Today managing partner Brian Friel starts a new series: The Ten Biggest Mistakes Made By Corporate Insurance Policyholders. In this series, Brian discusses the ten most common mistakes that policyholders make when pursuing corporate insurance claims. These mistakes are not limited to unsophisticated corporations. Mistakes are made by companies of all sizes and industries, from regional manufacturing and engineering companies to the Fortune 100 banks and pharmaceutical companies. As a firm with decades of experience in the area of insurance recovery law, we tend to be engaged after something has gone wrong. Our hope is that this series will help corporate policyholders identify areas of risk within the claims process at an early stage, so that an informed decision can be made about the value of insurance recovery advice relied upon by corporate policyholders.
The first issue that Brian covers is late notice. This is a significant issue for corporate policyholders because in some situations, in certain jurisdictions, it may result in the forfeiture of coverage. Unfortunately, notice is complex, and policy language is structured to elicit mistakes, and such errors can result in an otherwise avoidable denial of coverage.
We have divided this first issue on Notice into three short videos. In this first part, Brian addresses the two types of policies, “Claims Made” and “Occurrence.” He also addresses how notice requirements, and the law, can be different for each type of policy. There are major differences between policies as to what kind of event triggers notice, and these differences chan have an enormous impact on when notice is required.
There is a lot to understand about notice, and no video series can fully prepare policyholders for the challenges they may face. Nonetheless, we hope that this helps policyholders understand that notice is complex and difficult. We hope you find this first part on Notice useful. Please look out for future posts on this subject in particular, and for the continuation of Brian’s series.
This video depicts an incredible story of how AIG mishandled a massive pipeline explosion claim, only to get tagged at trial with an equally massive bad faith verdict. We include some shocking video of AIG’s lead claims adjuster, seriously calling into question the old adage that, “you can’t win or lose a case based on a deposition.” Watch to see just how contemptuous and dismissive this adjuster was, and see how, in the correct hands, experienced trial counsel can use this kind of testimony to achieve incredible results for corporate policyholders.
In today’s video, Brian Friel tells the story of how Miller Friel fought on behalf of one of its clients, El Paso Corporation (now a part of Kinder Morgan, the largest pipeline operator in the country), against AIG, one of the world’s largest insurance companies. The claim and resulting trial involved an epic insurance coverage battle over commercial general liability (CGL) insurance coverage. The complexities of the claim were magnified because El Paso sought coverage as an additional insured under a CGL policy issued to one of its contractors. SeeRisk Transfer Nightmares. An explosion occurred during the construction of a natural gas pipeline in Wyoming, when a back hoe operator constructing a new pipeline struck an existing El Paso high-pressure natural gas line causing it to rupture and explode, resulting in the catastrophic death of a construction worker and millions of dollars of property damage. El Paso and its vendor rightfully expected AIG to settle the claim with the decedent’s estate and cover the property damage, up to AIG’s the $5 million policy limits. Unfortunately, AIG refused to contribute a single dollar to settle either the wrongful death claim or the property damage claims, and even refused to attend the mediation with the decedent’s family members despite being invited by the mediator, thereby leaving both El Paso and its contractor to fend for themselves.
As Brian recounts in the video, AIG’s denial was based on unsupportable and even extreme interpretations of its policy and, even worse, AIG and its claims adjusters refused to cooperate with El Paso in any way to resolve the underlying claims. Given AIG’s intransigence, El Paso had no other choice but to settle the underlying wrongful death claim, and file suit against AIG for breach of contract and bad faith. Miller Friel ultimately litigated the claim against AIG through trial in Denver state court and obtained a judgment that AIG breached its obligations under the policy and violated its duty of good faith and fair dealing to both El Paso and its vendor. See Colorado Interstate Gas Co. v. National Union Fire Ins. Co. of Pittsburgh, Pa. The court awarded $13.7 million in damages, which included full coverage for El Paso’s settlement with the decedent’s estate and the property damage claims, pre-judgment interest, lost business profits, court costs, and $5 million in punitive damages as a result of AIG’s bad faith.
Based on the evidence presented, the court concluded that AIG’s bad faith breach of the insurance contract “was accompanied by circumstances of willful and wanton conduct which justifies the imposition of punitive damages.” The AIG adjuster’s videotaped testimony shown here was central to this award (his deposition testimony was allowed at trial because he refused to appear at trial). The court noted that AIG’s demand that “El Paso waive any future bad faith claim in order to waive the Voluntary Payments clause and allow [AIG] to settle . . . demonstrates that [AIG] recognized that its conduct was willful and wanton.”
This case illustrates the value that experienced insurance recovery trial counsel can bring to a case. Insurance carriers don’t always act reasonably, and when they don’t, it may be necessary to try a case against them. This particular claim illustrates the full skill set of Miller Friel and its lawyers, namely, the ability to present a claim, and then, when necessary, to follow through with it both at trial and on appeal if necessary. What we have learned over the years is that, while negotiated settlements are generally the best outcome for our clients, achieving settlement is easier when the insurance companies know that we are capable of inflicting real damage if they do not act appropriately. Insurers know that Miller Friel will litigate and try cases if they deny valid claims or take other unreasonable coverage positions. This is what sets Miller Friel apart from other firms. Trying cases is markedly different from writing briefs. Evidence must be presented to paint a picture for the judge or jury telling a compelling story. This cannot be done without careful attention to each and every witness, both before and during trial.
Miller Friel is proud of this result , which our clients have characterized as simply incredible. AIG should have settled this case early on, and had ample opportunity to do so prior to trial. That was AIG’s mistake, a mistake it won’t likely make again, at least if Miller Friel is involved.
For decades, insurance companies have resorted to narrow views of insuring clauses and expansive interpretations of exclusions to limit or void coverage. In the last 5-7 years, there has been an explosion in rescission claims by insurers. Now, more and more insurers are asserting rescission as an additional reason for denial of coverage.
Rescission is an old contract law concept, where, due to fraud and even innocent mistakes, a court treats a contract as non-existent. The remedy is to put the parties in the position they were in prior to contracting. In the insurance context, the court treats the insurance policy as if it never existed (void ab initio), and the remedy is for the insurer to refund all premiums paid, leaving the policyholder without insurance. The basis for rescission is most always a material misrepresentation in the underwriting/application of the policy.
The rapid rise in the number of rescission claims is reason for alarm. Ten years ago, only 1-2 rescission claims per year were asserted against our corporate clients. Today, we see insurers asserting or threatening to assert rescission in the majority of claims. This is no accident. Insurers, over time, crafted insurance application language that can be virtually impossible to answer correctly. Then, when a claim is submitted, insurance company lawyers scour insurance applications and financial filings to find any possible mistake or misrepresentation, whether intentional or simply inadvertent.
In this episode of our Top Ten Insurance Issues for Non-Insurance Lawyers, Brian Friel discusses the marked increase in rescission claims, and what policyholders can do to protect themselves against rescission.
Rescission claims are best fought using a two-prong strategy. First, insurance application issues need to be addressed prior to a claim being made. Here, we proactively protect our clients against rescission by working with them and their brokers in the application process. As Brian points out in today’s video, it’s not just important to answer the questions as precisely as possible, but it is also critical to create a written record correcting, or at a minimum pointing out, ambiguous or overly broad application questions. Where possible, egregious application language needs to be stricken, and unfair questions need to be noted.
Second, a thorough knowledge of rescission law, including its origins and development, can be used to counter an insurer’s attempt to rescind. In reality, rescission is a drastic remedy that has no real place in insurance law.
To learn more about rescission, please watch the video, and feel free to contact us with any questions you may have.
Corporate acquisitions and spin-offs are common. Although most companies involved with acquisitions are aware of the concept of tail coverage, many companies miss the second more important step in the process, which is to specify that the acquiring company has rights to pursue coverage for claims arising out of pre-acquisition wrongful acts. This simple concept is not always executed properly, because it requires that specific endorsements be added to the acquired companies policies, and very few risk professionals obtain these endorsements.
In today’s video presentation, Brian Friel addresses how to handle post-merger/acquisition claims, a topic that we rank as number 7 in our Top Ten List of Insurance Issues for Non-Insurance Lawyers.
Brian explains the importance of thinking through these issues carefully before closing, and provides examples of how Miller Friel has successfully recovered on claims for large corporate entities under acquired company insurance policies.
An absolutely critical component of any transaction is run-off or extended reporting coverage, whereby a claims reporting tail is added to the acquired companies policies as a condition to closing. Although directors and officers of the acquired company may demand this coverage feature, the real value, if executed properly, is to the acquiring company. As Brian explains, this benefit is magnified for larger acquiring companies for at least two reasons. First, large companies typically have significant self-insured retentions. Accordingly, it makes sense to place later-filed claims under acquired company policies rather than under the acquiring companies’ insurance policies. Second, if the acquired company is non-public, it likely has more expansive and generous D&O insurance coverage than, for example, an acquiring public company might have.
The claims example Brian discusses is for a large publicly traded pharmaceutical company client of Miller Friel that acquired a smaller non-public pharmaceutical company. The acquiring company was self-insured, but through expert negotiation and implementation, the acquiring company had rights to pursue coverage under the acquired company’s insurance policies, which contained low deductibles and better entity coverage than was available to the acquiring company.
At Miller Friel, our lawyers routinely assist corporate lawyers to make certain that valuable insurance rights are protected, and we have also successfully pursued a myriad of post merger/acquisition claims for large corporate clients. Please watch the video to learn a lot more about how this process works and the services we provide, and give us a call if you have any questions. Our telephone number is 202-202-760-3160.
Sophisticated organizations have long recognized that the legal review of Directors & Officers liability policies, if done correctly, can result in vastly superior coverage. Of all types of corporate insurance, D&O insurance is unique in that it protects both corporate and personal assets. From the corporate entity standpoint, it affords some of the broadest coverage available. Yet, it also affords the last backstop against the loss of personal assets of company directors and officers. With D&O insurance, the stakes are high. It is critically important to negotiate D&O policy language that not only addresses and resolves thorny legal issues raised in recent legal decisions, but that also covers industry and company specific risks.
Brian first distinguishes how legal review of D&O insurance policies is different from the services afforded by insurance brokers. A good insurance broker is instrumental in the process. Brokers know what language insurers have offered in the past and can provide critical peer company data to determine appropriate limits, deductibles and premiums. Brokers cannot, however, determine how that language will hold up in light of recent legal decisions.
To illustrate the role an insurance coverage lawyer can play in the underwriting process, Brian specifically discusses the personal misconduct and fraud exclusions in D&O insurance policies. We have written extensively about this issue in the past, but still see too many policies with less than ideal language. See 7 Tips for Fighting Back Against the Personal Profit Exclusion Too often these exclusions are broadly worded. This undesirable language affords the insurers with an argument to deny coverage, and some insurers have taken the position that virtually any complaint that alleges personal misconduct, self-dealing, or criminal activities is excluded from coverage. It is crucial that these exclusions are limited and narrow in scope.
The ultimate take-away from today’s discussion is that claim uncertainty and protracted coverage litigation can often be averted by companies that take a more proactive and aggressive approach in the underwriting process. As we have seen over and over again, better coverage results from demanding the broadest, most favorable policy terms and conditions available in the insurance marketplace.
Please watch the video to learn more, and if you have any concerns or questions about your current coverage or upcoming policy renewal, please give us a call in our Washington, DC office at 202-760-3160.
Notice under claims-made insurance policies is a trap. As a recent New Jersey Supreme Court case illustrates, the word has not yet gotten out. SeeTemplo Fuente De Vida Corporation v. National Union Fire Insurance Company, Case No. 0745722 (NJ 2016). Despite the best efforts of defense counsel, policyholders, and insurance brokers, things can and do go wrong. And, when they do, D&O coverage can be forfeited. SeeFatal Traps in D&O Insurance Policies Underscored by $10 Million Late Notice Insurance Claim Dismissal.
Another corporate policyholder just fell into this late notice fatal trap. On February 11, 2016, a unanimous New Jersey Supreme Court in Templo Fuente ruled that National Union (AIG) could deny coverage under a D&O policy because the policyholder failed to provide timely notice of the underlying lawsuit, holding that AIG does not have to show it suffered prejudice from the late notice. In this case, the insured was required to provide notice of a claim within the policy period and “as soon as practicable.” The insured did provide notice to AIG within the policy period but waited 6 months to notify AIG of the lawsuit filed against it. The insured argued that, even if its notice was late, because the policy was a contract of adhesion, AIG should be required to demonstrate that it was prejudiced as a result of the late notice. The New Jersey Supreme Court flatly rejected the policyholders’ argument, concluding that (i) notice was late as a matter of law because the insured failed to provide any explanation of why it waited 6 months to provide notice and (ii) the insurer is not required to demonstrate it was prejudiced by the late notice because D&O policies are not contracts of adhesion on account that purchasers of D&O policies are “sophisticated” companies, with equal bargaining power with insurers.
The “Sophisticated Policyholder” Fallacy
This decision sends a cautionary note to all corporate policyholders. The so-called “sophisticated” policyholder in Templo Fuente was a local one-office New Jersey investment firm, with 16 employees that, according to the New Jersey Supreme Court, “did not simply obtain a professional liability policy on its own; it sought out a broker, who procured the policy on [its] behalf.”
This analysis is incorrect on so many levels that it is difficult to know where to start. First, corporate D&O policies can only be purchased via a broker. The fact that a business used an insurance broker is not unique; it is the only way that insurance can be purchased. Second, it is ludicrous to think that there is equal bargaining power between a small privately owned company and AIG, one of the world’s largest financial institutions, merely because a policyholder procured a D&O policy via a broker, who of course, was paid by AIG for its services. Accordingly, every corporate policyholder, no matter if it has 3 employees or 3000 employees, or 1 office or 20 offices around the world, should assume that it is a “sophisticated” and that it has equal bargaining power with the world’s largest insurance companies. Noting could be further from the truth. Not even the largest companies can bargain equally with the leading insurers. The “sophisticated insured” argument makes no sense either under the facts presented in Templo Fuente, or in any other context.
Not Having an Excuse for Late Notice Was Never The Test
As to the actual merits of the case, unfortunately, the insured’s inability in Templo Fuente to articulate a reason for its late notice is not uncommon. Late notice can result from a number of factors, all of them preventable. For example, policyholders and defense counsel are often not thinking about insurance the moment a demand is made, or a suit is filed. Insurance is tends to be thought of as less important than immediate defense issues, and that needs to change. Policyholders need to ask, “what insurance do we have that could possible apply to this claim, and when and how do we need to notify the insurers?” Although late notice may be the result of policyholders and their defense counsel simply not reading their insurance policies, locating and reading the insurance policies may not be enough. Claims made notice issues are some of the most complicated insurance issues out there, and it can be suicide to tackle these issues without the early assistance of coverage counsel.
In light of Templo Fuente, yet another state court has closed the door on policyholders’ ability to argue lack of prejudice as a defense to late notice. Apparently, it does not matter that an insurer would not have done anything differently during the late notice period, nor does it matter that the insurer was not exposed to any additional defense costs or indemnity risks during the late notice period because its insured acted reasonably at all times in the defense of the underlying claim. Even when notice is made during the policy period, late notice under a D&O or professional liability insurance policy can result in a total forfeiture of coverage.
The decision in Templo Fuente is a further wake-up call to all corporate policyholders. Policyholders need to pay attention to insurance the moment a demand is made or a lawsuit is filed. In addition, Policyholders must understand many things in order to correctly assess notice, including policy language, choice of law applicable to the policy, and the ever-increasing body of law addressing notice. Further, policyholders need to recognize that notice issues under claims made insurance policies are complex, and that insurance brokers and defense counsel may not understand applicable law well enough to correctly advise policyholders on notice-related issues. Templo Fuente is also a strong reminder of what is at stake. If policyholders have good insurance recovery advice, proper notice can be given. If not, funding for a company’s defense and settlement of a claim is unnecessarily put at risk.
Please email or call Brian Friel (FrielB@MillerFriel.com, 202-760-3162) for additional information about this post.
The second issue in our continuing analysis of the top ten insurance issues for non-insurance lawyers is the full recovery of defense costs. Liability insurance policies cover both the defense of claims and the indemnification of judgments or settlements. Since the defense obligation comes first, this is the first time that most corporate entities obtain a glimpse into their insurance carriers claims handling practices. Unfortunately, there are many ways that insurance carriers attempt to limit their defense obligation, and knowing the defense cost tricks that insurance companies play is an important prerequisite to the full recovery of defense costs.
In today’s video, Brian Friel discusses the importance of defense costs coverage, how insurance companies, attempt to limit the amount of defense costs they pay, and how businesses can better position themselves to maximize their insurers’ payments of defense costs.
The defense obligation is paramount to any liability insurance policy. As many courts have stated, liability insurance is “defense insurance.” In most claims, a policyholder’s biggest and most immediate exposure is paying for defense counsel. Yet, even when an insurer agrees to advance or pay defense costs, insurers to look for ways to pay less than one hundred percent of costs incurred. Insurers employ a number of tactics to do this. A common tactic is to argue that certain of the underlying claims are not covered. Similarly, insurers may argue that some of the defendants are not insureds under the policy. When they are done with this analysis, it is not uncommon for them to propose a 50 to 75 percent reduction on defense costs. Insurers also argue that the most they will pay is some limited hourly amount. Recently, we had a matter where the insurer stated that the most they would pay was $250 per hour, for a highly experienced New York City lawyer, in a case involving complex business torts. Unfortunately, these kinds of tactics are more common than not, and the net effect of all this discounting is the erosion of the very purpose of an insurance policy – to provide a complete and effective defense to policyholders facing litigation.
Vigorous Pursuit of Insurance Recovery Claims
As Brian discusses in the video, Miller Friel’s strategy for the full recovery of defense costs is to identify issues early on, and aggressively negotiate with insurers at the outset of a claim, to bring the insures towards full reimbursement. With respect to defense costs, we have found insurers respond favorably to well-crafted legal arguments, and that it is seldom proper to accept what insurers first propose. Our singular focus is maximizing policyholders’ claims. We are a specialty law firm that is sought out by national and international clients to address this exact issue, and we have successfully addressed this defense costs issue repeatedly before.
If you have any questions, or if you are in the position to need assistance, please give us a call at 202-760-3160.
We’re kicking off our top ten list with what is perhaps the most fundamental and important coverage issue, notice. Too often, we see corporate policyholders forfeit or seriously jeopardize valid claims, worth millions of dollars, simply because they fail to give notice in a timely fashion. In this video, Brian Friel discusses some of the basics of notice, and how difficult it can be to get notice right.
While the general concept of providing timely notice is simple enough, this is a very complex area of law. Although notice provisions can be confusing and hard to find, even when read, they don’t always lead policyholders to a clear cut answer as to what should be done. In addition, notice-related provisions can be found in different parts of the policy. This can cause misinformation as to impact of providing notice unless all notice-related provisions are spotted and analyzed as a whole. Sometimes, provisions relating to notice found in an insurance policy tower are inconsistent, leading to further confusion. Finally, ever-changing court decisions across the country addressing what constitutes a claim for purposes of triggering notice make it difficult to apply clear cut black and white rules regarding notice. Sometimes, the only solution is to know the case law, and to provide notice according to applicable law.
Notice provisions should be strictly followed. As cases have repeatedly demonstrated, one week late, or even a day late, in certain situations under a claims-made policy (such as a typical D&O or E&O policy) can mean the difference between obtaining a $10 million insurance recovery or zero dollars, regardless of the substantive merits of the claim.
In today’s video, Brian discusses a recent case demonstrating how the failure to provide timely notice resulted in a disastrous outcome for the policyholder. There, a hospital failed to review and/or understand the differences between notice provisions in its primary insurance policy and its excess insurance policy. The hospital provided timely notice under its primary policy but notice was late under its excess policy, which resulted in a complete forfeiture of $10 million in excess coverage.
Our goal for this series is to help businesses. and the non-insurance lawyers who represent those businesses, understand some of the insurance traps that others have fallen into. Lawyers who understand these issues can then make better decisions regarding when it makes sense to bring in separate insurance recovery counsel.
Last week, Managing Partner Brian Friel talked about the importance of property and business interruption insurance. Today he gives a deeper dive with a real world example from one of our clients, Capsugel, Inc., a major life sciences company based in New Jersey with operations around the world. In this video, Brian talks about the devastation to one of Capsugel’s major production facilities outside of Bangkok, Thailand caused by the massive flooding in that country in 2011. Despite having a classic excess tower of coverage of over $100 million insuring its manufacturing investments in the region, when it came time to file a property and business income claim, Capsugel’s insurers balked at having to cover the full losses, relying on a fundamental misreading of the policies as well as a bad faith attempt to retroactively change the terms and conditions of the policies.
The Capsugel case is a perfect example of how Miller Friel’s experience and focus leads to results for our clients, or as Brian put it, “Miller Friel at its best.” We initially attempted to resolve the claim through negotiations, and appraisal and quantification of damages with the assistance of forensic accountants. When it became clear that the insurers weren’t interested in a good faith adjustment of the claim, the Miller Friel team increased the pressure on the insurers, leading to the filing of a lawsuit in federal district court in New Jersey, which ultimately resulted in a very favorable settlement for Capsugel. Because of our experience resolving and litigating claims against the insurer’s in the Capsugel program, the insurers knew they were in for a tough court battle with full policy limits and litigation attorneys’ fees at stake, and possibly bad faith and punitive damages exposure as well.
This progression in the claims adjustment process demonstrates what makes Miller Friel the leading insurance recovery firm in the country – our ability to take a business friendly and amicable approach when possible, and a more aggressive posture when necessary to deliver for our clients. Our passion is our clients. Our goal is to deliver the maximum insurance recovery to our clients.
Listen to Brian’s story, the details are fascinating, and if you have any questions, please don’t hesitate to give us a call.
When disaster strikes, whether fire, earthquake, flood or hurricane, corporations look to commercial property insurance to cover their losses. This insurance cornerstone of every company’s risk management program is designed to cover damage to buildings, machinery, products/goods, and other physical assets. Disasters such as these, however, almost always involve another type of loss – business interruption or business income loss. These business income, or BI losses, can, in some instances, be more costly than actual loss of property. When companies have to re-build a manufacturing plant, replace machinery, restore utilities, or re-connect with customers lost as a result of a severe disaster, they lose a lot of money. Often times, that lost business income places a company in dire financial distress.
Today Miller Friel Managing Partner, Brian Friel, talks about the importance of property insurance, particularly business interruption coverage. What companies need to understand is that these policies, although simple in concept, can be incredibly difficult to understand, in part because of 19th century language still employed by the insurance industry. The complicated nature of the various policy conditions places before the policyholder a series of hurdles that can cause even the most sophisticated policyholder to misstep. In addition, the various time elements and sub-limits contained in these policies, and the archaic and decidedly pro-insurer appraisal system to quantify covered losses, are designed to minimize coverage. For significant losses, this is the reason that most businesses retain insurance coverage counsel. Given the series of policy deadlines that are triggered by any given loss, it is critical that such expertise is retained within the first few days, if not hours, of when disaster first strikes.
To learn more, please watch the video and contact us with any questions or concerns about your own business insurance. The telephone number for our office in Washington, DC is 202-760-3160.