D&O, E&O, Professional Liability

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Pennsylvania’s burgeoning medical-marijuana industry is and will be carefully regulated. When purchasing insurance, medical-marijuana dispensaries should pay careful attention to the Commonwealth’s regulations, in particular to the regulations relating specifically to dispensaries. Pennsylvania’s medical-marijuana regulations are only temporary, and most of them (including the ones relating to dispensaries) will expire in 2018

Certain of those regulations directly address insurance. For example, Pennsylvania requires that dispensaries “obtain and maintain an appropriate amount of insurance coverage that insures the site and facility and equipment used in the operation of the facility.” 28 Pa. Code § 1141.44(a). “An adequate amount of comprehensive liability insurance covering the [dispensary’s] activities authorized by the permit shall begin on the date the initial permit is issued by the Department and continuing for as long as the [dispensary] is operating under the permit.” Id.

Pennsylvania also requires that all dispensaries “obtain and maintain workers’ compensation insurance coverage for employees at the time the [dispensary] is determined to be operational by the Department.” 28 Pa. Code § 1141.44(b).
Continue Reading When Assessing Insurance Needs, Medical-Marijuana Dispensaries Must Consider Pennsylvania Regulations

A rare lawsuit concerning coverage under a reps & warranties policy presents two issues of interest to M&A lawyers:

  1. If the insured under a reps & warranties insurance policy fails to obtain the insurer’s consent to a settlement, coverage for that settlement is forfeited, even if the settlement was “panicked” and on a short timeframe.
  2. Sell-side policies do not cover allegations of seller fraud. This is why buy-side policies are preferred – they cover the buyer’s losses resulting from seller fraud.

Continue Reading Reps & Warranties Insurance Case Highlights the Need for New Expertise and Old-Time Common Sense

When is a person an “employee” under one insurance policy but not an employee under another?   Conflicting or inconsistent definitions across multiple policy lines issued to the same company can give rise to significant gaps in insurance coverage, as a recent opinion of the U.S. Court of Appeals for the Seventh Circuit instructs, Telamon Corp. v. Charter Oak Fire Insurance Co., Nos. 16-1205 & 16-1815 (7th Cir. March 9, 2017).

Telamon hired Juanita Berry in 2005 under a series of consulting agreements with her personal communications company, J. Starr Communications. Over the next six years, Berry’s job responsibilities expanded beyond the terms of the consulting agreements, with Telamon eventually naming her Vice President of Major Accounts, the senior-most manager in one of the company’s divisions on the East Coast.  Part of Berry’s job was to oversee an asset recovery program under which Telamon removed old AT&T equipment and sold it to salvagers.  But without the company’s knowledge, Berry personally removed the old equipment and sold it, keeping the money for herself.  By the time Telamon discovered the scheme, Berry had embezzled $5.2 million.  Telamon fired Berry, and the government indicted her on wire fraud and tax evasion charges.  She was convicted and sentenced to five years in prison.Continue Reading Schrödinger’s Coverage: When a Risk is Covered and Not Covered by Insurance

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.
Continue Reading ‘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

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 Companies can insure against cyber ransom

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 Insurance Coverage for Statutory Damages Under Professional Liability Policies

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

The District Court of Massachusetts’ January 6, 2015 opinion in Biochemics, Inc. v. Axis Reinsurance Co., 2015 WL 71493 (D. Mass. Jan. 6, 2015), reaffirms the importance of providing timely notice of all D&O liability claims – including subpoenas. In Biochemics, the policyholder sought coverage from its primary D&O liability insurer, Axis, for defense costs it incurred in an SEC enforcement action commenced during the AXIS policy period. Judge Rya Zobel held that Biochemics had no coverage for the SEC enforcement action because it related back to two deposition subpoenas that the SEC served on Biochemics before the AXIS policy incepted. Because those deposition subpoenas indicated on their face that the SEC had commenced a formal investigation against Biochemics, each subpoena was a “Claim” that should have been reported to Biochemics’ prior D&O carrier. Because the Claim was “first made” before the AXIS policy period, Judge Zobel granted AXIS’ motion for summary judgment and found that AXIS owed Biochemics no coverage under its policy.
Continue Reading Lessons Learned: Report All Potential D&O Liability Insurance Claims Without Delay

Corporate directors and officers have a long list of things that can keep them up at night. Personal liability for civil fines and penalties arising out of negligence or even gross negligence committed in the course of their service to the company should not be one of them. But recently, in United States v. Trek Leather, Inc., 767 F.3d 1288 (Fed. Cir. 2014) (en banc), a federal appeals court held that the government could hold a corporate officer liable for a civil penalty based on gross negligence committed by the officer or his or her agents acting in the scope of their duties to the company, and without the government establishing fraudulent intent or attempting to pierce the corporate veil.
Continue Reading On the Coattails of United States v. Trek Leather, Make Sure You Have Suitable D&O Coverage

In life, sometimes even the law imitates art. As if copied straight out of the script of “Catch Me If You Can,” the U.S. District Court in South Carolina issued a ruling on October 21, 2014 in which it held that despite a false application for professional liability insurance submitted by an applicant pretending to be a doctor, the insurance afforded to the company and other doctors and nurses identified as named insureds under the policy remained in force and was not void ab initio as to the innocent co-insureds.
Continue Reading Catch Me If You Can: Fake Doctor’s Application Voids Coverage For Himself But Not For Innocent Co-Insureds