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As previewed in part 1 of our AI Policyholder’s Guide, we now discuss how businesses can assess their AI risk to ensure that they are properly positioned to secure insurance coverage should those risks come to fruition. Because no two businesses will have the same AI risk profile, businesses should consider undertaking organization-wide AI risk audits to evaluate their unique AI risk profile.

Understanding the nature of AI-focused legal risk is not only important for business planning, but essential to crafting a comprehensive AI-specific risk management plan. Indeed, because insurance is often underwritten relative to specific risks, knowing the risks to be insured is a prerequisite to procuring the right type of coverage with terms most suitable to a given risk profile.

Continue Reading The Hunton Policyholder’s Guide to Artificial Intelligence: The Importance of Auditing AI Risk  
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Hunton Andrews Kurth LLP is pleased to announce the release of the inaugural edition of our AI and Emerging Technologies Newsletter. The newsletter focuses on multidisciplinary, current topics affecting businesses in the AI and emerging technology industry. Inside our first edition, we cover a bit of what you need to know about AI in the context of contract terms and conditions, US privacy laws, insurance, employer use monitoring and workforce management, and copyright law, as well as the rise in crypto class actions. Our first edition also includes an article written by insurance partner Michael Levine and associate Alex Pappas that discusses the importance of auditing your business’ unique AI risks and exposures to ensure that they are appropriately mitigated as part of your existing risk management system.

A copy of the full newsletter can be found here.

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Courts scrutinize a complaint’s factual allegations to decide whether the allegations trigger a duty to defend. [1] If the facts unambiguously exclude coverage, there is no duty to defend. [2] But what if the factual allegations fall within a policy exclusion, but the allegations are untrue or questionable? What if the true facts would mean the exclusion doesn’t apply? In that case, many courts have found that the insurer should base its decision on the policyholder’s version of the “true facts.” [3] An insurer can’t rely on the complaint’s allegations to deny coverage when the facts that the insurer knows or can ascertain show that the claim is covered. [4]

Continue Reading Allegations Versus “True Facts”: Which Govern the Duty to Defend? Bonus! A Georgia Court Clears Up What the Meaning of “Is” Is
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The United States Supreme Court recently accepted review of In re Kaiser Gypsum Co., Inc., 60 F.4th 73 (4th Cir. 2023), a Fourth Circuit decision concerning “whether an insurer with financial responsibility for a bankruptcy claim is a ‘party in interest’ that may object to a Chapter 11 plan of reorganization.” This issue, while one of first impression for the SCOTUS, has been litigated several times in the appellate courts, leading to a circuit split over the interplay between Article III and 11 U.S.C. Section 1109(b). 

Continue Reading Standing Room Only: SCOTUS Accepts Review of Circuit Split on Whether Insurer is a Party in Interest in Policyholder’s Bankruptcy
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Most modern liability insurance policies have provisions addressing whether different claims are “related” (or “interrelated”) for assessing potential coverage. Because the answer of whether two claims are “related” depends heavily on the facts giving rise to the underlying claims, the policy language, and applicable law, questions about relatedness can lead to significant insurance coverage disputes.

Continue Reading Tenth Circuit: Remain Thoughtful About Whether Your Insurance Claims Are Related
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Last week, the Delaware Insurance Commissioner announced a series of process and regulatory improvements to the state’s captive regime. Building upon last year’s significant amendments to DGCL 145(g) expressly permitting captives to cover D&O liability, Bulletin No. 14 outlines several requirements for captives to write Side A D&O policies for Delaware corporations, including several process changes intended to improve approval timelines and speed to market.

Continue Reading Delaware Issues Regulatory Guidance, Process Improvements, for D&O Captives
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Major sneaker brands have capitalized on new trends in technology and social media to hype sneaker culture. As sneakers become more popular, sneaker collections increase in value, thus increasing financial exposure for collectors and other entities in the sneaker industry. One might first think of theft, authentication, fire, floods, or market valuation as the general risks associated with sneaker collections. But many sneaker companies have made headlines over the past few years with numerous lawsuits against other sneaker companies and entities with issues ranging from traditional patent battles to exhaustive fights against counterfeiters. Often overlooked by collectors and sneaker companies alike, insurance can and does play a critical role in helping both collectors and companies faced with unexpected liability related to sneaker culture.

Continue Reading Solefully Designed: Insurance Coverage in the Sneaker Industry
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Timely notice is an important first step in a successful insurance recovery.  But insurance policies are not always straightforward in identifying how, when, and to whom notice must be provided.  Some states may also impose additional procedural hurdles, including requiring policyholders to contact their insurers before filing suit (the idea behind this requirement is that it may avoid litigation).  Failing to comply with pre-suit requirements can hurt the policyholder’s recovery, as illustrated in a recent decision from the Northern District of Texas. 

Continue Reading Compliance with Contractual and Jurisdictional Pre-Suit Requirements is Essential to Maximizing Recovery
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The Eleventh Circuit recently confirmed the rule that “other insurance” clauses should not be used to disadvantage policyholders. Nat’l Cas. Co. v. Georgia Sch. Bd. Ass’n – Risk Mgmt. Fund, No. 22-13779, 2023 WL 5977299, at *1 (11th Cir. Sept. 14, 2023). In a dispute between an insurance company and a public risk management fund, both insurance policies included “other insurance” clauses stating that each insurer would only provide excess insurance coverage where the policyholder is covered by other insurance. The district court found that the clauses were irreconcilable because both insurance policies could not provide only excess insurance coverage—at least one policy would need to provide primary coverage. Because of the conflict, the Georgia federal district court applied Georgia’s irreconcilable-clauses rule and held that each policy must provide coverage to the policyholder on a pro rata basis. The Eleventh Circuit affirmed the district court’s application of Georgia’s irreconcilable-clauses rule.

Continue Reading Insurance Fundamentals: “Other Insurance” Clauses