From event-driven litigation and event cancellations to securities claims and regulatory enforcement actions, the COVID-19 pandemic has led to a number of directors and officers liability exposures extending far beyond business interruption losses. The first wave of COVID-19 securities suits, for example, focused on allegations that companies made false and misleading statements or failed to disclose in securities filings how they responded to the pandemic (in the case of several cruise lines) or stood to benefit from it (in the case of pharmaceutical companies). Most, but not all, of those suits were dismissed on early motions. In all cases, however, those companies and individuals would have benefited from robust D&O liability insurance coverage.
Continue Reading New Year, New COVID-19 Securities Claims Present Continued D&O Exposures

2022 has kicked off with several new whistleblower awards, as the SEC announced earlier this week that it had awarded more than $4 million to whistleblowers who provided information and assistance in two government actions—one for misconduct occurring overseas and a second where the whistleblower’s assistance directly led to the success of the covered action.
Continue Reading Following Record-Setting Year, SEC Opens 2022 With $4 Million in New Whistleblower Awards: Is Your D&O Policy Prepared to Respond?

We have written over the past year about a string of pro-policyholder decisions from Delaware courts. One policyholder, however, recently had its claims dismissed based on application of Delaware law, based on one of 2020’s important D&O cases that limited coverage for appraisal actions initiated by stockholders pursuant to Title 8, Section 262 of the Delaware Code. In Stillwater Mining Co. v. National Union, the Delaware Superior Court explained that Stillwater had seized upon the Court’s 2019 opinion in Solera Holdings v. XL Specialty, which had held that a Section 262 appraisal action constituted a “securities claim” because it alleged a “violation” of state statutory or common law regulating securities. The policyholder alleged in its complaint that Delaware law governed the D&O policy, but when the Delaware Supreme Court reversed Solera, Stillwater “pivoted” to the view that Montana law, rather than Delaware law, governed the policy.

Continue Reading Rare Imbalance?—Delaware’s “Center of Gravity” in D&O Policies Dooms Mining Co.’s Appraisal Coverage Claim, But Supreme Court Appraisal Review Looms Large

Policyholders have scored another victory in the Delaware Superior Court, this time on the issue of whether a “mergers and acquisition” endorsement required payment of a higher retention in two securities class actions. In August, we reported that, in CVR Refining, LP v. XL Specialty Insurance Co., No. N21C-01-260 EMD CCLD, 2021 WL 3523925 (Del. Super. Ct. Aug. 11, 2021), a Delaware Superior Court judge upheld a policyholder’s preferred forum in Delaware, denying five insurers’ motion to dismiss or stay the Delaware coverage action filed after the insurers had filed suit preemptively in Texas.
Continue Reading Policyholder Prevails (Again) in Delaware D&O Retention Dispute

The Central District of California recently rejected an attempt by Federal Insurance Company, a Chubb company, to avoid its duty to defend its insureds in an $8.5 million lawsuit with a former employee.

TriPacific Capital Advisors, LLC acquired Directors and Officers (D&O) coverage from Federal and Employment Practices Liability (EPL) coverage from Travelers Insurance Company. While those policies were in effect, a former TriPacific employee sued the company and its president, Geoffrey Fearns, for a variety of employment-related causes of action concerning his termination and compensation. TriPacific and Fearns tendered notice to both insurers, seeking indemnification and defense costs. Both policies contained a duty to defend.  While Travelers agreed to defend under a reservation of rights, Federal denied coverage based on multiple grounds, including its policy’s “other insurance” provision, contending that the provision rendered its policy “excess” to the Travelers policy.  Federal also argued that TriPacific had not satisfied the D&O policy’s $150,000 self-insured retention and, thus, coverage had not been implicated, in any event. TriPacific maintained that neither the SIR nor the “other insurance” provision pertained to Federal’s duty to defend and brought suit to enforce the duty to defend.
Continue Reading Potential Coverage Garners Total Defense: “Other Insurance” Provision Does Not Relieve Insurer’s Duty to Defend

Earlier this month, current and former Boeing Company directors agreed to a $237.5 million settlement to resolve claims that they ignored safety issues concerning Boeing’s 737 MAX aircraft. While the settlement, which came quickly on the heels of the Delaware Chancery Court’s September denial of the defendants’ motion to dismiss, ranks as one of the largest derivative settlements of all time, the silver lining for the directors and officers named in the suit is that the entire settlement is to be funded by the company’s D&O insurers. The Boeing case is yet another example of the necessity for public companies to purchase sufficient D&O liability coverage, particularly “Side A” insurance coverage, to protect officers and directors implicated in derivative claims, securities class actions, enforcement actions, and similar claims. Because many states, including Delaware, prohibit companies from indemnifying officers and directors for payments made to the company in settlement of stockholder derivative claims or other suits brought on behalf of the company, securing Side A coverage to protect individuals for non-indemnified loss is essential.
Continue Reading Historic Boeing Derivative Settlement Funded By D&O Insurers: How to Ensure Directors and Officers Land Safely With Side A DIC Insurance

Last month, the US District Court for the District of Connecticut granted an insurer’s motion for summary judgment in the case of Connecticut Municipal Electric Energy Cooperative v. National Union Fire Insurance Company of Pittsburgh, PA, No. 3:19cv839 (JBA), finding that there was no coverage under a directors & officers policy for defense costs associated with responding to a government subpoena. Last week, in line with our commentary, which highlighted several critical flaws in the court’s initial ruling, the court reversed itself and granted reconsideration, finding that there actually is coverage.
Continue Reading Court Corrects its Own Error in Win for D&O Policyholders

While policyholders have experienced a wide range of conflicting rulings related to COVID-19 business interruption losses, a recent Northern District of Illinois decision shows that the pandemic continues to present a range of exposures beyond business interruption losses, including for claims under directors and officers liability policies. In Federal Insurance Co. v. Healthcare Information and Management Systems Society, Inc., No. 20 C 6797 (N.D. Ill. Oct. 19, 2021), the court rejected the insurer’s broad reading of a professional services exclusion, contract exclusion, and the insurability of alleged restitution to deny coverage under a D&O policy for losses arising from a cancelled trade show.

Continue Reading Policyholder Win Highlights Importance of D&O Policies In Mitigating COVID-19-Related Exposures

While total False Claims Act recoveries decreased in 2020, FCA litigation and investigations are expected to continue to rise under the Biden administration, driven in part by the DOJ opening 250 new FCA investigations and actions in 2020, which is the highest number of new matters since 1994. As recent decisions show, the good news is that companies incurring legal fees defending against government investigations or negotiating settlements with regulators to resolve FCA claims may be able to look to D&O coverage to mitigate those losses. One such company recently prevailed in its $10 million claim against an excess D&O insurer following the insurer’s improper refused to contribute its policy limits to an FCA settlement with the DOJ. The Illinois federal court decision, Astellas US Holdings, Inc. v. Starr Indemnity & Liability Co., No. 17-cv-08220 (E.D. Ill. Oct. 8, 2021), which focuses on whether $50 million of Astellas’s settlement payment to the DOJ was covered “Loss” under the D&O policy, provides useful guidance for companies facing potential FCA exposures.
Continue Reading Policyholder Win Highlights Key Issues to Maximize Coverage for False Claims Act Settlements