All posts by Miles Karson

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 for Employment Practices Liability Claims

In today’s blog post, Miller Friel attorney Miles Karson addresses key Employment Practices Liability insurance (“EPLI”) issues.  These include considerations that corporate policyholders should keep in mind when purchasing or making claims under EPLI insurance policies.  On the front end, ensuring adequate coverage for EPLI claims starts when coverage is placed.  Considerations there include defense cost carve outs in certain exclusions, and the inclusion of Duty to Advance defense cost provisions.  On the back end, a claim must be carefully analyzed to maximize the full extent of coverage.

Please watch the video to learn more.

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Policyholder Guide to the Recoupment of Defense Costs

In today’s blog post, Miller Friel attorney Miles Karson addresses an alarming insurance trend, namely, the increased frequency of insurance companies seeking to recoup defense costs under duty to defend insurance policies.  Even more alarming is the fact that a right to reimbursement doesn’t typically exist, unless the insurance carrier does certain things, and the policyholder fails to properly object.  Policyholders should apply the strategies discussed herein from the moment they receive a reservation of rights letter.  Although the deck is stacked against insurance carriers when it comes to the recoupment of defense costs, policyholders can turn a good situation into a potential problem.  Please watch the video to learn more.

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Insurance Coverage for False Advertising Claims

In today’s blog post, Miller Friel attorney Miles Karson addresses how policyholders can secure insurance coverage for false advertising claims under Director and Officer insurance policies.  Using a real-life example, Miles addresses a situation where a series of D&O insurers wrongfully denied coverage for numerous false advertising claims.  There, the policyholder faced potential liability for the underlying false advertising claims, and looked to their existing private company D&O insurance policies for coverage.  In turn, the insurance carriers asserted that a professional services exclusion in the policy precluded coverage.  In the end, the insurance carriers paid the claim, but they would not have done so unless appropriate insurance recovery strategies were employed.

Please watch the video to learn more.

Insurance Coverage for False Advertising Claims

Miller Friel, PLLC attorney Miles Karson.

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Five Things You Need To Know About Excess Insurance Policies

 

In this video Miller Friel attorney Miles Karson discusses the five most important excess insurance policy issues that every corporate policyholder should consider.  Excess insurance is not always given proper consideration, because, after all, most excess policies “follow form” to primary insurance.  Conventional insurance wisdom says, if primary insurance language is great, then excess insurance policy language should also be great.  That, however, is often not the case. 

Miles Karson analyzes why excess insurance is different from primary insurance, pointing out the five most important things that corporate policyholders need to be aware of with respect to excess insurance

  1. the excess policy exhaustion language issue;
  2. the Swiss cheese ADR provision issue;
  3. the “follow form” after inception issue;
  4. the “follow form” to what policy issue: and
  5. the ever present notice issue. 

In today’s video Miles provides a deeper explanation of these topics and more.  Please watch the video to learn more about how to spot the most common excess insurance problems faced by corporate policyholders.    

Five Things You Need to Know About Excess Insurance Policies

Miller Friel attorney Miles K. Karson

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How to Have Your Cake and Eat it Too: Settling with Primary and Excess Insurance Carriers — Part 3

In our three-part series, The Good, The Decent and The Ugly, Miles Karson discusses best practices for settling with primary and excess insurance carriers.  This series focuses on how excess insurance policy language impacts potential settlements with excess carriers when underlying carriers pay less than their full policy limits to settle a claim.

In today’s final installment of this three-part series, Miller Friel attorney Miles Karson discusses what business should do if one or more excess insurance policies contains exhaustion language falling into the “ugly” category – that is, exhaustion language that requires exhaustion of underlying limits through payment by the underlying insurers.  This kind of language is the most problematic, because the majority of courts hold that this kind of language does not permit a policyholder to contribute to settlement with an underlying insurance carrier, and still recover from an excess insurer.  The first step is recognizing that excess policies contain this language so that policyholders do not unwittingly enter into a settlement that could compromise coverage. The second step is to recognize that, if a business still wants to settle, there are ways to accomplish this, but that settling must be done correctly, or coverage may be forfeited.

More broadly, Miles discusses lessons to be learned regarding the impacts of settling on excess insurance coverage by examining the full spectrum of potential coverage issues.  The main takeaway for any corporate policyholder is that they need to proceed carefully at every step in the process.  Watch the video to learn more about how policyholders can proceed to give themselves the best chance of recovery, even If their policy language is “ugly.”

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How to Have Your Cake and Eat it Too: Settling with Primary and Excess Insurance Carriers — Part 2

Last week on the Miller Friel Insurance Recovery Blog, attorney Miles Karson introduced a three part “how to” series on best practices for settling with primary and excess insurance carriers.  The series focuses on how excess insurance coverage language impacts potential settlements with underlying carriers when settlement amounts paid by the underlying insurance carrier are less than the underlying insurance policy limits.  When settling with underlying insurance carriers, excess insurance policy language falls into three different categories: the good, the decent, and the ugly.  Where an excess insurance policy falls along this spectrum dictates what kind of settlement strategy can safely be employed.  This is a critical consideration, because, if settlements are done incorrectly, an excess insurer will argue that coverage has been forfeited.  

The Importance of Excess Insurance Policy Language

In today’s video Miles discusses the kind of excess insurance policy language that we consider “decent.”  With respect to the issue of how this language impacts settlement with underlying insurance carriers, courts have held that this kind of language is ambiguous.  With this kind of language a business may want to settle with an underlying carrier for less than policy limits, fund the difference, and attempt to proceed against the excess carrier.  But, with this kind of language, they are certain to face a fight. Watch the video to learn more.

If you haven’t seen the first video in this series, here’s the link: How to Have Your Cake and Eat it Too: Settling with Primary and Excess Insurance Carrier — Part 1

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How to Have Your Cake and Eat it Too: Settling with Primary and Excess Insurance Carriers — Part 1

Understanding how excess insurance responds once underlying insurance policies have been settled is one of the most important and least understood areas of insurance coverage law today.  The primary-excess settlement issue is present in most any claim that triggers more than one policy layer.  When faced with considerable liability, primary insurance carriers often want out.  But, they still wants some “credit” – however small – for the coverage defenses they have raised.  That “credit” may come in the form of settling for an amount less than policy limits.  In the meantime, the excess insurers sit back and argue that they have no reason to engage, because their policy limits have yet to be reached.  In reality, excess insurers are hoping that the policyholder makes a mistake in settlement that will arm them with an additional coverage defense.  This is a common trap that arises in most large insurance claims, and unless handled properly, can be a setup for disaster. 

Today’s video is the first in a three part series designed to help policyholders recognize and navigate some of the complex issues that arise when considering partial insurance settlements.  In this three part video series, Miles Karson discusses the under-appreciated topic of excess insurance policy language, with a particular focus on exhaustion provisions.  Excess policy exhaustion language falls into one of three general categories: (i) the good, (ii) the decent, and (iii) the ugly.  As Miles discusses in today’s video, the “good” exhaustion language unambiguously allows a policyholder to settle with its primary or other lower-level insurers for less than policy limits and still access its excess insurance policies.  Indeed, excess insurers rarely, if ever, challenge this language.  By negotiating this kind of language into their excess policies, policyholders can sidestep some of the potential problems that can occur later.  Additional information on the subject can be found in our prior blog post entitled,  Settling With Underlying Insurers For Less Than Policy Limits: the Good, the Decent, and the Ugly

Excess Insurance Coverage

Founding Name Partners of Miller Friel, PLLC, Brian Friel (Left) and Mark Miller (Right)

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When Should You Retain Insurance Coverage Counsel?

In today’s video, Miller Friel attorney Miles Karson addresses the best time to retain coverage counsel.   Oftentimes, businesses are reluctant to retain outside coverage counsel, instead, relying on the advice of insurance brokers and defense counsel.    Unfortunately, we are often retained after others have made significant errors with respect to the handling an insurance claim.   Given that many critical decisions are made at the earliest part of a claim, it makes sense for business to retain outside coverage counsel at the onset of any significant matter.  Retaining coverage counsel at the earliest stages allows us to lay the foundation for recovery that might otherwise be forfeited.  The more proactive a policyholder is in involving coverage counsel, the better the result.  Moreover, involving coverage counsel early in the process allows them to objectively evaluate and analyze an insurer’s conduct in the claims handling and evaluation process.  The best case scenario, is that the longer a policyholder waits to engage coverage counsel, the more catch up coverage counsel will have to do if a claim is denied.  The worst case scenario is that if coverage counsel is not consulted early in the claims process, coverage for some or all of the claim may be forfeited.

Insurance carriers utilize coverage counsel at the earliest stages of any large claim, and so too should policyholders.   With any large business insurance claim, coverage counsel can add value, both by preventing costly mistakes, but also by setting a path for full recovery in the future.

As an insurance recovery law firm, Miller Friel exclusively represents corporate policyholders.  This exclusive focus directly translates to a higher value for our clients.

When should you retain insurance coverage counsel?

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Insurance Recovery Law: A Real Example of Bad Faith Conduct

On the Miller Friel Insurance Coverage Blog, Miles Karson previously discussed many aspects of bad faith claims and how corporate policyholders can utilize bad faith claims to their advantage to level the playing field with their insurers.  In today’s video, Miles provides a practical, real world example of how an insurer’s bad faith conduct played out for one of Miller Friel’s clients.  In this particular case, the insurer engaged in bad faith conduct in each of the three stages of the insurer-policyholder relationship: (1) the underwriting process, (2) the claim investigation/evaluation, and (3) the coverage determination.

This is an example of how far reaching and harmful an insurer’s bad faith conduct can be – where the insurer deprives its policyholder of the very security for which it bargained for and exposes its policyholder to the very risks from which it sought protection.  This is the essence of bad faith conduct.  In addition, this video points out some of the intricacies of bad faith law, the necessity of knowing a policyholder’s potential bad faith claims and remedies at the onset of a claim, and the importance of understanding and analyzing the insurer’s conduct at each stage of the insurer-policyholder relationship.

Having analyzed and litigated bad faith claims in numerous jurisdictions, Miller Friel is uniquely equipped with the experience to identify potential bad faith claims and to integrate bad faith claims into an overall insurance recovery strategy.

If, after watching, you have any questions about your own coverage, please give us a call at 202-760-3160.

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