In a case filed in California last week, an insurer once again has taken the position that funds disbursed to computer hackers because of fraudulent commands received via e-mail from hackers are somehow distinguishable from the hacker misappropriating the funds directly. They are not. The typical scheme, via social engineering commonly known as “business e-mail compromise” or “CEO fraud,” involves an e-mail from a high-level executive’s e-mail account directing a subordinate employee to wire funds to a bank account actually owned by a third-party scammer, the true author of the email. Insurers have denied coverage for such liabilities, contending that their policies do not cover voluntary disbursements of company funds – as if the insureds intended to give their funds away to the bad guys!
On August 2nd, the Eleventh Circuit Court of Appeals certified to the Florida Supreme Court the issue of whether the notice and repair process of Chapter 558, Florida Statutes constitutes a “suit” under widely used CGL policy language, thus triggering the insurer’s duty to defend. Altman Contractors, Inc. v. Crum & Forster Speciality Ins. Co., No. 15-12816 (11th Cir. Aug. 2, 2016).
A US District Court has ruled that a Professional Services Exclusion in a D&O policy does not bar coverage for suits alleging that a network of for-profit career colleges engaged in false marketing regarding the quality of education and job prospects that enrollees would receive. The decision in Education Affiliates Inc., et al. v. Federal Insurance Company, et al., stems from a series of lawsuits filed against the owner of the career colleges by former students and a subpoena and draft complaint served by the Florida Attorney General alleging that the colleges were deceptive in marketing their services to prospective students.
Insurance-giant American International Group (AIG) announced that it will be the first insurer to offer standalone primary coverage for property damage, bodily injury, business interruption, and product liability that result from cyberattacks and other cyber-related risks. According to AIG, “Cyber is a peril [that] can no longer be considered a risk covered by traditional network security insurance product[s].” The new AIG product, known as CyberEdge Plus, is intended to offer broader and clearer coverage for harms that had previously raised issues with insurers over the scope of available coverage. AIG explains its new coverage as follow:
AIG is offering its new coverage with limits of up to $100 million. The new coverage should be considered by policyholders looking to further mitigate their potential cyber exposure. It is important for policyholders to be aware, however, that the new AIG product, like any new insurance product, is yet to be tested in the courts, and challenges as to the scope of its coverage as well as the scope of its conditions and limitations are certain to follow. It is important, therefore, that policyholders continue to seek the advice of experienced coverage lawyers when considering this or any new insurance product.
In a July 5, 2016 opinion in Home Loan Inv. Co. v. St. Paul Mercury Ins. Co., the United States Court of Appeals for the Tenth Circuit addressed claims for bad faith delay or denial of coverage under Colorado law in connection with a fire loss under a foreclosed property protection policy. After a jury verdict in favor of the Insured on its breach of contract and statutory bad faith claims, the Insurer moved for judgment as a matter of law (JMOL) regarding the statutory bad faith claim. When its motion was denied, the Insurer appealed.
The Insurer argued in its JMOL and on appeal that because its coverage decision was “fairly debatable,” as a matter of law its coverage decision could not be unreasonable (as required for liability under the bad faith statute). The Insurer contended that denial of a fairly debatable claim is per se reasonable. However, the Tenth Circuit was persuaded by recent opinions from the Colorado Court of Appeals stating that “fair debatability is not a threshold inquiry that is outcome determinative as a matter of law; it is not necessarily sufficient, standing alone, to defeat a bad faith claim.” Accordingly, the Tenth Circuit upheld the district court’s denial of Insurer’s JMOL.
The Insurer also argued that the bad faith statutes applied only to claims-handling activities, and not underwriting activities. Relying on the purpose of the statutes and their broad language, the Tenth Circuit rejected the Insurer’s argument.
Finally, the Insurer contended that the district court erred in awarding damages for breach of contract plus the statutory penalty equal to two times the covered benefit. Relying on the plain language of the statute and Colorado appellate decisions, the Tenth Circuit affirmed the district court’s award of damages.
The decision in Home Loan Inv. Co. should serve as a reminder for policyholders that they may still be able to assert a claim for unreasonable denial of coverage even if an insurance company characterizes their claim as “fairly debatable.” Further, insureds may be able to challenge both the underwriting and claims-handling procedures of an insurer under state statutes. Consultation with experienced coverage counsel can help ensure that clients take advantage of all the statutory protections and remedies available.
The United Kingdom’s recent vote to sever ties with the European Union will have global economic consequences. The ramifications of an EU economic retraction resulting from financial uncertainty will undoubtedly reach Latin America. The cross-border insurance industry will likely not be spared. Multinationals with local operations must be proactive to get ahead of the storm – now is the time to review the unique aspects of their business and their target markets to pinpoint their ideal risk management structure, and to ensure that their insurance regimes sufficiently anticipate the shifting risks in this dynamic bloc.
In June, Syed S. Ahmad and I published an article in Risk Management Magazine about how commercial general liability (CGL) policies may help with trademark infringement litigation, despite common exclusions. A recent federal court opinion out of California conforms with the precedent we described in that article, holding that the insurer, Great Lakes Reinsurance (UK) PLC (“Great Lakes”), is required to defend In and Out Fashion, Inc. (“IOF”) in a trademark suit filed by Forever 21, Inc. (“Forever 21”). The fashion giant alleged that IOF essentially sold Forever 21 products as its own by obscuring or removing Forever 21’s marks. IOF requested that its CGL insurer, Great Lakes, defend it in the underlying suit. The relevant CGL policies covered damages because of “personal and advertising injury,” defined to include “infring[ing] upon another’s copyright, trade dress or slogan in your ‘advertisement’.” The policies excluded damages arising from trademark infringement and, according to the insurer, did not cover copyright, trade dress or slogan infringement in non-“advertisement” mediums. Great Lakes refused to defend IOF, and sued for declaratory relief regarding its obligations under the policies.
Consumer class actions are on the minds of virtually all consumer product manufacturers and service providers. Class actions based on privacy and consumer protection statutes are increasing at a remarkable rate, and can be a challenge to predict, budget, and defend, given the difficulty in valuing consumer privacy rights. In their article, “Second Circuit Reminds Consumer Product Companies That Insurance Options Exist For Big Data Blunders And Privacy Faux Pas,” as published in FC&S Legal’s Eye on the Experts column, Syed S. Ahmad, Neil K. Gilman, and Paul T. Moura address the growing trend, and remind companies to look to their insurance policies when they find themselves faced with class action lawsuits in the digital landscape.
A federal appeals court ruled on Wednesday that the absence of a duty to defend does not foreclose the potential for indemnity coverage under primary and umbrella liability policies. The decision in Hartford Casualty Insurance Co. et al. v. DP Engineering LLC, stems from a March 31, 2013, incident where an industrial crane collapsed at a nuclear generating facility near Russellville, Arkansas, causing significant damage and injuries, including one death.
The Supreme Court of Wisconsin ruled yesterday that a construction company’s builder’s risk policy issued by Assurance Company of America (“Assurance”) applied to cover a fire loss at a home under construction, even though the prospective purchasers of the home were residing in the home at the time of the fire and had already recovered from their homeowner’s policy.