On November 23, 2022, a federal court in Minnesota highlighted the importance of strategically approaching product liability claims, both in terms of their underlying defense and their insurability. In Federal Insurance Company v. 3M Company, No. 21-2093 (JRT/DTS), 2022 WL 17176889 (D. Minn. Nov. 23, 2022), the court rejected the insurer’s attempt to treat each underlying lawsuit as a separate occurrence, thereby maximizing per-occurrence deductibles, and instead found that the manufacture of the allegedly defective medical devices was the sole occurrence responsible for each of the lawsuits. 3M, therefore, was only required to pay a single deductible.

Continue Reading Court Holds that Design and Manufacture of Allegedly Injurious Product is Only One Occurrence, In Win for Policyholders

A New York federal court recently held that an insurance company was entitled to recoup legal fees paid under a directors and officers liability policy in defense of a criminal action against an ex-CEO who was convicted of bribery. On a motion for reconsideration, the court affirmed its earlier ruling that the CEO’s conduct fell within the policy’s “Dishonest and Willful Acts Exclusion,” reasoning that the criminal case had been finally adjudicated despite a pending appeal. Because there was no coverage, the insurer could seek repayment of all defense costs it had paid to date. Not only is the court’s recoupment decision potentially inconsistent with New York law, but it also raises thorny questions regarding just when a judgment is “final” for the purpose of triggering D&O policy exclusions.

Continue Reading New York Court Holds Insurer Can Recoup Defense Costs, Appealable Conviction of Former Bank CEO Is “Final” Adjudication of D&O Claim

Last week, Kim Kardashian settled with the SEC after the SEC announced charges against the social-media and reality TV star for promoting a crypto-currency token called EthereumMax, on her Instagram account, where she boasts more than 330 million followers, without disclosing that she received payment for the promotion. Kardashian agreed to pay $1.26 million in penalties, including the $250,000 EthereumMax paid her for promoting its crypto-tokens to potential investors. SEC Chair Gary Gensler stated that Kardashian’s case is “a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities.”
Continue Reading Kardashian Coverage Conundrums

A Delaware court recently granted summary judgment to a mortgage broker targeted in a federal government investigation for alleged False Claims Act violations, holding that the company’s directors and officers liability (“D&O”) insurer was required to indemnify more than $15 million in settlement costs with the U.S. Department of Justice. Guaranteed Rate, Inc. v. ACE American Insurance Company, No. N20C-04-268 MMJ CCLD (Del. Super. Ct. Sept. 6, 2021). We previously reported on the policyholder’s earlier victory in this case, in which the court held that a Civil Investigative Demand (“CID”) from federal authorities triggered the insurer’s obligation to pay defense costs under the D&O policy.
Continue Reading D&O Insurer Must Cover Mortgage Broker’s $15 Million Settlement of Alleged False Claims Act Violations

From IRS rulings that “virtual currency” is taxed as “property” to an SEC lawsuit claiming that digital assets are “securities” under federal law, meteoric growth of the largely unregulated crypto industry has raised numerous questions about whether crypto-related risks are covered by insurance. In the latest example of the intersection of crypto and insurance, a California federal court recently held that cryptocurrency stolen from a Coinbase account did not constitute a covered loss under a homeowner’s insurance policy. The fundamental issue was whether the stolen crypto met the policy’s requirement for “direct physical loss to property” and, more specifically, whether the losses were “physical” in nature. The court ruled against coverage, reasoning that lost control of cryptocurrency is not a direct physical loss as a matter of California law.
Continue Reading California Holds Stolen Cryptocurrency Does Not Qualify as “Physical” Loss Under Homeowners’ Policy

Massachusetts’ highest court ruled earlier this month that attorney’s fees awarded under the Commonwealth’s consumer protection statute are not covered damages under a general liability insurance policy. Consequently, the decision in Vermont Mutual Insurance Co. v. Poirier, Slip Op. SJC-13209 (July 6, 2022), means that companies sued for allegedly unfair or deceptive practices may be left to fund awards of attorneys’ fees under Chapter 93A, even where other aspects of their liability may be covered by insurance.
Continue Reading Massachusetts High Court Holds Chapter 93A Fee Award Not Covered Under General Liability Policy

The IRS recently filed a petition to enforce summonses issued to investigate tax liability stemming from a business’s involvement in a captive insurance transaction. While captives can have many advantages—ranging from increased control, reduced costs, and favorable tax benefits—the IRS petition underscores the importance of structuring and implementing captives in accordance with all applicable laws.
Continue Reading IRS Scrutinizes Legitimacy of Captive Insurance Arrangement

A post on the Hunton Employment & Labor Perspectives Blog recently discussed how Democrats in the House of Representatives sought to amend the Federal Labor Standards Act (FLSA) as part of new proposed legislation called the “Wage Theft Prevention and Wage Recovery Act”. The post concluded that the legislation, if enacted, would increase both the frequency and severity of not only FLSA collective actions but also of investigations and enforcement actions by the Department of Labor’s Wage and Hour Division.
Continue Reading Assessing Wage and Hour Insurance Coverage Following Proposed FLSA Amendments

One of the most valuable aspects of liability insurance is defense coverage, which protects policyholders from significant costs to defend against and litigate claims that may never result in a judgment or settlement. Companies and their directors and officers can incur thousands or even millions of dollars in defending against claims that are resolved long before trial. Even after purchasing robust defense coverage and getting an insurer to defend a claim, however, companies may be surprised when months or even years later the insurer reverses its position and not only withdraws from the defense but also demands repayment of all defense costs paid to date. A recent case, Evanston Insurance Co. v. Winstar Properties, Inc. No. 218CV07740RGKKES, 2022 WL 1309843 (C.D. Cal. Apr. 14, 2022), shows the perils of insurer “recoupment” and underscores the importance of assessing insurer recoupment rights, if any, throughout the claims process.
Continue Reading It’s Payback Time: California Ruling Highlights Recoupment Risks in Liability Claims

Policyholders must be mindful of expansive causation language in policy exclusions that could pose significant—and sometimes unforeseen—hurdles to obtaining coverage for D&O claims. In TriPacific Capital Advisors, LLC v. Federal Insurance Co., a California federal court recently ruled that a D&O insurer had no duty to defend an investment firm’s $8.5 million employment suit because coverage was barred by the policy’s broad contract exclusion, which applied not only to breach of contract claims but also any claims “arising from” contractual liability owed by the company.
Continue Reading Broad Contract Exclusion Dooms Investment Firm’s $8.5 Million D&O Claim