No policyholder wants to hear the word “rescission” in the context of an insurance claim. The reality, however, is that when policyholders complete applications for insurance, they are typically focused on obtaining the best policy terms for the best rate. Nuances about question wording, the breadth of the applicant’s representations or how a court may analyze the insurer’s questions or the policyholder’s answers usually take a back seat to the central importance of placing and renewing coverage at a realistic price. But once a claim is made, insurers look back at applications to assess the accuracy and completeness of all information received during the underwriting process, especially in signed applications. If the insurer discovers a misrepresentation, it can be used to rescind the policy, leaving the insured with no coverage. Continue Reading Avoiding Rescission of Insurance Coverage: An Insured’s Worst Nightmare  

Last week, a California federal judge held that a D&O liability insurer must advance subpoena-related defense costs on behalf of two former biotech directors and officers after the insurer could not provide conclusive evidence that the subpoenas alleged actual wrongdoing by the individuals after the company’s merger, as required to trigger the policy’s “Change in Control” exclusion. See AmTrust Int’l Underwriters DAC, Plaintiff, v. 180 Life Sciences Corp., et al., N.D. Cal. No. 22-CV-03844-BLF, 2024 WL 557724 (N.D. Cal. Feb. 12, 2024). The decision highlights the interplay of two significant D&O coverage issues—government investigations and M&A transactions—and underscores why policyholders must pay close attention to how their liability insurance policies may be impacted by a merger, acquisition, asset sale or similar deal.Continue Reading Government Investigations and M&A Transactions: Recent California Case Highlights Potential D&O Coverage Gaps

D&O, E&O, and other professional liability insurers often raise the insurability, or rather “uninsurability” loss defense. Consistent with our prior analysis of the ways the Ohio district court erred in assessing insurability, the Sixth Circuit’s recent decision in Huntington National Bank v. AIG outlines how courts should evaluate insurability defenses, particularly in the absence of public policy rendering a loss uninsurable.Continue Reading Sixth Circuit Holds Settlement for Fraudulent Transfers Insurable Under Ohio Law

Earlier this month, the US Tax Court agreed with an IRS determination against favorable tax treatment of premium and dividend payments using a foreign captive. In the decision, the court ruled that a financial services company could not deduct millions of business expenses for purported insurance coverage through an affiliate captive company or take advantage of preferential rates for dividends paid by the captive to the company’s shareholders. While properly organized and administered captives can take advantage of numerous features not available through the traditional insurance market, the ruling highlights challenges companies may face if a captive is not implemented correctly.Continue Reading Financial Services Company Found to Have Wrongly Deducted Captive Insurance Premiums

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

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

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

The Delaware Supreme Court recently affirmed a grant of summary judgment in favor of a mortgage lender who sought coverage for a government investigation under its management liability insurance policy, in the case ACE American Ins. Co. v. Guaranteed Rate, Inc., No. 360, 2022 (Del.). We previously reported on the trial court’s grant of summary judgment to the policyholder and ruling in favor of the policyholder on cross-motions for judgment on the pleadings. The Supreme Court rejected the insurers’ arguments that it had no duty to defend the policyholder in connection with a $15 million False Claims Act (FCA) investigation and settlement.
Continue Reading Delaware Supreme Court Affirms that D&O Insurer Must Cover Settlement of Alleged False Claims Act Violations

As explained in a recent alert, now is the time for public companies to adopt compliant clawback policies. This is because the US Securities and Exchange Commission (SEC) recently approved final rules on June 9, 2023, that required national securities exchanges like the New York Stock Exchange (NYSE) and the Nasdaq to implement new listing standards requiring public companies to institute compliant incentive-based compensation clawback policies. The NYSE and Nasdaq rules require listed companies to adopt clawback policies by December 1, 2023, which policies must apply to incentive compensation awarded after October 2, 2023. As public companies prepare to adopt compliant policies before the December 1, 2023 deadline, they should not only consider the clawback policy itself, but also the overlap between that policy and any applicable directors and officers (D&O) liability insurance. Doing so is important to address the potential new exposures created by the new SEC rules.
Continue Reading Executive Compensation Clawback Policies: Now Is the Time to Consider Insurance

Earlier this month, the Eighth Circuit remanded a COVID-19 insurance recovery case to the district court on jurisdictional grounds. See Great River Ent., LLC v. Zurich Am. Ins. Co., No. 21-3815, 2023 WL 5839565 (8th Cir. Sept. 11, 2023). The Eighth Circuit’s decision underscores federal courts’ continued scrutiny of subject matter jurisdiction—especially in complex cases involving limited liability companies.
Continue Reading A Great River of LLC’s: The Eighth Circuit’s Take on Properly Assessing Diversity Jurisdiction