The advantages of the new English insurance law

The Insurance Act 2015 (the Act) came into force on 12 August 2016, introducing major changes in English law in relation to insurance and all forms of reinsurance.

It applies to all contracts of insurance and reinsurance governed by English law entered into after 12 August 2016. This includes renewals, amendments and endorsements to existing contracts.

Many articles and commentary have been published dealing with the new Act. Here, we wanted to draw the attention of those responsible for the purchase of insurance and reinsurance to the application of this new Act so that the key advantages it offers to policyholders are not overlooked in the course of upcoming insurance placements, amendments and renewals. The three areas discussed below are worthy of particular note: disclosure, warranties, and basis of contract clauses.

Read our full Alert on reedsmith.com.

A Recent California Federal Court Decision Restores Coverage For Some Patent-Related Lawsuits

A California district court pushed back on the restrictive interpretation of a standard intellectual property exclusion and found coverage for a policyholder’s patent related lawsuit. The United States District Court (Northern District of California) recently ruled that claims asserting (1) the breach of a patent license agreement and (2) patent misuse were covered under a commercial insurance policy, and not subject to the policy’s intellectual property exclusion.  Moreover, the court found that the mere fact that claims are related to assertions of infringement does not preclude coverage unless the claims assert injuries as a result of that infringement.

The Underlying Action

Policyholder Tessera initiated an International Trade Commission (ITC) investigation, accusing several companies of infringing its patents by importing and selling semiconductor packages.  Several of these companies were customers of Powertech Technology Inc. (PTI), a company that had obtained a license agreement from Tessera.  In December 2011, PTI sued Tessera on several claims and defenses relating to Tessera’s ITC investigation, including breach of the licensing agreement, fraud and deceit, and patent misuse. In February 2012, Tessera tendered the defense and immunity of these claims under three commercial insurance policies issued by St. Paul Mercury Ins. Co. (St. Paul), which accepted the tender of defense under a full reservation of rights, but disputed coverage.  After initial motion practice, Tessera and PTI resolved the action by settlement.

The Coverage Action

In April 2012, St. Paul initiated an action for declaratory relief against Tessera, claiming that the standard intellectual property exclusion in its policy excluded from coverage the claims asserted against Tessera. The exclusion at issue bars coverage for: “injury or damage or medical expenses that result from any actual or alleged infringement or violation of any of the following rights or laws: […] Patent…Other intellectual property rights or laws….”  The exclusion also bars coverage for “any other injury or damage or medical expenses alleged in a claim or suit that also alleges any such infringement or violation.”  Continue Reading

Why the Hostility?

What does it mean to call a fire “hostile”? This question has become increasingly important for insurance policyholders, such as those seeking coverage for fires and explosions following crude-by-rail or chemical-by-rail accidents.

When an explosion or fire event results in death, personal injuries or property damage, insurance companies may rely on a pollution exclusion. These exclusions may contain important exceptions, however, for “hostile fires”…

Read more at Railway Age…

 

‘Sorry, But You Have Nothing in Common’: The New York Court of Appeals’ Recent Rejection of the ‘Common Interest Doctrine’ Outside the Context of Litigation

The New York Court of Appeals, the state’s highest court, recently rejected an attempt to apply the “common interest doctrine,” an exception to the general rule that communicating privileged information to a third party waives the attorney-client privilege, to situations where separately represented parties communicate attorney-client privileged information in connection with transactions or other circumstances other than in anticipation of litigation. Ambac Assur. Corp. v. Countrywide Home Loans, Inc., No. 80, 2016 WL 3188989 (N.Y. June 9, 2016). As this case shows, companies should be mindful of what information they share outside the litigation context, because the common interest doctrine may not be available to protect that information.

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Colorado Supreme Court Holds That An Insurer Need Not Show Prejudice If Denying Coverage For A Settlement Prior to Notice of Claim

On Monday, April 25, 2016, the Supreme Court of Colorado ruled that policyholders could not be indemnified for a settlement incurred before providing their insurers of notice of the claim—even if the insurer did not suffer any prejudice from lack of notice. In a 4-3 decision in Travelers Prop. Cas. Co. v. Stresscon Co., No. 13SC815 (Colo. Apr. 25, 2016) (“Stresscon”) the court held that “no-voluntary-payments” provisions (or “consent-to-settle” provisions) would excuse an insurer’s duty to indemnify settlement amounts of which the insured had not provided notice.

The question before the court was whether the notice-prejudice rule it had applied to occurrence-based liability policies in Friedland v. Travelers Indem. Co., 105 P.3d 639 (Colo. 2005) (“Friedland”) prevented an insurer from avoiding indemnification under the “no-voluntary-payments” provision. In Friedland, the Colorado Supreme Court agreed with jurisdictions that require an insurer to show prejudice before denying a claim if notice was untimely. The court stated in Friedland that notice provided after a claim had settled did not necessarily preclude a policyholder’s recovery of insurance benefits, but created a presumption that the insurer suffered prejudice. If the policyholder adequately rebutted the presumption of prejudice, then the insurer would be permitted to deny coverage only if it proved actual prejudice. The court did not address the question of how the notice-prejudice rule interacted with a no-voluntary-payments provision.

This question was answered Monday in Stresscon. In Stresscon, a concrete subcontractor (the policyholder) was sued by its contractor to recover damages incurred as a result of construction delays caused by the policyholder. Before any suit had been filed, the policyholder entered into a settlement with the contractor without consulting its insurance company. Several months later, the policyholder sued its insurer (and other entities) and ultimately recovered a jury verdict for bad faith breach of contract. Continue Reading

Court Upholds Coverage Under General Liability Policy for Claim Alleging Failure to Protect Data

In an encouraging development for insureds, the United States Court of Appeals for the Fourth Circuit held that a health care company’s general liability insurer was required to defend the company against claims stemming from an alleged failure to secure electronic medical records. In The Travelers Indemnity Co. of America v. Portal Healthcare Solutions, L.L.C., No. 14-1944 (4th Cir. Apr. 11, 2016), the Fourth Circuit held that the breach resulted in a “publication” of medical records, thus falling within the scope of the general liability policy issued to Portal Healthcare Solutions, L.L.C. (“Portal”).  The decision reaffirms that insureds that experience adverse cyber events are not limited to cyber-specific policies as the source of potential insurance coverage.

Portal’s insurer, The Travelers Indemnity Company of America (“Travelers”), commenced litigation in the United States District Court for the Eastern District of Virginia, seeking a determination that it was not required to defend Portal against a putative class action alleging that Portal negligently failed to secure a server hosting medical records, which resulted in those records becoming available on the Internet. Ruling on cross-motions for summary judgment, the District Court sided with Portal, reasoning that the allegations “at least potentially or arguably” alleged a “publication” of private medical information that either (a) gave “unreasonable publicity” to the patient’s private life, or (b) “disclose[d] information” about the patient’s private life.  Either circumstance triggered a coverage obligation under the Travelers policies.

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Companies can insure against cyber ransom

National Public Radio and other news outlets are reporting that a Los Angeles-area hospital recently paid a $17,000 ransom (in the form of 40 bitcoins) to hackers to unencrypt its computer networks, which had been held hostage after “ransomware” was introduced into the hospital’s network. Ransomware is a form of malicious software, or “malware,” that encrypts information or aspects of an organization’s computer network, preventing authorized users from accessing it. Persons maliciously cause the ransomware to be placed on the network, then demand money in exchange for an encryption key to unlock the network. It is not difficult to see the tremendous economic losses and liability risks of a ransomware attack, in particular to a medical facility treating vulnerable patients. Continue Reading

Double-check existing policies for whistleblower coverage

Whistleblower lawsuits under the False Claims Act, also known as qui tam actions, have become more common in recent years. This is particularly so in heavily regulated industries and those in which the government routinely pays or reimburses costs, such as health care, pharmaceuticals, finance, construction and defense. Companies defending themselves against government investigations and FCA actions often have the insurance coverage they need — but frequently overlook it.

Our group recently authored an article in Business Insurance discussing insurance coverage for FCA investigations and actions. As discussed at greater length in the article, businesses facing whistleblower suits and government investigations often have coverage in standard policy types, including employment practices liability (EPL), errors and omissions (E&O), directors and officers (D&O), and commercial general liability (CGL) policies. For instance, EPL policies, which cover losses from claims stemming from wrongful employment practices, may respond to FCA claims because FCA suits frequently include a claim of retaliation by the whistleblowing employee. Where employment-related claims are also at issue and intertwined or interrelated with the FCA claims, courts have ruled that EPL insurers have a duty to defend the entire action. Continue Reading

Insurance Coverage for Statutory Damages Under Professional Liability Policies

Increasingly, companies are being named as defendants in putative class actions, like those brought under the Fair Credit Reporting Act and Telephone Consumer Protection Act, involving violations of statutes that contain provisions mandating certain damages or ranges of damages. One question raised is whether “statutory damages” are uncovered “fines” or “penalties,” or whether they are covered losses. Continue Reading

2016 Insurance and Risk Management Checklist

As we start a new year, there is no time like the present to evaluate your company’s insurance and risk management program and plan for the year. What should you consider as you move into 2016? Take a look at our checklist of questions you should consider now to evaluate your risk management program this year.

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