Hackers Don't Care About Your Insurance

This post was written by Brian Himmel, Andy MossDavid Weiss and Cristina Shea.

A recent study reports that the median amount of time between a breach of a company’s computer network and the discovery of the incident is 229 days. But some cyberliability policy forms require that both the breach event and discovery of loss (or resulting claim) occur during the policy period. So what happens when a breach is discovered three months into the policy period but, unbeknownst at the time, the intrusion actually occurred six months before, or even earlier? If your company’s cyberliability insurance policy excludes breach events occurring before the inception of the policy period, the company could find itself without coverage for an otherwise-covered claim or loss.

The use of retroactive dates and extended reporting periods to avoid such a gap in coverage is addressed in a Client Alert issued by members of Reed Smith’s Insurance Recovery Group. Retroactive dates extend the policy’s coverage back to a date earlier than the actual policy period, with the goal of covering events that already occurred but had not been discovered at the time the policy was purchased. An extended reporting period lengthens the period of time, beyond the expiration of the policy period, during which a claim or loss can be made against the insured and reported to the insurance company. These provisions can provide a critical protection under a cyberliability insurance program given the delays that may exist between a breach and its discovery.
 

A free pass for NICO and Resolute?

This post was written by Michael H. Sampson, Ann V. Kramer, Jennifer D. Katz and Natalie C. Metropulos.

A number of insurance companies have recently entered into reinsurance agreements with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc. When this occurs – and the arrangements do not require the consent of policyholders – the policyholders unexpectedly find themselves involved with NICO and/or its “affiliated claims adjuster,” Resolute Management, Inc. (“Resolute”). But, what happens when a policyholder disagrees with NICO’s and/or Resolute’s approach to adjusting, defending, or resolving claims? Are NICO and Resolute “untouchable”? Just recently, a New York appellate court addressed these questions, finding that NICO and Resolute could escape liability in such instances. In a recent Client Alert, members of Reed Smith’s Global Insurance Recovery Group take a closer look at that recent decision, OneBeacon American Insurance Co. v. Colgate-Palmolive Co., and explain why “all hope is not lost.”

Reed Smith's Insurance Recovery Group: Head of The Class In Insurance Law (Again)

Last week, U.S. News-Best Lawyers named Reed Smith its 2015 National Law Firm of the Year in Insurance Law. This is the second consecutive year that U.S. News-Best Lawyers has recognized our Insurance Recovery practice as its top firm for insurance law.

Reed Smith’s Insurance Recovery Group counsels and represents policyholders in insurance disputes and transactions. With more than 85 insurance recovery lawyers in offices around the globe, we represent clients throughout the world, both as an advocate in disputes with insurance carriers, as a trusted advisor for diverse insurance-related issues, and as a counselor in the purchase of insurance products. We have recovered billions of dollars for policyholders in matters involving the entire range of commercial insurance products. In addition to this latest award by U.S. News – Best Lawyers, the group is named among the best policyholder coverage practices by Chambers USA, Chambers UK, Legal 500 US and Legal 500 UK. American Lawyer Media’s Legal Intelligencer named our Insurance Recovery Group one of Pennsylvania’s “Litigation Departments of the Year” for 2014 – the only policyholder-focused firm recognized in the Pennsylvania-based publication – and The National Law Journal named our Chicago Insurance Recovery team the 2014 “Chicago Litigation Department of the Year: Insurance.”

If you have any questions about potential claims, or your insurance program in general, please feel free to contact our Global Practice Group Leader, Douglas E. Cameron, or any Reed Smith Insurance Recovery Group attorney with whom you routinely work.

General Liability Insurance and Disease-Related Claims

This post was written by Michael H. Sampson and Caitlin R. Garber.

The Ebola crisis has raised numerous issues worldwide. Many of the concerns sparked by the crisis – particularly in the insurance coverage context – are not unique to that disease, however. For example, coverage concerns relating to Ebola-related claims would be similar to those for many other disease-related claims. Many different types of insurance policies, including general liability policies, could be implicated by such claims.

For example if sued for an act or omission which results in a third party contracting Ebola, or some other disease, one’s general liability insurance policy may provide protection. Such policies typically provide coverage for, among other things, “Personal Injuries” (or “bodily injury”) caused by or arising out of an “occurrence.” An “occurrence” is typically defined to mean an “accident.” That said, careful attention should be paid to the language of the specific coverage grant and the definition of relevant terms in one’s particular general liability insurance policy.

Continue Reading...

As Federal and State Agencies Warn of Increased Cyber Threats, Insurance Incentives for Compliance with NIST Cybersecurity Framework May Be on the Horizon

This post was written by J. Andrew Moss and Emily Garrison.

Since the President’s February 2013 Executive Order directing the National Institute of Standards and Technology (NIST) to lead the development of a voluntary framework to address and reduce cyber risks, the agencies and stakeholders involved have been exploring whether to tie the February 2014 Framework for Improving Critical Infrastructure Cybersecurity (the NIST Framework) to incentives such as cyberliability insurance. For example, in a Report to the President on Cybersecurity Incentives, the Treasury Department suggested that “[c]yber insurance can promote adoption of stronger security measures” because, among other reasons, “insurers could require policyholders to comply with minimum security standards as a condition of insurance coverage, including adoption of the Framework.”

The Treasury Department held a public meeting on November 6 that included a discussion of developments in the market for cyberliability insurance and the NIST Framework.

Continue Reading...

Beware Of Gaps In Your Cyber Risk Policy - AreYou Covered In the Event of an Insider Attack or Data Breach?

This post was written by Brian T. Himmel, J. Andrew Moss and Robert H. Owen.

The evolving market for cyberliability insurance coverage reveals significant differences in the scope of coverage afforded under available policies. A coverage gap that may exist under some policies is for insider cyber attacks. While external attacks receive substantial news coverage, a recent study finds that businesses may be far less equipped to stave off attacks involving insiders: employees, vendors, suppliers and others who may have authorized access to critical or sensitive data. Liability insurance protection – even under specialized cyberliability policy forms – may potentially lag behind on this important issue. Differences in policy language – including policy definitions and exclusions – may have a significant impact on the scope of coverage available for a cyberliability claim. It is therefore critical to understand the coverage provided under your company’s cyberliability policy in response to insider attacks or data breaches.


Brian Himmel and Andrew Moss are partners in the Reed Smith Insurance Recovery Group and co-leaders of the Group’s Cyberliability practice area. Rob Owen is an associate in the Insurance Recovery Group. Companies considering cyberliability coverage or interested in determining whether certain types of claims may be included as an insured risk under a particular policy form should contact Brian, Andrew or Rob to address questions regarding their specific cyberliability coverage needs.
 

Perception versus Reality: ACE Adds an Ebola Exclusion Just in Case

This post was written by Kevin B. Dreher and Michael H. Sampson.

The insurance industry reacts not only to real losses, but it reacts with equal concern to perceived risks, particularly where those perceived risks could, at least in theory, amount to significant financial loss for policyholders and/or insurers.  The Ebola “crisis” is the latest example of the insurance market reacting to a perceived risk that may never amount to an actual insurable loss.  Nonetheless, ACE has taken the first step in what is expected to be an industry-wide initiative to prospectively preclude coverage for Ebola-related losses by adopting an Ebola-specific exclusion that it intends to “selectively” add to property and casualty insurance policies.  Although ACE’s policyholders may never suffer an actual Ebola-related loss, ACE is leading the charge to ensure that the perceived risk of Ebola does not become a real financial loss, at least not for ACE.

Excess Insurance Implications of a Below Limits Settlement

This post was written by Courtney C.T. Horrigan and Caitlin R. Garber.

While policyholders frequently negotiate the terms and conditions of primary insurance, it is somewhat less common for policyholders to give the same attention to the language in their excess coverage. Excess policies which state that coverage attaches only after the underlying insurer pays out its full-limits of liability can frustrate policyholders attempting to resolve a coverage dispute with an underlying insurer. Policy wording is critical – as demonstrated in a recent Texas appellate court. Excess insurance can be drafted or endorsed to recognize exhaustion of underlying limits when either the insurer or the policyholder makes the required payments. Policyholders should carefully negotiate the terms of excess – as well as primary – coverage during the renewal process.

All Businesses Should Review Insurance Coverage in Face of Ebola Crisis

This post was written by Michael H. Sampson, Courtney C.T. Horrigan and Caitlin R. Garber.

Every day, there is a new story about Ebola in the media. While some commentators suggest that the threat of Ebola in the United States is overblown - and we hope they are right - now is still the time for all businesses to review their insurance policies to understand what insurance coverage, if any, they may have available should an Ebola-related liability and/or loss occur.

Potential for Ebola-related liability and loss is not just limited to hospitals or other medical institutions. Recent news stories have demonstrated the breadth of the potential impact of the Ebola crisis: It has affected not just health-care workers but also the airline industry, the chocolate industry, an Ohio university, a cruise ship sailing in the Caribbean, and others.

In considering potential coverage for such liabilities and losses – and when seeking coverage should such a liability or loss occur – businesses will want to carefully consider all of their insurance policies, including, but not limited, to commercial general liability policies, professional liability policies, commercial property policies, and directors’ and officers’ policies. The availability of coverage will depend not just on the specific facts of a business’ situation, but on the specific language contained in their insurance policies.

Michael H. Sampson and Courtney C.T. Horrigan are partners in the Reed Smith Insurance Recovery Group and are members of the firm’s Global Ebola Task Force. Caitlin R. Garber is an associate in the firm’s Insurance Recovery Group.  If you have specific questions regarding your insurance coverage for Ebola-related risks, please contact Michael H. Sampson, Courtney C.T. Horrigan, Caitlin Garber, any member of the firm’s Insurance Recovery Group with whom you usually work, or Douglas E. Cameron, the Reed Smith Insurance Recovery Group’s Global Practice Group Leader.

Obtaining Coverage By Stepping Outside The Box

 By Timothy P. Law

Every lawyer likes to believe that he or she thinks outside the box. In the law, that can mean different things to different people. For me, it means finding paths that are not immediately apparent in striving to meet the client’s objectives. Many times, insurance recovery lawyers see an insurance company’s reservation of rights or denial of coverage listing three reasons for denial, and then proceed to research and advocate on those three issues. In doing so, lawyers can miss opportunities for success.

Continue Reading...

Insurance Coverage for Violations of the Privacy Right of Seclusion

By Timothy P. Law

The scope of insurance coverage for publication of material that violates a person’s right of privacy is a hotly debated issue nationwide. A decision earlier this week by the Court of Appeals of Wisconsin squarely addresses a key facet of this debate: coverage available for violations of the Telephone Consumer Protection Act (“TCPA”).

In Sawyer v. West Bend Mutual Insurance Co., decided on July 10, 2012, the Wisconsin Court of Appeals ruled that liability coverage for publication of material that violates a person’s right of privacy applies both to the privacy right of secrecy and to the privacy right of seclusion. 

Continue Reading...

Don't Forget About D&O Insurance When The Government Subpoena Arrives

By Paul E. Breene and Mark S. Hersh

When an investigation is commenced by a federal or state government entity, whether by service of a subpoena or by less formal means, a company should have two standard operating procedures: first, hire excellent and experienced counsel to respond to the investigation or subpoena, and second, determine whether insurance coverage may be available to pay for what are frequently significant defense costs that may be incurred in connection with the investigation.

Securing insurance coverage for subpoenas and informal investigations, both civil and criminal, can be an arduous process, but policyholders who plan ahead and know the pitfalls can give themselves a significant advantage in securing timely coverage. Significantly, failing to secure coverage for an investigation can mean that there will be no coverage if the investigation leads to lawsuits or other legal proceedings. The attorneys in Reed Smith's Insurance Recovery Group have extensive experience advising clients on these and related issues.

Continue Reading...

Answers To The Most Common And Perplexing Questions About Professional Liability Coverage

Reed Smith partner Tom Marrinson, resident in the firm’s Chicago office, has been advising policyholders about their insurance coverage, and representing them in coverage litigation, for more than 20 years. While Tom’s experience ranges widely, he has literally written the book on insurance coverage for professionals and companies that employ them

Professional Liability Insurance, published by Law Journal Press, is written to appeal to both the neophyte and those with considerable experience in the area of professional liability insurance. The book begins with some of the basics of professional liability insurance (such as, who is a "professional" and what types of services are considered "professional services") and how a professional liability insurance policy is put together, in an attempt to provide a basic background for the more in-depth look that the book takes at some of the other issues confronting those involved in professional liability insurance disputes.

 

 

Continue Reading...

Bond Insurer FGIC Ordered To Stop Writing Policies and To Cease Paying Claims; ISDA Announces FGIC 'Failure to Pay' Credit Event

This post was written by David Schlecker and Andrea Pincus.

3rd Quarter Financials Lead to Action By NYS Superintendant of Insurance and ISDA


On November 24, 2009, Financial Guaranty Insurance Company ("FGIC"), a New York- domiciled monoline financial guaranty insurer, was ordered by New York's Superintendent of Insurance to cease writing any new policies and to suspend payment of all claims. The Superintendent's order follows FGIC's Quarterly Statement for the third quarter of 2009, in which FGIC reported that as of September 30, 2009, it suffered an impairment of its required minimum surplus to policyholders of $932,234,577.


FGIC presented the Insurance Department with a proposed "Surplus Restoration Plan" intended to remediate its exposure to certain residential mortgage-backed securities ("RMBS") and collateralized debt obligations of asset-backed securities ("ABS CDOs"). Under the plan, FGIC proposes to take the following steps:

Continue Reading...

Pushing Back on Insurance Coverage Denials for Sexual Abuse Claims

This post was written by John B. Berringer

It has become routine in the past ten years or so for liability insurance companies to deny insurance coverage for sexual abuse claims, often on the theory that sexual abuse is intentional in nature. Many liability insurance policies commonly adopt the definition of “occurrence” which requires that a claim must arise from an “accident.” Under these policies, whether allegations of sexual abuse are encompassed by the term “accident” will determine whether the abuse claims are covered. 

Continue Reading...

NY High Court Holds that "Self-Serving" Testimony from Underwriter is Insufficient for Rescission

This post was written by J. Andrew Moss

The New York Court of Appeals rejected an effort by Continental Casualty Company (CNA) to rescind an excess professional liability (E&O) policy issued to the law firm Pepper Hamilton LLP, in a decision under Pennsylvania law that also affirmed summary judgment in favor of two of the firm’s other excess E&O insurers based on the application of a “prior knowledge” exclusion in their policies. Executive Risk Indemnity Inc. v. Pepper Hamilton LLP, No. 130 (N.Y. Oct. 20, 2009).

The dispute centered on Pepper Hamilton’s work on behalf of the now-defunct Student Finance Corporation, which eventually led to significant litigation against Pepper Hamilton. According to the opinion, in March 2002 Pepper Hamilton and one of its partners learned that SFC and its principal (the now twice convicted Andrew Yao),

Continue Reading...

UK's Solvent Schemes Dealt Another Blow: Hopefully, the Coup de Grâce

The travesty that is the Solvent Scheme of Arrangement has been dealt another blow; one hopes a fatal one. A month after issuing a blistering attack on the practice, Lord Glennie entered final judgment this week refusing to sanction the Scottish Lion scheme. It is worth taking a long look at Lord Glennie’s lengthy opinion.

The issue, succinctly stated by the court, was: “Can it ever be fair to sanction a ‘solvent’ scheme of arrangement in the face of continuing creditor opposition to having their occurrence cover compulsorily terminated?” The court’s answer was, Probably Not.

Continue Reading...

Delaware Chancery Court Opens the Door to "All Sums" Allocation in New York

On October 14th, Vice Chancellor Leo E. Strine, Jr. of the Delaware Court of Chancery blew some much needed fresh air into New York allocation jurisprudence. The Viking Pump consolidated cases, C.A. 1465-VCS, have already yielded very interesting and thoughtful rulings on the transfer of insurance in connection with complicated corporate transactions. Viking Pump, Inc. v. Liberty Mutual Insurance Company and Warren Pumps LLC, 2007 WL 2752912 (Del. Ch. Apr. 2, 2007 (unpublished opinion).

The latest decision, the first nearly fifty pages of which is also devoted to corporate transaction issues, then spends the next 40 pages [yes, it is 88 pages long] delving into the arcana of allocation law. 

 

Continue Reading...

Insurance Company Pays Up, Resolving Unallocated Settlement and Defense Costs

This post was written by John Ellison and Luke Debevec.

On August 13, 2009, the City of Sterling Heights, Michigan received a check from United National Insurance Company for over $15.4 million, satisfying a judgment awarded by the federal district court for the Eastern District of Michigan and upheld on appeal by the Court of Appeals for the Sixth Circuit Apart from this payment, United National and Sterling Heights will continue to litigate the amount of additional damages that the Sixth Circuit determined to be due to the City.

 

Continue Reading...

Insurers Denied De Facto Win After Losing Daubert Motion

This post was written by John B. Berringer and Michael N. DiCanio.

In a recent decision Magistrate Judge David A. Baker rejected insurance company Daubert motion to exclude the expert testimony of an architect, a structural engineer, and an accountant designated in an insurance coverage case. Bray & Gillespie v. Hartford et al, Case No. 6:07-cv-00326 –DAB (M.D. Fla. April 20, 2009).

The defendants’ had moved to exclude the testimony of B&G’s accountant and his conclusions regarding the amount of business interruption loss suffered. They did not challenge the methodology of his calculations, but rather took issue with the fact that he allegedly used the wrong numbers and did not provide a period of restoration. Denying the motion, Judge Baker held that this was not a proper ground for excluding the testimony under Daubert, see Quiet Technology, 326 F.3d at 1345-46 (using incorrect numbers in a reliable formula is not grounds for exclusion), and held that the particular issue of limiting the damage calculation with respect to a period of restoration is a matter of factual and legal dispute in this case.

Continue Reading...

A Flush Beats a Straight and Excess Other Insurance Beats Pro Rata Other Insurance

W9/PHC Real Estate LP and Grubb & Ellis Management Services, Inc. v. Farm Family Casualty Insurance Co., N.J. App. Div. May 20, 2009

In a declaratory judgment action presented to the New Jersey Appellate Division, defendant Farm Family Casualty Insurance Company (Farm Family) appealed from an order directing it to reimburse W9/PHC Real Estate LP and Grubb & Ellis Management Services, Inc. for half of the defense costs and indemnification of a slip-and-fall suit for damages. Crabtree Landscaping and Turf Management, LLC (Crabtree), a company hired by plaintiffs to remove snow from their property, was also a defendant in that action. W9/PHC sought coverage as additional insureds under Crabtrees’s liability insurance policy with Farm Family.

In its opinion, the appellate division succinctly described the issue before it as follows:

This appeal presents the issue of the obligation to pay for a liability insurance claim and counsel fees where two insurers have conflicting “other insurance” clauses, one providing for “pro rata” payment, and the other for payment only when the other insurer’s limit is exhausted.

Continue Reading...

Travelers v. Bailey

Yesterday, the United States Supreme Court handed a win to Travelers (and indirectly to chapter 11 debtors using insurance proceeds to fund bodily injury trusts), getting Travelers out of further liability arising from its actions “related to” its role as the primary insurer of Johns-Manville. These were not suits seeking proceeds of the insurance policies issued by Travelers to Johns-Manville, but suits alleging that Travelers had an independent duty to claimants arising from its knowledge of the dangers of asbestos. 

Resting on res judicata and the finality of settlements and judgments, the Court refused to address whether the Bankruptcy Court’s 1986 Orders had exceeded its authority. That time, according to the Court, had long passed:

Almost a quarter-century after the 1986 Orders were entered, the time to prune them is over.

The Court reserved for another day (never?) the question of the proper scope of Bankruptcy Court authority in these matters: 

Continue Reading...

Have NJ Court Rules, Will Travel: NJ Court Holds Insurer Must Pay Counsel Fees Incurred in Illinois Declaratory Judgment Action

 On June 5, 2009, in response to the appeal filed by Myron Corporation, a New Jersey appellate court held that Atlantic Mutual Insurance Corp. was responsible for Myron’s counsel fees incurred in fending off Atlantic’s Illinois declaratory judgment action pursuant to NJ Rule 4:42-9(a)(6). The coverage dispute centered on defense coverage for numerous cases filed against Myron, alleging that junk faxes sent by Myron violated the Telephone Consumer Protection Act (“TCPA”). Atlantic defended Myron in the cases under a reservation of rights. After the Seventh Circuit ruled that insurance coverage was not available for TCPA claims in an unrelated case [Am. States Ins. Co. v. Capital Assoc. of Jackson County, Inc.], Atlantic decided it was a good time to file a DJ action against Myron in Illinois federal court. 

The problem with this brilliant strategy was that, as the Illinois court wrote, dismissing the case: “a New Jersey court has the greatest interest in resolving an insurance coverage dispute arising from policies which appear to have been issued in New Jersey to a New Jersey corporation with its principal place of business in New Jersey.” Once in the hands of a New Jersey court, Atlantic lost. The court held that Atlantic owed a defense to Myron for the TCPA cases. The parties then settled, except on the issue of whether Myron was entitled to counsel fees for both the New Jersey and Illinois insurance coverage litigations under NJ Rule 4:42-9(a)(6)

Things didn’t improve for Atlantic on appeal:

We agree with Myron that, unless the insured can recover its counsel fees for out-of-state litigation in this situation, an insurer could wear down the insured financially through forum-shopping. In this case, there is no doubt that Atlantic filed its action in Illinois to take advantage of a favorable Seventh Circuit ruling on coverage. While this may have been good legal strategy from Atlantic's point of view, it imposed costs on Myron to fight its way out of what the Illinois court found was an inappropriate forum, and to get the case back into an appropriate venue.

Continue Reading...

MMSEA 111: Are You a Responsible Reporting Entity (RRE)?

Because this is a policyholder blog, you might think this is an odd question since RREs are usually insurers or TPAs; but the fact is that most large corporate policyholders probably are RREs ― not just for worker’s comp claims, but for tort claims as well. 

MMSEA-111 [Medicare Secondary Payer Mandatory Reporting Provisions in Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (See 42 U.S.C. 1395y(b)(7) & (b)(8))] is designed to give the government the information it needs to collect on Medicare liens against, among other things, tort settlements and awards. For those of you who have no idea of what I’m talking about, the excruciating backstory of these rules can be found Here and Here. The government’s pathway into an abyss of Orwellian proportions can be found Here and download links Here . And, just so your attention doesn’t wander, the fines for non-compliance are $1,000 per day per claimant. 

The key passage to determining who is an RRE in the 180-page MMSEA-111 guide is found on page 56:

Continue Reading...

What Obama's Proposed Financial Regulatory Reforms Mean for Insurance -- The New Office of National Insurance

This post was written by Paul Walker-Bright.

On June 17, 2009, the Department of the Treasury released its “white paper” detailing proposals for comprehensive reform of financial industry regulation, entitled “Financial Regulatory Reform, A New Foundation: Rebuilding Financial Supervision and Regulation.” The entire report can be found here. Among the reforms advocated by the Treasury Department is the creation of an Office of National Insurance within the Department. Treasury, which would “gather information, develop expertise, negotiate international agreements, and coordinate policy in the insurance sector.”

Continue Reading...

Third Circuit Misses the Mark in CPB International

This post was written by Douglas R. Widin.

Recently, the Court of Appeals for the Third Circuit decided Nationwide Mutual Insurance v. CPB International, Docket No. 07-4772 (April 14, 2009). CPB supplied chondroitin to Rexall for use in compounding tablets, including chondroitin and glucosamine. CPB supplied two batches of chondroitin that turned out to fall short of contractual specifications and to contain impurities. By the time these defects were discovered, Rexall had already compounded the CPB-supplied material with glucosamine, so that both compounds had become useless.

In the lawsuit that ensued, Rexall brought a claim for breach of contract against CPB seeking return of the purchase price it had paid for the first batch, and also seeking consequential damages for the damage to the glucosamine and economic losses. CPB tendered that claim to its CGL carrier, Nationwide, which defended under a reservation of rights and also brought a declaratory judgment action to avoid any duty to defend or indemnify.

The Third Circuit held in favor of Nationwide and discharged it from any coverage obligations.

Continue Reading...

2003 Blackout Held to Involve 'Property Damage' Sufficient to Support Claim Under Property Policy

This post was written by Douglas R. Widin.

On April 22 , 2009, the Appellate Division of the New Jersey Superior Court published its March 9, 2009 opinion holding that the massive Aug. 13, 2003 electrical blackout of the eastern United States and portions of Canada inflicted “property damage” sufficient to support a property insurance claim. The court held that the loss of functionality that resulted when protective safety equipment shut down the power grid and caused the blackout of August 2003 qualified as “physical damage” for property insurance purposes. See Wakefern Food Corporation v. Liberty Mutual Fire Insurance Company, No. A-2010-07T3 slip op (March 9, 2009). As a result, insurers were not entitled to summary judgment in their favor on Wakefern’s claims for food spoilage and business interruption at their supermarkets resulting from the blackout.

Continue Reading...

The Future of Monolines?

Felix Salmon reads the tea leaves left by Warren Buffet and concludes that the already disastrous monoline situation is unlikely to improve any time soon. Money quote: 

Given all these reasons to buy bonds rather than insure them, I do wonder what’s going to happen to the monoline market. Historically, it’s been a license to print money — but it might be a very long time before it re-emerges.

Read his entire post Here.

Remember, when Buffett’s Berkshire Hathaway Assurance Corp. rode in to rescue the imploding monoline municipal bond insurance market at the request of the NY Insurance Department?  Now, after little more than a year in the business, Buffett wants out .

 

 

Continue Reading...

Who Was Minding the Store?

For those of you interested in the role of regulators in the implosion of AIG [see prior posts Here and Here,] Planet Money (an award-winning joint project of NPR News and This American Life) had a fascinating program this past weekend: “The Watchmen”. Although it has already aired, it is available to listen to on-line or for download Here. The NPR News story is available Here.

The Office of Thrift Supervision comes in for the brunt of the criticism. Although I think they got it mostly right, IMHO they let the state insurance regulators off too easy. They were responsible for securities lending and didn’t stop it.  

My favorite part is the tape of Supt. Dinallo and a bunch of assistants trying to figure out what proportion of AIG’s assets were regulated by the New York Insurance Department. The answer? 7 percent (ish).

A Quick and Dirty Guide To London Insurance Arbitrations

A dozen years after asbestos and environmental liabilities of U.S. companies led to the downfall of Lloyds’, London is again in the center of the liability insurance world—this time as the location for many insurance arbitrations over coverage for product and toxic tort liabilities. Foreign insurers insist upon arbitrating coverage disputes in London to avoid having their contractual obligations decided in the U.S. courts, where rulings in the 1980s and 1990s resulted in billions of dollars in insurance coverage awards and settlements for corporate America and asbestos trust funds. American companies need to be prepared for this new reality.

Continue Reading...

AIG Hardball?

Bloomberg News yesterday carried a report of a court filing alleging that AIG reported a claimant to Homeland Security in order to avoid paying a verdict that now amounts, with interest, to $3 million. 

The worker, Aleksander Janda, was arrested today on charges related to using someone else’s Social Security number, including identity theft, said Helen Peterson, a spokeswoman for Queens District Attorney Richard Brown. In February, Janda won the $2.7 million jury verdict from a property owner for an injury he received after falling 12 feet onto a cement floor while working. In a letter last month, a lawyer for Janda told the judge that AIG contacted Queens prosecutors to get Janda arrested and deported. AIG is the insurer for the property owner.

“It was AIG who contacted the Queens District Attorney’s office and the U.S. Department of Homeland Security in an effort to have the plaintiff arrested on criminal charges and then deported,” the worker’s lawyer, Brett J. Nomberg of Brand Brand Nomberg & Rosenbaum LLP in New York, wrote May 29 to the state court judge in charge of the case, Bernice D. Siegal.

Marie Ali, an AIG spokeswoman, declined to comment.

After the Feb. 17 verdict, the property owner asked the judge to set aside the award and order a new trial, Nomberg said in a phone interview. If Janda is deported, he won’t be able to appear at the new trial, Nomberg said.

Click here for full story.

A Tale of Two Evidentiary Standards

This post was written by John B. Berringer and Michael N. DiCanio.

Policyholders and their counsel should check out a May 27 ruling denying summary judgment to the insurance company defendants in Bray & Gillespie IX, LLC v. Hartford Fire Insurance Co., et anoIn the B&G decision, a magistrate judge in the Middle District of Florida relied in part on the so-called Broad Evidence Rule. Under that rule, any evidence logically tending to establish a correct estimate of the value of damaged or destroyed property may be considered by the trier of fact to determine “actual cash value” at the time of the loss. This means that replacement cost, wholesale cost, a contractor’s estimate, even the owner’s own testimony, are among the many types of evidence that a jury could consider to determine “actual cash value.” The judge in the B&G case characterized the Broad Evidence Rule as a “liberal admissibility standard.”

In the same decision, the magistrate judge suggested that a much tougher evidentiary standard must be met by an insurance company alleging fraud or misrepresentation by a policyholder. 

Continue Reading...

The Equitas-Speyford Deal: The Train (Destination Solvent Scheme) is Leaving the Station

This post was written by Ann Kramer and Paul Walker-Bright.

By now most of us have received notices of the Equitas-Speyford Part VII transfer. A court hearing to approve the transaction will take place in London on June 24th and the transaction is to take effect on the 30th of June. The letter asks policyholders to set forth any objections by June 9th: “If you intend to make written representations and/or appear at the Court hearing, either in person or by Counsel, you are requested to provide the written representations or written notice of your intention to appear at Court and details of your concerns as soon as possible, and preferably by no later than 9 June 2009.”

The Names seemingly are the big winners from this deal, although policyholders will get the benefit of an additional $1.3 billion in reinsurance limits from Berkshire Hathaway’s National Indemnity Company. 

Hugh Stevenson, Equitas chairman, said: “This transfer and reinsurance will … mean that the Names will finally be able to walk away under English law.

“We would like to say to the Names that as best we can judge you no longer have to worry.”

According to Equitas’ letter to the Names advocating the transaction:

In the very unlikely event that Equitas subsequently becomes insolvent, no policyholder with an unsatisfied claim will be able to recover it from any Name anywhere in the European Economic Area – that is all of the European Union, together with Iceland,Norway and Liechtenstein.

We are still considering the extent to which it is practicable to seek recognition of the Part VII transfer in other major overseas jurisdictions, in particular the United States of America.

The independent actuary’s report ― of course, with none of the underlying data available for review ― says that policyholders will be better off with the additional reinsurance than with access to the Names. However, policyholders have (a) no way to verify that the reserve level for pending and future claims is adequate and (b) no valuation of the assets of the Names that they are being asked to give up their rights to. 

So if we assume, as the independent actuary asks us to, that the impact of this on policyholders is more theoretical than real [Which policyholders have the appetite to go after the Names individually?], what is the harm? 

Think about the next step for Speyford. Under UK law, the Names, and hence Equitas, could not implement a Solvent Scheme of Arrangement (a unique process to shut down solvent insurance companies permitted only by the UK). Speyford, on the other hand, can. The pull to do a Solvent Scheme will likely become irresistible, and indeed there appears to be no reason for the proposed transfer other than to clear the way for an eventual Solvent Scheme. Equitas claims that it has no present plans to do a Scheme but will not promise not to do one.

The advent of a solvent scheme for Speyford is when policyholders with large IBNR {incurred but not reported) claims will be really devastated. The valuations of IBNR under both solvent and insolvent schemes of arrangements ― with no realistic appeal rights ― often pitifully undervalue the risks that policyholders assume when these schemes wipe out policyholder rights under policies purchased decades earlier. Coverage that cannot be replaced. This process was bad enough when it happened with individual London Market companies, but think about it writ large, across the millions of Lloyd’s policies sold prior to 1993. 

Eric Dinallo Resigns

On May 28, Eric Dinallo, New York’s high-profile Superintendent of Insurance, resigned effective July 3.

Dinallo presided over the Department’s response to the AIG catastrophe and advocated far more regulation of the industry than previously seen. Dinallo was also instrumental in the rescue of the municipal bond business in New York, approving segregating it from mortgage insurers, now being attacked in court. 

Felix Salmon has an interesting take on what this means for the future of insurance regulation:

More interestingly, Dinallo’s resignation temporarily leaves the country without a strong insurance regulator — and that, in turn, should make it much easier for Tim Geithner to push through plans to rationalize the nightmare that is insurance regulation, and bring America’s insurers under one federal regulatory umbrella.

Many expect Dinallo to run for NY Attorney General, the post held by his former boss Elliot Spitzer, and now held by Andrew Cuomo. Per the Wall Street Journal:

"He'd like to run for attorney general," New York Democrat political strategist George Arzt said of Mr. Dinallo. "I think he's been taking soundings." Leaving the insurance-commissioner post, Mr. Arzt said, would give Mr. Dinallo more latitude to "speak out about the issues."

For the moment, though, he’ll be at NYU.

State Insurance Regulation: The Lessons of History (AIG Edition)

On May 20th, the NY Times ran an editorial titled “Regulatory Shopping”. The very valid point of the editorial is that if you give the regulated the option to choose their regulator, no good can come of it: 

And yet, legislation recently introduced in the House would allow insurance companies, currently regulated by the states, to opt for federal regulation instead — and, in general, if they don’t like that, to switch back after a spell. If the bill were enacted, the race to the regulatory depths would continue, and the nation would be headed in exactly the wrong regulatory direction.

Agreed, no argument. I take issue, however, with the assumption of the NYT that state insurance regulators have covered themselves in glory. Robust defenders of the rights of policyholders? Not exactly. In the pocket of the insurance industry? Sometimes. Opaque?  Always. And that’s without addressing the quagmire/insanity that is insurance insolvency regulation and the guaranty fund system.

Continue Reading...

California Supreme Court Issues Sweeping Pro-Policyholder Decision on Environmental Liability Coverage Issues

This post was written by David Weiss and Megan Demeter.

On March 9, 2009, the California Supreme Court issued its decision in State of California v. Allstate Insurance Co., Case No. S149988. In this unanimous decision, the court resolved several issues in favor of the policyholder regarding the application of pollution exclusion provisions in the State's comprehensive general liability insurance policies. The case arises out of the State of California's liability for environmental contamination at the "Stringfellow Acid Pits," a state designed and operated waste-disposal facility in Riverside County, California.

First, the Court addressed the relevant "discharge" for determining whether the "sudden and accidental" exception to the pollution exclusion applied and, therefore, reinstated coverage that otherwise would have been excluded. The contamination at issue was caused by the escape into the environment of pollutants placed into containment ponds on the site. The court affirmed the Court of Appeal's decision that the relevant discharge for purposes of determining whether the discharge was "sudden and accidental" is the release of waste from the containment ponds, rather than the initial disposal of waste into the ponds, as the insurers argued.

Continue Reading...

Internet Interruption May Trigger Insurance Coverage

This post was written by Doug Cameron, John Ellison, and Richard Lewis.

On Dec. 19, 2008, underwater Internet cables in the Mediterranean Sea were cut, causing major connectivity issues to most Middle Eastern countries, as well as to South Asia. News reports are noting that while ships have been deployed to correct the issue, it could be upward of 10-14 days before connectivity is returned to normal.

If your business is affected by this event, you may have insurance coverage for any losses of income under your first-party or property insurance forms. Most such policies contain “Service Interruption” clauses, which cover policyholders for loss stemming from interruption of various services, including transmission of incoming or outgoing voice, data or video services. Such coverage is typically subject to a waiting period of a couple of days (equivalent to a deductible), but it appears the interruption in question will exceed the waiting period in most forms. If the event occurring Dec. 19 has had a negative impact on your ability to do business, you should immediately check whatever first-party property cover your company purchased to determine what insurance cover is available to respond to this situation.

Service Interruption forms vary greatly from policy to policy, with some limiting coverage to loss stemming from damage occurring at the “facilities” of suppliers, or to transmission equipment within a certain distance from the policyholder’s premises. Others, however, cover loss caused by damage to service lines wherever they are located; such policies would appear to cover loss stemming from the severed Internet lines. For this reason, it is critical that a prompt review of your insurance policies be undertaken, and, if appropriate, you should consult with experienced insurance counsel who can assist in understanding the available options your business has to mitigate the damage caused by this interruption.

Another important step is that you begin to document immediately and contemporaneously the financial impact this event has caused your business. Establishing a system for capturing the economic impact on your business is crucial to being able to demonstrate properly the financial consequences suffered from this event. Consultation with appropriate professionals will enable you to ensure that the full scope of your claim is captured and presented to the insurance company for reimbursement.

If your business is affected by this interruption of Internet service, you should review immediately your insurance policies to determine the scope of your coverage. The attorneys at Reed Smith, with decades of experience in counseling clients on first-party coverage, and litigating and resolving first-party claims, are available to assist in evaluating your coverage. Since time is of the essence for claims of this type, we urge you to undertake these activities as promptly as possible.

Recent Storms and Flooding in Midwest and Great Plains Threaten Property Damage, Loss of Business and Extra Expenses

This post was written by Jim Davis, Paul Walker-Bright and Thomas Marrinson

Recent severe storms in the Midwest and Great Plains have caused extensive flooding in several states, with levees and dams breached, roads and interstates washed out or impassible, and cities and towns under water. Corn and other crops have been damaged and destroyed, pushing prices to record highs on commodities exchanges. Power has been lost in many areas. Indiana has asked the United States to declare farm disasters in 44 counties because of crop and livestock losses blamed on the storms, and what is being described as flooding worse than the previous record set back in 1913. Flood concerns exist for the Mississippi River as well, which is expected to crest at 10 feet above flood stage over the next two weeks. See Levees break as Midwest floods worsen.”

Many farms and businesses undoubtedly have been affected by the flooding. Fortunately, insurance policies may provide coverage for policyholders’ damaged property, loss of business and extra expenses incurred to recover from the floods. First-party property insurance may respond to repair or replace property directly damaged by storms and floods. Business interruption insurance protects earnings that businesses would have obtained had there been no interruption of business caused by covered perils, and contingent business interruption insurance covers losses to policyholders’ business caused by damage to suppliers’ or customers’ property from covered perils. Similarly, extra-expense insurance covers additional expenses incurred to allow policyholders to continue to operate during the period of interruption. In the aftermath of widespread and devastating flooding from the Mississippi River in 1993, courts held that increases in transportation and raw materials costs caused by the flooding, and other losses, were covered under extraexpense and contingent business interruption insurance. See, e.g., Archer-Daniels-Midland Co. v. Phoenix Assur. Co. of New York, 936 F. Supp. 534 (S.D. Ill. 1997).

If policyholders have experienced damage or loss to their property, or interruptions to their businesses and extra expenses caused either directly by the storms and floods or because the property of their customers and suppliers has been lost or damaged, they should be encouraged to review their first-party property and business interruption insurance to determine whether they should submit claims to their insurers. Reed Smith’s 60+ insurance recovery lawyers have extensive experience in assisting policyholders to maximize their property and business interruption claims, including in large-scale disasters such as hurricanes, tornadoes, floods and fires