioid Crisis Has Plaintiff Lawyers Smelling Cash,” (Wall Street Journal, January 3, 2018), (subscriptions required); “Lawyers Circle America’s Opioid Crisis,” (Financial Times, August 3, 2017).

A cadre of private lawyers is now teaming up with state, county, municipal and tribal governments to investigate and file lawsuits against pharmaceutical manufacturers, wholesale distributors, retail pharmacy chains and others in the supply chain of opioid pain medicine regarding their actions in connection with the marketing, sale and distribution of opioid pain medications. More specifically:

  • Pharmaceutical manufacturing companies have been sued in state courts by many state Attorneys General, and in state or federal court by scores of city, county and local government agencies and Native American tribes. These lawsuits typically allege a variety of claims related to marketing and sales practices, including false advertising, unfair competition, public nuisance, consumer fraud, deceptive acts and practices, negligence, false claims and unjust enrichment. The suits generally seek equitable and/or injunctive relief and monetary damages.
  • Wholesale distributors and retail chains have also been sued alleging that they failed to provide effective controls and procedures to guard against the diversion of opioid pain medicine, acted negligently by distributing pain medicine to pharmacies that served individuals who abuse controlled substances, and failed to report suspicious orders of opioid pain medicine in accordance with regulations.
  • Additionally, a coalition of states has issued requests for documents and information regarding the distribution of prescription opioid pain medications.
  • Health insurers have sued manufacturers and others, seeking to recover damages allegedly sustained as a result of defendants allegedly defrauding insurers into paying for prescribed opioid pain medications.

Because of these lawsuits and investigations, many companies have also been sued by shareholders for alleged violations of securities laws and/or are nominal defendants in derivative litigation alleging that their directors and officers breached their fiduciary duties.

In September 2017, plaintiffs in some of these lawsuits filed a motion before the Judicial Panel on Multidistrict Litigation to have all federal opioid crisis actions transferred to a single federal court for consolidated and coordinated pretrial proceedings.  In December 2017, the Judicial Panel transferred over 115 pending federal actions to the Northern District of Ohio and, with the consent of that court, assigned them to the Honorable Dan A. Polster for coordinated or consolidated pretrial proceedings. Since then, as of this writing, more than 250 additional actions have been transferred to the MDL, and many more cases are expected to follow.

Although coverage must be determined on a case-by-case basis, Insurance policies can afford a solution to companies that are targets of these investigations and lawsuits by providing coverage for the costs of defense, and ultimately, settlements or judgments paid to resolve these opioid-related claims.

2.  Insurance Policies Responding to Opioid Litigation and Investigations

Depending on the nature of the claims asserted, target companies should seek coverage for opioid-related claims under several different types of insurance policies.

A.  General Liability Insurance Policies

Commercial general liability (GL) insurance policies typically have broad grants of comprehensive coverage that respond to many kinds of opioid-related lawsuits. These policies usually cover “sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ . . . caused by an ‘occurrence.’” The policies typically define “occurrence” to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”  In most jurisdictions, a GL insurer has a duty to defend a policyholder against all claims in a lawsuit so long as a single claim falls potentially within the scope of coverage.

Based on our experience representing pharmaceutical entities in the opioid crisis, the insurers have identified three points of attack:

Bodily injury caused by an “accident.”   Insurers routinely argue that allegations in opioid lawsuits assert intentional acts by defendants, not fortuitous “occurrences” or “accidents.” Allegations in the underlying opioid lawsuits that allege negligence, however, allege a potentially a covered “accident” and trigger the duty to defend. One court reasoned that,

“the defendants here were engaged in the lawful activity of providing prescription drugs to pharmacies. They may not have been sufficiently careful about whose hands the drugs eventually reached, but that does not preclude finding accidental injury.”

But an outlier decision by the California Court of Appeal recently held that underlying complaints against a manufacturer did not allege the potentiality of liability based on an “accident,” because none of the injuries alleged was, in the court’s view, unexpected, independent or unforeseen. This is the most pernicious defense that insurers are likely to assert, because it turns on its head the concept of fortuitous loss, and if accepted potentially eviscerates coverage for virtually every kind of claim, as, under this theory, the negligent consequences of any volitional action would be excluded from coverage.  Thus, opioid claims are covered “accidents” and this defense should remain a minority position, at best.

Damages “because of ‘bodily injury.’”   Insurers also argue that opioid lawsuits, especially those asserted by governmental entities, do not seek damages because of “bodily injury” to citizens, but rather seek only to recover the economic loss suffered by the governments (or health insurers) in the form of increased costs allegedly incurred because of defendants’ actions.  Most certainly, claims by governmental entities and health insurers are seeking compensation because of bodily injury, as without bodily injury, there would be no claims.  Accordingly, this novel, but creative argument raised by the insurers has already been rejected by one federal appeals court.   Nonetheless, insurers are relentlessly pushing the argument and have found some isolated traction with the argument.

Products/completed operations exclusions.  Although opioid claims fall within the GL policies’ grant of coverage as loss because of bodily injury caused by an occurrence, insurers are taking the position that opioid claims are not covered because they fall within  within the products-completed operations hazard.  Even if insurers are correct, a duty to defend still exists if covered and non covered causes combine to result in the alleged loss. Insurer’s rights based on products exclusions may be reserved, but, in most instances, these exclusions do not warrant an outright denial of coverage.  Moreover, to the extent that a loss properly falls within the completed operations hazard, such loss is exactly the kind of loss covered under separate products liability insurance (as discussed below).

B.  Products Liability Insurance Policies

Defendants in opioid-related litigation, especially pharmaceutical manufacturers, often carry specialized life sciences insurance coverages, including products liability coverage. These policies may, for example, cover sums that the insured becomes legally obligated to pay as damages because of bodily injury included within the products-completed operations hazard.  Products liability policies typically cover all bodily injury occurring away from premises owned or rented by the policyholder and arising out of the company’s “product,” which includes opioid pain medicine.

Even here, insurers are raising defenses to coverage.  These include:

The “expected or intended” exception to the definition of “occurrence.”   Here, insurers are taking the absurd position that policyholders expected the injury and loss.  This is a variant on the fortuity defense asserted under GL policies, that has been soundly rejected in other contexts.

Exclusions for “unfair competition,” criminal violations, and intentional acts of non-compliance with FDA rules or regulationsAlthough these kinds of exclusions may be found in policies issued to companies involved in the distribution chain of legal opioid pain medication, they are not applicable at the duty-to-defend stage of the underlying litigation, and, the insurer has the burden of proving their applicability.  In most jurisdictions, this burden can only be met if the excluded basis for liability is the only potential cause of loss.  Given the nature of claims opioid claims alleged to date, this burden cannot be met.  In any event, a duty to defend exists where covered and non covered causes combine to result in the loss alleged. Accordingly, these exclusions do not permit an early termination of the duty to defend while the underlying litigation remains pending.

C.  Management Liability Insurance Policies (D&O)

Management liability policies, including directors’ and officers’ (D&O) policies, afford broad coverage for loss arising from claims first made during the policy period against insured persons for “wrongful acts,” commonly defined to include any “actual or alleged act, error, misstatement, misleading statement, neglect, omission or breach of duty.”  Private company D&O insurance policies cover wrongful acts of the company, as well as individuals, whereas public company D&O insurance policies typically cover loss to the company arising from securities claims brought against the company on behalf of shareholders, and derivative actions brought to enforce a right of the company, for wrongful acts under same definition. The definition of a covered “claim” in these policies may include requests, investigative demands or subpoenas by regulatory, administrative, governmental or similar authority demanding to examine insured persons under oath or requiring the production of documents. Wording is not uniform, and each policy must be studied carefully.

Given the amount of money at stake, Insurance company lawyers have spent a considerable amount of time working up potential D&O insurance policy defenses.   Some of the defenses to coverage raised by D&O insurers include:

Definition of “Loss” Defenses.  Here, insurers note that the definition of Loss in some policies  excludes from coverage fines,  penalties or matters uninsurable under applicable law.  Even with such definitions, insurers must provide a defense for the entire cost of defending opioid claims, and of resolving claims for damages exclusive of the fines or penalties.

Conduct Exclusions.  Management liability policies may also exclude coverage for claims arising out of: (1) the gaining by any insured of any profit or advantage to which such Insured was not legally entitled; or (2) the commission by any insured of any criminal or deliberately fraudulent or dishonest act.   But, such exclusions commonly require a final adjudication in the underlying claim adverse to such insured establishing the excluded conduct.  Hence, these exclusions have no applicability if the underlying claim is settled.  Moreover,  mere allegations of a complaint are insufficient to trigger these exclusions, and cannot relieve an insurer of either its defense or indemnity obligations absent a required final adjudication.

3. Conclusions

Because insurers are facing a difficult time evading coverage for opioid claims, they are raising all sorts of non-contractual defenses to avoid coverage, including a “social insurance” argument they have raised in the past.   If past public health crises are prologue, these arguments will run something like this: Holding insurers responsible to pay for the costs of public services, including health care, will transform private party liability insurance into social insurance to underwrite public health epidemics caused by all manner of ills.  According to insurers, this will, at a minimum, increase the cost of liability insurance, and financially harm liability insurers, who have not priced this risk into their premiums.  Moreover, holding insurers liable to pay will shift costs away from those best equipped to address the social problem; the companies that supply the opioid products.

These arguments are inconsistent with insurance law, which permits parties to freely contract to cover risks, and which place the burden on insurers to pay for insured risk, even if they made an error in underwriting.  Courts interpret insurance contracts according to their language and construe them against insurers if they are ambiguous, and in favor of an insureds’ reasonable expectations of coverage.

Moreover, to the extent courts are inclined to look past contract language when construing insurance policies, the social arguments cut in favor of coverage, not against it, because  liability insurance is designed to perform risk management, and deterrence and compensation functions of insurance are important to the social functioning and ordering of society. See, e.g., J.W. Stempel, The Insurance Policy as Social Instrument and Social Institution, 51 William & Mary L. Rev. 1489 (2010).  These social purposes are especially easy to grasp in the context of pharmaceutical companies that develop and bring to market countless products, including opioid pain medicine, that can relieve human pain and suffering. These companies bought and paid for liability insurance to manage the risks inherent in their business. They are entitled to enforce the promises made to them by those insurance companies that accepted their risks and their premiums.

If you have any questions concerning the issues addressed in this post, please contact Bernard Bell   (bellb@millerfriel.com / 202-760-3158 (DC) / 212-203-6750 (NY)).

Insurance Policy Review 101 (Part 1)

In today’s blog post, Miller Friel Attorney Tab Turano discusses the basics of insurance policy review for corporate directors and officers (“D&O”) D&O insurance programs.  Companies purchase D&O insurance to protect against a wide-array of liabilities, from securities lawsuits to governmental investigations.  Often times, corporate policyholders accept either off-the-shelf policies offered by insurance carriers, or pre-approved insurance broker enhancements.  These form policies and broker enhancements are seldom state-of-the-art, and can always be improved.  Unless the language is truly boilerplate in nature, Insurance companies are open to negotiation.  The best language maximizes insurance coverage, rather than minimizes it, but this kind of language is not what is offered.  For this reason, many corporations retain insurance coverage lawyers at the underwriting stage to provide a second look at proposed coverage.  Counsel can combine their knowledge of both the insurance market and insurance law to craft enhancements to standard policy terms, and broker-suggested enhancements, which can, in some cases, do more harm than good.

Please watch the video to learn more, or Contact us if you have any questions.

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