Patrick M. McDermott

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The doctrine of functus officio typically sets an arbiter’s award in stone: It forbids an arbiter from altering its award after the award has been rendered. But the doctrine has several exceptions. One such exception, known as the clarification exception, allows an arbitration panel to clarify an ambiguous final award. In Gen Re Life Corporation v. Lincoln National Life Insurance, the Second Circuit joined several other circuits in expressly adopting this exception, allowing an arbitration panel to clarify the meaning of its prior interpretation of rescission-clause in a reinsurance agreement. Hunton Andrews Kurth attorneys Syed Ahmad, Patrick McDermott, and David Costello discuss the decision and its implications for policyholders in their recent article, Arbitration of Insurance Disputes: Functus Officio and the Clarification Exception.

The Supreme Court of Virginia’s decision yesterday finding no coverage for fire damage to a building is a cautionary tale for companies acquiring other companies. Erie Ins. Exch. v. EPC MD 15, LLC, 2019 WL 238168 (Va. Jan. 17, 2019). In that case, Erie Insurance issued a property insurance policy to EPC. The policy covered EPC only and did not cover any subsidiaries of EPC. EPC then acquired the sole member interest in Cyrus Square, LLC.  Following the acquisition, fire damaged a building that Cyrus Square owned. Continue Reading Don’t Assume Your Insurance Covers A Newly Acquired Company

In the December 2018 edition of Virginia Lawyer Magazine, Hunton Andrews Kurth insurance coverage lawyers Syed S. Ahmad, Patrick M. McDermott, and Latosha M. Ellis discuss the importance of preserving improperly excluded evidence into the trial record for post-trial motions or appellate review. In the article, the authors explain how to make an offer of proof, the value of issue preservation during the motions stage of litigation, and the significance of motions in limine. The full article is here.

In a recent Client Alert, Hunton insurance lawyers Mike Levine, Sergio Oehninger and Josh Paster discuss the impact of the Second Circuit’s recent opinion in Patriarch Partners, LLC v. Axis Insurance Co., where the Court confirmed that a warranty letter accompanying the policyholder’s insurance application barred coverage for a lengthy SEC investigation. The decision underscores the importance of understanding how a policy’s language and definitions impact the scope of information that policyholders must consider when representing facts and circumstances in insurance applications. The opinion left intact the lower court’s finding that the SEC subpoena constituted a “demand for non-monetary relief” and thus qualified as a “Claim” under the directors and officers (D&O) insurance policy. The Second Circuit and Southern District’s rulings in Patriarch confirm that government subpoenas or civil investigative demands constitute a “Claim” that ought to trigger coverage under fairly standard D&O policy language. Policyholders facing government subpoenas, civil investigative demands, or other formal or informal government demands should not hesitate to seek coverage for such costs under their D&O insurance policies.

Read the full alert here.

Hunton insurance attorneys Syed Ahmad and Patrick McDermott recently wrote a chapter on insurance law in the District of Columbia to the newest edition of the District of Columbia Practice Manual. The chapter of the Practice Manual, in its 26th edition, is available here and now covers topics including the duties to defend and indemnify, insurers’ defenses to coverage, allocation issues, bad faith, policy interpretation principles, and coverage for cyber events.

A California federal court found coverage under AIG’s general liability policy for the defense and indemnity of email scanning suits against Yahoo!. Those suits generally alleged that Yahoo! profited off of scanning its users’ emails. Because the allegations gave rise to the possibility that Yahoo! disclosed private content to a third party, the court found that the suit potentially fell within the coverage for “oral or written publication, in any manner, of material that violates a person’s right of privacy.” Thus, AIG’s duty to defend was triggered.

The court also found that AIG had a duty to indemnify for Yahoo!’s settlement in the email scanning suits. One key question was whether the settlement amount paid as attorneys’ fees to plaintiff’s counsel constituted damages under the policy. The court concluded that they were, based on the fact that the plaintiffs sought attorneys’ fees under a statute and on its finding that Yahoo! would reasonably expect that those fees would qualify as damages.

Yahoo! had also alleged that AIG acted in bad faith in its claims handling because AIG had denied coverage for the first two lawsuits and then ultimately acknowledged such an obligation with respect to the third lawsuit and in so doing had cited exclusions that were not a part of the policy. The court found that issue was one for a jury to decide.

This decision is another example that valuable cyber coverage for defense and indemnification may be available under general liability policies. Of course, whether there is coverage will depend on the particulars of the claim and the insurance policy.

To follow up on our post last week recapping a recent Ninth Circuit decision regarding coverage for losses from a social engineering scheme, federal appellate courts continue to examine the coverage available for such losses. As Law360 highlighted, and as we previously reported (here, here, here, and here), appeals are pending in the Second, Sixth, and Eleventh circuits. These cases, some of which involve lower court findings of coverage while others do not, show that coverage for social engineering scams remains hotly contested, which means policyholders must carefully consider such coverage when purchasing insurance. While more and more insurers have introduced endorsements designed to specifically address social engineering schemes, as Hunton attorney Patrick McDermott recently pointed out in a separate Law360 piece, one issue policyholders ought to consider is “whether an endorsement providing coverage for losses resulting from social engineering schemes actually narrows the coverage available for those losses.”

On April 17, 2018, the Ninth Circuit affirmed a district court decision finding that an exclusion barred coverage for a $700,000 loss resulting from a social engineering scheme. Aqua Star (USA) Corp. v. Travelers Cas. & Surety Co. of Am., No. 16-35614 (9th Cir. Apr. 17, 2018). The scheme involved fraudsters who, while posing as employees, directed other employees to change account information for a customer. The employees changed the account information and sent four payments to the fraudsters.

Continue Reading Ninth Circuit Finds Exclusion Bars Coverage For Social Engineering Scheme