Commercial General Liability

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Directors’ and officers’ liability (D&O) insurance protects the personal assets of corporate directors and officers in the event of a lawsuit or other “claim” made against them for, among other things, an alleged breach of their duties in managing the organization.  D&O insurance directly covers individual directors and officers for their defense costs, judgments against them, and settlements when they cannot be indemnified by the company, and also covers the company to the extent it pays defense costs, judgments, and settlements as indemnification.  It may also cover the legal fees and other costs incurred by the company as a result of a securities claim made against the company as an entity.

The first installment of this blog series on D&O insurance addressed several “nuts and bolts” features of D&O insurance, including the key insuring agreements and definitions. This post discusses key exclusions, as well as common policyholder pitfalls, and new issues that are emerging in 2020.

Key D&O exclusions

All D&O insurance policies contain exclusions.  D&O insurance policies are not standardized, however, so the number and wording of the exclusions may vary from policy to policy and insurer to insurer.  Most traditional D&O insurance policies can be expected to contain the following exclusions:Continue Reading D&O insurance basics (Part 2)

A concert promoter cancels a sold-out show of a world-renowned recording artist, reimbursing millions of dollars in ticket sales as a result.  If the reason for the cancellation was COVID-19, does insurance cover that?

Event Cancellation Insurance Basics

Event cancellation insurance generally provides coverage only when there has been a triggering event under the policy.  Some policies are written, for example, to only cover cancellations caused by rain or bad weather.  Other event cancellation policies are all-risk policies, meaning that coverage may be triggered by any cause that is not specifically excluded.  For all types of event cancellation insurance, the triggering event must have been fortuitous, or outside of the policyholder’s control.

Good News for Policyholders

The good news for policyholders is that many all-risk event cancellation policies do cover cancellations caused by COVID-19 related shut-down orders.  For such policies, a shut-down order should qualify as a fortuitous triggering event.  Across the United States, nearly every jurisdiction has enacted some kind of order that caused the cancellation of large-scale events.

Notes of Caution

Policyholders should be cautious concerning the scope of exclusions in respect of viruses and communicable diseases.  Although these types of exclusions may bar coverage related to COVID-19, it is important to be mindful of variations in the exclusion language used.  Some exclusions apply to only specific named viruses, such as SARS and MERS.  Other exclusions contain carve-outs that may be applicable to COVID-19.Continue Reading COVID-19 event cancellation insurance – good news and bad news

Reed Smith Insurance Recovery partners John Shugrue, John Ellison, Amber Finch, Richard Lewis, and Matthew Weaver offer discussion and analysis on key issues relevant to businesses seeking, or evaluating whether to seek, coverage for COVID-19 losses. This webinar is available on demand and you can register here.

Here’s a brief summary of the topics addressed in the webinar:

  • Business interruption coverage and the physical loss/damage trigger (presented by Richard Lewis)

Business interruption insurance provides coverage when physical loss or damage adversely impacts a business, causing it loss.  This insurance covers lost profit and continuing expenses for the period needed to repair or replace damaged property and is designed to do for the business “what the business would have done had there been no loss or damage to property.”  For COVID-19, the key issue for business interruption coverage is: Can the known or suspected presence of a virus cause “physical loss or damage” to property?  For most businesses, it should generally be possible to make the requisite showing of physical loss or damage.

  • Contamination, virus, and microorganism exclusions (presented by John Ellison)

 In commentary, insurance companies have raised a variety of exclusions as potentially barring coverage for COVID-19 related losses.  Some of the exclusions raised include exclusions for virus, bacteria, contaminants, mold, and pollution.  Although there is significant diversity in exclusion wording across property policies, many policies contain standard virus exclusion language promulgated by the Insurance Services Office (ISO).  The ISO made demonstrably false statements to state regulators in seeking approval for this language.  Accordingly, virus exclusions may be vulnerable to challenge.  Additional information about insurers’ misrepresentations concerning virus exclusions is discussed in this article. Additionally, there are available challenges to the other forms of exclusion that insurers are raising that present viable responses to obtaining coverage even when they are asserted by your insurance company.

  • D&O coverage for shareholder claims (presented by John Shugrue)

Directors and officers liability insurance (D&O) coverage typically applies to liability claims made against individual directors for breach of fiduciary duty and to claims made against the business for securities law violations.  Potential claims implicating D&O coverage related to COVID-19 include shareholder claims for alleged failures to plan for, or respond to, the pandemic.Continue Reading Join us for an on-demand webinar “What policyholders really need to know about insurance for COVID-19”

Faced with mounting claims for insurance coverage as a result of the novel coronavirus (COVID-19) outbreak, commercial insurers are likely to search for any policy provision that they think will enable them to avoid paying virus-related claims.  One provision that insurers ultimately may invoke in an attempt to deny such claims is the so-called “pollution exclusion” – an exclusion that can be found in both commercial general liability (CGL) insurance policies and property insurance policies.  Policyholders should anticipate such an argument and should not walk away from insurance claims just because of it.  Although the exclusion is often broadly worded, there is generally good reason not to read it to preclude coverage for third-party claims and/or first-party losses involving viruses, including COVID-19.

While the exact language of the pollution exclusion may differ from one policy to another, it typically provides that there is no insurance for “bodily injury” and/or “property damage” that “would not have occurred in whole or in part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of ‘pollutants’ at any time.”  Again, while its precise definition can vary among policies, “pollutant” is typically defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.”Continue Reading Pollution exclusion should not preclude coverage for virus-related claims

Like any business, a business operating in the U.S. cannabis industry needs both first-party and third-party liability insurance.  Unlike other types of businesses, however, a cannabis-related business’ insurance needs may be dictated at least in part by state regulations.  Although not every state that has legalized cannabis for medical and/or adult use has promulgated specific insurance requirements for this industry, a number of states, via their cannabis regulations, have done so.  Accordingly, it is imperative for any cannabis-related business to carefully review the regulations in each jurisdiction in which it does business to ensure that it has obtained all required insurance.
Continue Reading Review state cannabis regulations for insurance requirements

Every policyholder in every industry should make sure that it in fact has obtained insurance covering the actual, specific risks presented by its line of business.

That point is the critical one driven home by the U.S. District Court for the Central District of California in United Specialty Insurance Company v. E-Cig Vapor Emporium, LLC, No. EDCV 18-0002 JGB (SHKx), 2018 WL 5098859 (C.D. Cal. Oct. 15, 2018).  While applicable to any business in any industry, this lesson is particularly valuable to businesses in certain newer industries – such as the vaping, e-cigarette, and cannabis industries – where the market for insurance may be more limited and the coverages offered may be more restrictive.Continue Reading Federal court’s E-Cig decision provides cautionary tale

A California Court of Appeal recently held that the alleged loss of use of a premises as a nightclub qualified as “property damage” under a general liability insurance policy. Thee Sombrero, Inc. v. Scottsdale Ins. Co., 2018 WL 5292072 (Cal. Ct. App. Oct. 25, 2018).

Thee Sombrero, Inc. (Sombrero) owned and operated a nightclub in Colton, CA. After a fatal shooting at the club, city officials revoked Sombrero’s use permit and made it so the premises could only be used as a banquet hall. Sombrero sued its private security company, Crime Enforcement Services (CES), claiming that its subpar security caused the shooting and cost Sombrero its ability to run a nightclub on its property.

Sombrero alleged that the property was worth $2,769,231 as a nightclub and only $1,846,153 as a banquet hall. In 2012, Sombrero secured a default judgment against CES for $923,078 – the difference in value between the nightclub and banquet hall.Continue Reading Tangible property doesn’t have to be physically lost to find coverage

On Monday, June 4, 2018, the California Supreme Court ruled that an insurance company must provide liability coverage to its corporate insured against claims of negligent hiring, retention, and supervision of its employee, who allegedly sexually assaulted a 13-year-old child. The case is Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co., Inc., Case No. S236765 (June 4, 2018). This decision is “of exceptional importance to injured parties, employers, and insurance companies doing business in California,” wrote the U.S. Court of Appeals for the Ninth Circuit, in an order certifying the issue to the California Supreme Court.

In 2002, Ledesma & Meyer Construction Co. (L&M) entered into a contract with the San Bernadino School District for a construction project at a local middle school. L&M hired Darold Hecht to work on the project. In 2010, a 13-year-old student at the school (Jane Doe), filed suit asserting numerous claims against L&M, alleging that she was sexually abused by Hecht. One of Doe’s claims against L&M alleged negligent hiring, retention, and supervision of Hecht. L&M’s insurer, Liberty Surplus Insurance Corporation, agreed to defend L&M under a reservation of rights.Continue Reading California Supreme Court rules broadly in favor of insureds

It should go without saying that when a business purchases any insurance policy – including, but not limited to, a commercial general liability (CGL) insurance policy – the business expects the policy to provide coverage for its line of business and the specific risks it faces. Cannabis-related businesses are no different. However, they must be especially vigilant to make sure that what an insurance company gives with “one hand” (the coverage grant), it does not take away with the “other” (an exclusion). Remarkably, marijuana-related exclusions may still be found in CGL and other insurance policies marketed and sold to businesses in the cannabis industry.

To better illustrate the concern, consider the following non-cannabis-related scenario: When purchasing insurance, a swimming pool manufacturer would, of course, want to make sure that its CGL policy will provide coverage in the event that a third-party sues the manufacturer for bodily injury allegedly arising out of the use of one of its swimming pools. Conversely, that manufacturer would not want to purchase a CGL policy that excludes coverage for any bodily injury arising out of the use of its swimming pools. While, in that latter situation, the CGL policy may still provide the manufacturer some coverage for certain, limited types of claims, the policy would not provide the manufacturer coverage for the real risks that it faces — that is, those arising out of the use of its swimming pools. Such coverage, therefore, would essentially be illusory coverage. In other words, it would be basically no coverage at all.Continue Reading CannaBeware: Make sure insurance actually covers the risks your business faces

As part of its “adult-use” marijuana regulations, which are expected to take effect next week, the Commonwealth of Massachusetts will require that “Marijuana Establishments” – which include cultivators, manufacturers, and retailers – procure commercial liability insurance in established amounts. Massachusetts’ new regulations are the most recent reminder that cannabis-related businesses must be aware of state regulations and their insurance requirements.

On March 9, 2018, Massachusetts’ Cannabis Control Commission (the “Commission”) “filed its finalized regulations” intended to govern the Commonwealth’s adult-use marijuana industry with the Commonwealth’s Secretary of State. The “regulations are not yet in effect. … The regulations will become effective when published in the Massachusetts Register.” They “are on track to be published on March 23, 2018.”Continue Reading Final Mass. “adult-use” marijuana regulations require “Marijuana Establishments” to have liability insurance