From GCL to E&O, With a Bit of D&O:
Getting the Most Out of Your Insurance Coverage
David R. McDonald, Partner
Nossaman Guthner Knox & Elliott LLP
50 California Street, 34thFloor
Outline
CGL coverage (duty to defend, indemnify)
Other sources of coverage
Business Interruption Insurance
Advertising Liability Insurance
Director’s and Officer’s Liability Ins.
Definitions
Type of Liability Coverage
First Party Liability (All Risk or Named Peril)
Third Party Liability (CGL)
Environmental Impairment Liability (EIL)
Level of Coverage
Primary Excess
Definitions
(continued)
Direct insurance vs. reinsurance
Insuring Agreements
Duty to Indemnify—
Defines scope of coverage
Specified limits
Duty to Defend—
Defines scope of defense obligation
Duty to Indemnify
Insurer must pay "all sums that the insured is
legally obligated to pay as damages because of
an occurrence."
Duty to Indemnify Issues
Requires “legal” obligation.
Requires lawsuit and potentially, court order to pay. Powerine
Recent case-- No coverage for post tender expense, settlements w/o insurer knowledge/consent.
“Voluntary payment.” Not applicable where insurer
wrongfully denies tender, abandons policyholder. (Low v. Golden Eagle, 110 Cal. App. 4th 1532).
Duty to Indemnify Issues
(continued)
Requires Property Damage
Recent case-- No coverage for loss of computer data during upgrade as data not tangible/physical. Ward General Ins. v. Employers Fire Ins., (4th App. Dist.)
Occurrence--act or event or series of like acts or
events during policy period
Number of occurrences
During policy period
Indemnity--Exclusions
Intended or Expected Exclusion
Act vs. damage “Common and accepted” practices
No coverage for illegal acts (General Reinsurance
v. St. Jude Hospital 107 Cal. App. 4
th1097)
Self insured employer improperly delayed paying claim for employee benefits. 10% penalty assessed.
Indemnity Exclusions
(continued)
Owned Property Exclusion
Soil vs. groundwater Threatened damage to groundwater versus actual damage
Pollution Exclusion
Sudden and accidental
Duty to Defend
State law governs
Potentiality of coverage
Determined at outset of underlying litigation
Triggering Event—claim, administrative order
or lawsuit (Foster Gardner)
Duty to provide complete defense
Some claims covered/others not (Buss)Duty to Defend
(continued)
Notice and tender to insurers
Recent case--Insured will lose coverage if policy requires insured to provide recorded statement and insured refuses to do so after request by insurer, (Brizuela v. CalFarm Ins. Co., 116 Cal App. 578).
Duty to Defend
(continued)
Choice of underlying counsel
Categories of expense that insurer must pay
Legal fees associated w/ defending underlying case Legal expense
Investigatory expense (Aerojet)
Late Notice
Late Notice will preclude coverage under occurrence policies only if prejudice is shown to the carrier.
Generally this rule wouldn’t apply to claims made policies, however recent case holds that in certain cirmumstances an insurer will be equitably estopped from denying
coverage because a claim was submitted under a claims made policy after the policy period, (Root v. American Equity Specialty Ins. Co. 2005 Lexis 1005).
Caution: Case limited to facts – proper notice to carriers also advised
Insured’s Duty Not To Make
Misrepresentations on
Coverage Application
Ins. Code 331 & 359
- Heavy burden of disclosures
Parties must disclose in good faith all facts within
his/her knowledge which are or which he/she believes to be material to the contract
Extends to both intentional and unintentional
misrepresentations, recent case
--Mitchell v. United National Ins. Co., 127 Cal. App. 4th 457 (2005)Missing Policies
In most jurisdictions, not need actual
policy
Where reasonably diligent search not
locate policy, secondary evidence
admissible
Oral testimony of brokers and employees
admissible.
(Dart Industries 29 Cal 4th1059Other Sources of Coverage
Policies bought by others (e.g., “Additional
Insured” certificates)
Recent cases:
“Minimal causal connection” required for general to obtain coverage under subcontractor’s policy.
Vitton v. Pacific Ins.
Landlord’s coverage excess to tenant’s coverage.
Other Sources of Coverage
(continued)
Policies obtained through corporate acquisitions
Recent cases—no coverage for successor corporation(Henkel v. Hartford 29 Cal 4th 934)
Henkel buys Amchem’s product line along with all
related liabilities. Insurance not cover Henkel’s losses for bodily injuries caused by Amchem products.
Other Sources of Coverage
(continued)
Henkel
(continued) Henkel liabilities caused by contract.
Not satisfy exceptions: (1) transaction is consolidation, merger or continuation, (2) acquisition of business
destroys plaintiffs’ remedies against original
manufacturer, (3) no statutory imposed successor liability.
Assignment requires insurer’s consent (not to be unreasonably withheld).
Business Interruption
Arson (or terrorism) causing fire (or other damage)
on site
Business interruption requirements
Named peril
Directly caused property damage at covered location
Interrupted business
Advertising Injury Coverage
Insured must have engaged in “advertising”
Underlying action must involve enumerated
“advertising” offense
Currently include defamation, invasion of privacy, disparagement of another’s good’s products or
services, misappropriation of advertising ideas or style of doing business, rights of privacy.
Not include unfair business competition claims (Bank of the West)
Advertising Injury
(continued)
Recent cases--Requires wide spread promotion
to public—direct solicitation insufficient.
Rombe Corp. v. Allied Ins. Co. 128 Cal. App. 4th 482
Director’s and Officer’s
Coverage
Types of coverage
Corporate reimbursement coverage
Individual D + O liability coverage
Sued solely because an officer or director of
corporation (or where acts are inseparable)
Discharging duties to corporation when
actionable conduct arose
Cost-Effective Management of
Coverage Litigation
At outset, game plan for litigation w/ budget.
Make decisions re probability of various
approaches.
Periodic meetings w/ outside counsel re status,
alternative approaches to case handling.
Outsourcing where possible.
Settlement: When and How
Various times for settlement:
After notice; before coverage lawsuit
After suit filed but before discovery begins
While key motions pending
During expert discovery
During trial
Considerations
Settle defense, indemnity or both
Severability
Application Exclusions
Policy Rescission Size of D&O Tower
Side A, B and C and Side A Towers
Conduct Exclusions
“In Fact” versus “Final Adjudication”
Continuity
Issues with Moving Coverage
Excess Layers
Follow Form Language
Lead Plaintiff
Type of
Case Damage
Amount Settlement Value
SEC
