Evaluating Insurance Coverage In The Rapidly Evolving World of 3D Printing

As 3D printing becomes more prevalent, liability risks to individuals and businesses will likely rise.  Corporate policyholders should explore whether their existing insurance provides adequate coverage or whether additional coverage is needed. This technology presents many types of risks, including design and intellectual infringements, product liability risks and environmental liability risks, to name a few.

Policyholders can take steps to reduce the risk to their businesses by employing these risk management strategies detailed in Reed Smith’s white paper 3D Printing of Medical Devices: When a Novel Technology Meets Traditional Legal Principles. 

Host of insurance-coverage questions tied to Legionnaires’ disease

A recent outbreak of Legionnaires’ disease in New York has, according to published news reports, been responsible for the death of 12 people. According to those same reports, more than 100 other people have become ill as a result of the outbreak, which has been traced to a rooftop cooling tower(s).

For better or worse, when an outbreak of a disease occurs, lawsuits may soon follow. Indeed, recent news stories report that one individual who contracted Legionnaires’ disease in New York just sued the hotel where the outbreak allegedly began. According to published reports, that person is alleging that the hotel was “negligen[t], careless[], and reckless[].”

When such third-party lawsuits – relating to Legionnaires’ disease or some other disease – are filed against an insured, insurance coverage may be available under its commercial general liability (“CGL”) insurance policy(ies). CGL policies typically provide coverage for “damages” on account of “personal injuries” or “property damage.” Relying on various policy exclusions, insurers, however, may try to deny coverage for disease-related lawsuits. So, faced with such a suit, a policyholder should carefully review its policy(ies) and make sure its interests are adequately protected.

Legionnaires’ disease in particular has been at the center of a number of insurance-coverage disputes. According to the U.S. Centers for Disease Control and Prevention, “Legionnaires’ disease … is caused by a type of bacterium called Legionella …. The bacterium is named after a 1976 outbreak, when many people who went to a Philadelphia convention of the American Legion suffered from this disease, a type of pneumonia (lung infection).” Continue Reading

The California Supreme Court Issues Its Landmark Decision in Fluor

On August 20, 2015, the California Supreme Court issued its landmark decision in Fluor v. Superior Court, overruling its prior holding in Henkel Corp. v Hartford, which precluded successor entities from tapping into their predecessors’ insurance assets for inherited long-tail liabilities.  In Henkel, the Court held that a contractual assignment of insurance assets in a corporate transaction was ineffective due to the insurance policies’ anti-assignment clauses, which require the insurer’s consent before any assignment is valid.  The parties to Henkel, however, did not apprise the Court of California Insurance Code Section 520.  Section 520 bars an insurer, “after the loss has happened,” from refusing to honor an insured’s assignment of coverage for that loss. Reed Smith filed an amicus brief in Fluor urging the Court to apply Section 520 to hold that anti-assignment clauses do not preclude the transfer of coverage for liability relating to historic conduct.  The Fluor Court agreed, holding that Section 520 compels that result.

Fluor prevents an insurer from unfairly blocking an assignment of coverage due to past events for which the insured already paid its premiums.  It further facilitates the transfer of assets and liabilities to between business entities without fear of jeopardizing insurance coverage for prior conduct.  Fluor is an important and positive decision for corporate policyholders involved in corporate acquisitions and transactions.

The Vital Role of Cyber Insurance in Protecting a Team’s “Analytic Property”

Professional sports organizations are facing a new off-field risk: potential exposure of their proprietary data. In this new age of data in professional sports, teams are spending millions of dollars on sabermetrics and other data science techniques to obtain a competitive edge. But as the recent alleged breach of the Houston Astros’ computer database by individuals working for the St. Louis Cardinals demonstrated, teams’ management of the security and legal risks related to their proprietary data and statistical tools (“Analytic Property” or “AP”) may be falling short.

As with the Astros/Cardinals incident, threats to data security can arise from teams’ on-the-field competitors. But rogue employees, malicious third parties, and human error also pose serious threats to teams’ AP. The fallout can be significant, with a breach of AP potentially resulting in the loss of competitive advantage and organizational goodwill, as well as third-party lawsuits and substantial costs incurred while investigating the breach and notifying effected individuals.

As further discussed by the authors in a recent article in the Sports Business Journal, teams can take important steps to protect against exposing their AP. Chief among them: purchasing appropriate cyber insurance. An organization’s general liability, property, and other common insurance policies may exclude data breaches and their resulting losses from coverage. Cyber insurance can fill the gap. This insurance commonly covers (or helps defray) the cost of investigating a breach, responding to regulators, defending against lawsuits, notifying affected persons and restoring or recreating any lost data, among other expenses.

In light of the increasing importance to professional teams of their ever-growing stockpiles of proprietary data, it Is vital that organizations procure robust cyber coverage before an incident occurs, and also negotiate appropriate defense, indemnification, and additional insured coverage in contracts with their vendors and other third parties who could be implicated In a data breach.

Insurance coverage counsel can assist in negotiating appropriate cyber insurance and contractual risk transfer provisions, and in advising on coverage issues in the unfortunate (but all too common) event of a data breach.

The Pennsylvania Supreme Court Issues Its Landmark Decision in Babcock

On July 21, 2015, the Pennsylvania Supreme Court issued its much-anticipated decision in Babcock & Wilcox Company et. al. v. American Nuclear Insurers et. al, No. 2 WAP 2014. Reed Smith filed an amicus brief in the case urging the court to adopt a “reasonable settlement” standard. Under that standard, an insured is permitted to enter into a reasonable settlement over an insurer’s objection without forfeiting coverage when an insurer is defending under a reservation of rights. The court adopted the reasonable settlement standard. Under Babcock, policyholders now may enter into a reasonable settlement over the insurer’s objection, rather than risk a substantial and adverse verdict at trial, without forfeiting coverage. At the same time, insurers may still contest coverage for a settlement that is unreasonable or one that is not covered under the terms of the policy. The court’s “reasonable settlement” standard balances the rights and interests of the parties and is a strong and fair statement of Pennsylvania law.

New York Court Narrowly Construes “Final Judgment” Language In Fraud Exclusion: Does Your D&O Policy Protect You Through An Appeal?

The New York Supreme Court, Appellate Division, First Department’s June 23 decision in Dupree v. Scottsdale Ins. Co., Case No. 653412-11, highlights the importance of negotiating favorable language in a fraud exclusion, a standard feature in D&O liability insurance policies that precludes coverage for claims arising out of fraudulent or criminal acts committed by the insured, typically as determined by a final adjudication in the underlying action.

In Dupree, the insured, Rodney Watts, sought coverage for defense of a criminal action alleging (i) conspiracy to commit bank fraud, (ii) bank fraud, and (iii) making false statements. Scottsdale paid for Watts’ defense through his conviction and sentencing pursuant to a preliminary injunction. Scottsdale, however, sought to be relieved of its obligation to pay for Watts’ subsequent appeal – and to recoup defense costs it had already paid – based on the operation of the policy’s fraud exclusion, which became operable only upon a “final judgment” against the insured. The question before the court was simple enough: when is a judgment final for purposes of triggering the fraud exclusion? In particular, is a judgment final during the pendency of an appeal?

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Don’t Wait Too Long: Failure to Give Timely Notice Under an EPL Policy May Preclude Coverage as a Matter of Law

Two years is too long to wait before reporting an EEOC charge to your EPL carrier, according to a recent a court decision from the Western District of Virginia. A company’s employment practices liability policy defined “employment claim” to include “a formal administrative or regulatory proceeding commenced by the filing of a notice of charges…including…a proceeding before the Equal Employment Opportunity Commission” and it required that notice of a claim be given to the carrier “as soon as practicable.”  The company received notice in April 2011 that a former employee had filed a charge with the EEOC alleging employment discrimination, but it did not report the charge to its carrier. More than a year later, after initially dismissing the charge, the EEOC found reasonable cause to believe discrimination had occurred and ordered the parties to engage in mediation in March 2013. The company waited another five months – to February 2013, nearly two years from the date of the original charge – before informing the carrier of the pending mediation. The carrier denied coverage due to the delayed report.

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It Means What It Says: Federal Court of Appeals Rejects Insurer Attempt to Read Limitations Into Additional Insured Endorsement

In the world of insurance coverage litigation, insurance companies like to accuse policyholders of attempting to expand coverage terms, or limit the scope of exclusions, beyond the language’s plain meaning. “The policy means what it says,” is a common refrain insurers use to justify coverage denials. However, a recent decision by the federal Fourth Circuit Court of Appeals, Capital City Real Estate, LLC v. Certain Underwriters at Lloyd’s, London, No. 14-1239 (June 10, 2015), demonstrates that insurers are at least as likely as policyholders to try to make policy language say what they wish it said, rather than what it actually says. The court does an admirable job of applying the straightforward language of an additional insured endorsement that has given some other courts trouble, and demonstrates that oftentimes the best approach is simply to hold insurers to the plain meaning of the language that they drafted.

The facts of Capital City are simple. Capital City Real Estate, LLC (“Capital City”) was a real estate company operating as the general contractor for the renovation of a building in Washington, D.C. The building was owned by 57 Bryant Street, NW LP and Bryant St., LLC (together “Bryant Street”). Capital City subcontracted work on the foundation, structural and underpinning work to Marquez Brick Work, Inc. (“Marquez”). The subcontract required Marquez to indemnify Capital City for damages caused by Marquez’s work and further required Marquez to obtain general liability insurance that named Capital City as an additional insured. Marquez duly obtained a general liability policy from Certain Underwriters at Lloyd’s, London (“the Underwriters”). The policy contained a standard additional insured endorsement that insured Capital City:

but only with respect to liability for … “property damage” … caused in whole or in part by:

  1. the Named Insured’s acts or omissions; or
  2. the acts or omissions of those acting on the Named Insured’s behalf

in the performance of the Named Insured’s ongoing operations for [Capital City].

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Pennsylvania Supreme Court’s decision in Politsopoulos represents victory for policyholders across Pennsylvania

The Pennsylvania Supreme Court recently issued a long-awaited decision in Mutual Benefit Insurance Company v. Politsopoulos, No. J-85-2014, delivering the insured in that case, and policyholders across Pennsylvania, a big victory.

As explained more fully in Reed Smith’s recent Client Alert – “’The” insured versus “any” insured: The Pennsylvania Supreme Court limits the application of the employer’s liability exclusion – the court, in Politsopoulos, rejected the insurer’s argument that an employer’s liability exclusion in a commercial general liability (“CGL”) policy potentially applies not just when an insured is sued by its own employee(s), but also when it is sued by an employee(s) of any entities that are co-insured by the same policy. The court thereby shut down an avenue that insurance companies had been using to try to deny Pennsylvania policyholders coverage under CGL insurance policies.

Instead, following the reasoning set forth in an amicus brief prepared by Reed Smith on behalf of a number of the firm’s clients, the court held that the exclusion only may apply when claims are asserted “by employees of ‘the insured’ against whom the claim is directed ….”

Not only did the court rely heavily on the amicus brief authored by Reed Smith attorneys, but, in their brief to the Supreme Court, the appellees cited to an article (George Stewart and Mike Sampson, “Interpretation of Employer’s Liability Exclusions,” The Legal Intelligencer (Aug. 26, 2014)) written by the same Reed Smith attorneys concerning the appropriate interpretation of the employer’s liability exclusion.

More recently, Reed Smith attorneys have been cited in Law360 (Jeff Sistrunk. “Pa. Justices Narrow Employer Liability Exclusions” Law360 (May 27, 2015)) and The Legal Intelligencer (Max Mitchell, “Justices Decline to Broadly Interpret Policy Terms” The Legal Intelligencer (June 2, 2015)), discussing the effects of this decision, which is nothing less than a resounding victory for policyholders across Pennsylvania.


United States Department of Justice Announces “Best Practices” for Addressing Cyber Attacks

In light of the growing concern over cybersecurity, the United Stated Department of Justice (“DOJ”) issued guidance last week on how to prepare for and respond to cyber attacks.  Taking lessons learned by federal prosecutors while handling cyber investigations, and input from private sector companies that have managed cyber incidents, the guidance contains a step-by-step guide on what to do before, during and after a cyber incident.

Specifically, the DOJ recommends having a plan in place before any cyber attacks occur.  That plan should include identifying critical data and assets that warrant increased security, having the technology and services needed to respond to a cyber incident in place, having legal counsel that is familiar with legal issues associated with cyber incidents, and ensuring that your team knows who is responsible for what tasks in the event of an attack.   If an attack happens, the DOJ recommends assessing the scope of the incident and working quickly to prevent any on-going damage, collecting and preserving data related to the attack, and notifying law enforcement.  The DOJ cautions against using any systems that have been compromised and trying to “hack back” against the system involved in the attack.

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