All posts by Tab Turano

Cyber Insurance: What Case Law Teaches Us About Coverage

Policyholders have secured cyber insurance to guard against cyber attacks. How well have Insurers done? Lets look at the case law to find out.

Introduction

Cybercrime has come a long way from the days of Nigerian Princes seeking aid from unsuspecting AOL subscribers to liberate their family fortunes from the grips of oppressive regimes. Cybercriminals today are far more sophisticated, and so too are their victims. Now, it is C-Suite executives and publicly traded corporations being swindled by ever-evolving “spoofing” scams, while some of the world’s largest healthcare providers, airlines and hotel companies fall victim to massive data breaches as a result of “phishing” schemes and other malware. Indeed, recently a handful of multi-national conglomerates had their operations virtually shut down by malware purportedly released by the Russian military.1 The costs to companies associated with these modern-day cyberthreats can be staggering. Cybercrime is among the most significant risks facing businesses today. Fortunately, in the event of an attack, companies may not have to go it alone. In many instances, insurance may be available to cover some or all of the loss.

This article highlights a few of the more recent massive cyber incidents inflicted on well-known U.S. companies, and discusses the various types of insurance products marketed and sold to protect businesses against such risks, as well as notable court decisions addressing the scope of cyber coverage under such policies. Finally, some practical pointers are offered for effectively insuring against the risks of modern cyberthreats.

The Growing Threat of Cybercrime

Earlier this year, Equifax, the multinational consumer credit reporting agency, finalized the largest data breach class-action settlement in history. The case arose from an incident in 2017 in which hackers accessed personal data, including names, dates of birth, social security numbers and driver’s license numbers from approximately 150 million consumers. Ensuing claims were brought by the Federal Trade Commission, the Consumer Financial Protection Bureau and various state attorneys general. More than 300 class-action lawsuits were also filed by consumers and financial institutions, which were consolidated in Federal District Court in Atlanta, Georgia.2

The Equifax litigation was ultimately resolved …

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This article has been published in PLI Current: The Journal of PLI Press, https://plus.pli.edu.

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 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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The Supplementary Payments Provision (Part 2)

 

 

Today’s blog post is the second video in a two-part series by Miller Friel attorney Tab Turano discussing the importance of the supplementary payments provision in general liability policies.  This clause is designed to cover a number of ancillary liabilities faced by companies that are dragged into litigation and forced to go to trial, including awards of plaintiffs’ attorneys’ fees, interest awarded by the court, and the costs associated with appeal bonds.  The video highlights, by way of example, how policyholders may rely upon the supplementary payments clause to collect far more than policy limits of liability – often times, ten, twenty, or more times the policy’s limit of liability.  Also addressed are insurers’ recent attempts to curtail this all-important coverage.

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

To see the first half of this video, visit: The Supplementary Payments Provision, Part 1.

 

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The Supplementary Payments Provision (Part 1)

 

 

An often-overlooked provision in General Liability Insurance Policies is the Supplementary Payments provision.  This clause, tucked away in the back of the policy, provides some of the most valuable coverage available in standard general liability policies.  In particular, the provision provides coverage for, among other things, attorneys’ fees awarded to opposing counsel in litigation and pre-judgment interest.  And, notably, coverage under the provision is in addition to, and not limited by, the policy’s limits of liability.

This video blog post is the first video in a two-part series by Miller Friel attorney Tab Turano discussing the importance of the supplementary payments provision.  It demonstrates, by way of powerful example, the value of the supplementary payments provision, and how corporate policyholders can take advantage of the coverage it affords. Please watch the video to learn more, or Contact us if you have any questions.

 

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Steps to Maximize D&O Coverage for Investigations – Part 3

 

 

This video is the third of a three-part series addressing issues companies should focus on when negotiating and purchasing D&O insurance to adequately protect against governmental investigations. In this post, Miller Friel Attorney Tab Turano continues his discussion on maximizing insurance recovery for governmental investigations. Both public and private companies face the threat of governmental investigations. These investigations by Federal agencies, from the SEC to the FCC to the DOJ, can be for violations of securities laws, the Foreign Corrupt Practices Act, and other laws and regulations. Having the right D&O insurance can be critical for defending such proceedings. Not all D&O policies, however, are the same. This video discusses the importance of negotiating a broad and favorable “allocation clause” as well as narrowly-tailored “conduct exclusions,” both of which are important for maximizing defense coverage in connection with governmental investigations.

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

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Steps to Maximize D&O Coverage for Investigations – Part 2

 

 

Today’s blog post is the second video in a three-part series addressing steps that policyholders should take to maximize insurance recovery for governmental investigations under D&O insurance policies.  Public and private companies are frequently the subject of governmental investigations.  Defense of these proceedings is expensive.  It is not atypical for defense costs to exceed $10 million for a typical investigation, with larger investigations costing hundreds of millions of dollars.

There are a number of steps that policyholders take to maximize insurance recovery for governmental investigations.  Because defense of governmental investigations is typically front end loaded, the issue of when defense coverage is triggered is a critical.  If coverage is triggered when a lawsuit is filed, coverage may be useless in a situation where a claim is settled prior to the filing of a formal lawsuit.  Coverage under a D&O policy should be triggered prior to the government’s issuance of a Wells Notice, target letter or other formal order of investigation.  Policy language to this effect allows for recovery defense costs incurred responding to voluntary information requests and other events that typically occur early on in the government’s inquiry.  Likewise, a well-negotiated D&O policy should cover investigations even where the company is not the primary target of the government’s inquiry.

These and other issues are explored further in Part 2 of the video series.  Please watch the video to learn more, or Contact us if you have any questions. Continue reading

Steps to Maximize D&O Coverage for Investigations – 1) Secure Defense Coverage For Pre-Formal Investigation Costs and Expenses

 

 

In today’s blog post, Miller Friel Attorney Tab Turano discusses how to maximize insurance recovery for governmental investigations.  Public companies these days face the threat of a multitude of investigations by Federal agencies, from the SEC to the FCC to the DOJ, for violations of securities laws, Foreign Corrupt Practices Act and other laws and regulations.  Defense of these proceedings can cost tens of millions of dollars.  Having the right insurance coverage is critical.  Not all D&O policies, however, are the same.

This video is the first of a three-part series addressing issues companies should focus on in negotiating and purchasing Directors and Officers insurance, with an eye towards maximizing coverage for investigations.  Part one addresses the importance of securing coverage for costs incurred prior to an actual formal governmental investigation.   Please watch the video to learn more, and contact us if you have any questions.  Continue reading

Restitution or Disgorgement of Ill-Gotten Gains Is Insurable

Ill Gotten GainsCoverage for restitution, or disgorgement of so-called “ill-gotten gain,” is perhaps the most prevalent issue in the world of directors and officers (D&O) insurance, today.  Years back, the Seventh Circuit Court of Appeals attempted to limit the scope of insurance coverage by declaring that “loss” within the meaning of an insurance policy does not include restoration of ill-gotten gain.  Level 3 Communications v. Federal Ins. Co., 272 F. 3d 908 (7th Cir. 2001).  The court reasoned that insurance policies should not “insure a thief against the cost to him of disgorging the proceeds of the theft.” Id. at 910.  In the years following Level 3, courts expanded this notion, proffering that restitutionary loss in uninsurable as a matter of law or public policy, even in instances where a policyholder acted negligently or otherwise in the absence of culpability.  Insurers, emboldened by the judicial support, began to routinely deny claims, simply taking as a truism the notion that any relief label “restitution” or “disgorgement” must be uninsurable as a matter of course.

Restitution or Disgorgement of Ill-Gotten Gains Is Insurable

Policyholders, for good reason, fought back; and numerous courts have chipped away at the misguided assumption that “restitution” or disgorgement is not, and cannot ever be, covered by insurance.  For instance, in J.P. Morgan Securities Inc. v. Vigilant Ins. Co., 992 N.E.2d 1076, 1082 (N.Y. 2013), the Court of Appeals of New York rejected an insurer’s argument that an SEC order requiring “disgorgement” of profits was uninsurable.  Rather, the court looked beyond the government’s label, and held that an insurer must demonstrate that the relief at issue actually represents the return of illicit profits retained by the insured to be insurable.  Id.  Likewise, in Burks v. XL Specialty Ins. Co., 2015 WL 6949610 (Tex. App. Nov. 10, 2015), the court rejected the insurer’s argument that settlement of a claim seeking restitution was uninsurable as a matter of law in the absence of an express finding that the settlement amount, in fact, represented the return of ill-gotten gain. Id. at *9. The same conclusion was reached by the court in U.S. Bank Nat’l Assoc. v. Indian Harbor Ins. Co., 68 f. Sup. 3d 1044, 1050 (D. Minn. 2014).  Going further, the Arizona court, in Cohen v. Lovitt & Touche, Inc., 308 P.3d 1196, 1200 (Ariz. Ct. App. 2013), flat rejected the notion that state public policy law prohibits insurance coverage for restitutionary payments.  And, finally, last month, a Delaware state court rendered yet another decision on the issue of insurability of restitutionary payments furthering bolstering corporate policyholders’ claims for coverage.  See TIAA-CREF, et al v. Illinois Nat’l Ins. Co., et al., Case No. N14C-05-178 JRJ CCLD (Del. Sup. Ct.) (“TIAA-CREF”).

The TIAA-CREF Decision

The underlying lawsuit at issue in TIAA-CREF involved clams by participants in the defendant’s investment services that TIAA-CREF failed to pay participants certain “TFE gains” between the order date and the processing date in connection with withdrawal or transfer requests.  Ultimately, the claims were settled, with express denial of liability provisions.  TIAA-CREF sought insurance coverage for the settlement, but its insurers denied the claim, arguing, among other things, that the settlement payments were uninsurable as disgorgement of ill-gotten gain under New York law.  The court, however, disagreed.  The court dug deeper into the issue than prior courts to examine the actual nature of disgorgement.  It noted that disgorgement is defined as “the act of giving up something (such as profits illegally obtained) on demand or by legal compulsion,” and that the New York Courts have elaborated that the purpose of disgorgement “is to deprive a party of ill-gotten gains and to deter improper conduct.”

Based on this, the court determined that the relief at issue in TIAA-CREF was not uninsurable, pointing to two factors.  First, the TIAA-CREF lawsuit was settled after lengthy litigation and with an express denial of liability by TIAA-CREF.  Second, neither the SEC nor any other governmental agency was involved in the underlying action.  The court reasoned that a settlement in private litigation – particularly a settlement absent any finding of liability –is different than a governmental order to return funds, particularly where there is no conclusive link between an insured’s alleged misconduct and the payment of money.  At bottom, the court determined there simply was basis to conclude that TIAA-CREF had acted wrongfully, or that the settlement payment at issue triggered the public policy concerns behind the notion of disgorgement.  According to the court, the settlement, therefore, was covered by insurance.

Conclusion

The issue of insurability of restitutionary settlement payments arises in many contexts, from securities litigation to governmental investigations to whistleblower actions and more.  All too often, insurers deny these claims as a matter of course using  dated and improper judicial reasoning as support.  This approach supports the insurance industries overall belief that it is proper to sell policies covering these kinds of damages, but when a claim is presented, if is equally proper to deny coverage.  Restitution or disgorgement damages, as a general rule, are covered by insurance.  But, it took some time for the tide to turn.  Corporate policyholders have been successfully tearing down the “wall of uninsurability” brick-by-brick, and successful challenges to the so-called restitution and disgorgement defense are now the norm.  As a result, companies  no longer need to accept improper coverage denials based on this outdated defense.