The Kemper/Lumbermens saga

To refresh everyone’s recollection, this is a report from Business Insurance from March 14, 2010:

  • The Long Grove, Ill.-based insurer [Kemper], which has been in voluntary runoff since 2004, earlier this month revealed a steep decline in its surplus, which several observers say indicates that liquidation is near.
  • But that may be preferred by some policyholders who have been wary of settling liabilities with Kemper without full knowledge of its settlement strategy, which they say has been veiled by the confidential nature of the runoff, some observers note.
  • In financial statements filed March 1, Kemper reported that its lead insurance unit, Lumbermens Mutual Casualty Co., had a surplus of $8.1 million as of Dec. 31, 2009, a drop from about $113.2 million a year earlier.
  • Kemper’s American Manufacturers Mutual Insurance Co. unit reported surplus of $11.2 million at the end of 2009, relatively unchanged from a year earlier. Lumbermens reinsures American Manufacturers, sources said.
  • The Illinois Department of Insurance approved Kemper’s runoff in 2004. Details of the runoff operations under the department’s supervision have been kept confidential.
  • But with Kemper’s operating expenses running at about $5 million a month and its surplus nearing depletion, a liquidation order is expected this year, several sources said.

It took another three years for the Kemper/Lumbermens companies to be ordered into liquidation proceedings in Illinois, over a decade after its alarming financial condition burst into public view at the end of 2002. Another ten years later, that liquidation continues, as noted in the Office of Special Deputy Receiver’s 2022 Annual report (see pages 6-7).Continue Reading Is Arrowood the next Kemper? The insurance insolvency system is broken

Early this year, on January 25, 2023, the Delaware Court of Chancery extended the duty of oversight required of a corporation’s directors to its corporate officers, in In re McDonald’s Corp. Stockholder Derivative Litigation, No. 2021-0324-JT, 2023 Del. Ch. LEXIS 23 (Jan. 25, 2023). Before McDonald’s, the Delaware standard had been governed by the 1996 decision in In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996).  Caremark held that corporate directors breach their duty of oversight if they:

  1. Fail to ensure effective information and reporting systems exist; or
  2. Ignore the red flags indicating wrongdoing, when the director (i) knows of the red flags, (ii) consciously fails to take action, and (iii) the failure to take action was sufficiently sustained, systematic, or striking as to constitute bad faith.

The reasoning in Caremark was adopted by the Delaware Supreme Court, again only recognizing the oversight duties for directors. See Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006).Continue Reading Recapping the McDonald’s Delaware court decision – Duty of oversight and D&O considerations

The U.S. Securities and Exchange Commission (“SEC”) implemented rules governing registrants’ disclosure requirements pertaining to cybersecurity risk management, governance, and incident reporting on July 26, 2023. These rules are likely to give rise to novel issues pertaining to public companies’ insurance portfolios, in particular, directors’ and officers’ liability (“D&O”) and cyber insurance policies. This post provides a short overview of the rules and some of the insurance issues likely to arise going forward.

The SEC’s cyber security disclosure rules and increased exposure

The new rules require registrants to disclose information in three categories: (1) cybersecurity risk management; (2) cybersecurity governance; and (3) cybersecurity incident reporting.

With regard to cybersecurity risk management and governance, public companies are now required to annually report their cybersecurity risk processes and governance of risks in Form 10-K SEC. Under the cybersecurity risk management disclosure rules, registrants have to describe how they assess, identify, and manage material cybersecurity risks and whether they have materially affected or are reasonably likely to materially affect their businesses. Similarly, under the cybersecurity governance disclosure rules, registrants have to describe board oversight of cybersecurity risks and the role management plays in assessing and managing material cybersecurity risks.Continue Reading Insurance coverage implications of SEC’s cybersecurity disclosure rules

An indemnification provision is a legally binding agreement between two parties specifying that one party (indemnitor) will compensate the other party (indemnitee) for any losses or damages that may arise from a particular event or circumstance. This type of provision appears in nearly all commercial contracts and is an important tool to allocate risk between parties. As a result, indemnification is one of the most commonly and heavily negotiated contract provisions. 

For companies doing business across state lines, it is critical to consider differences in states’ laws regarding indemnification. This blog post highlights just a few differences between the laws of neighboring states—Pennsylvania, Delaware, and New Jersey—and the importance of drafting clear contractual indemnity provisions with reference to which state law governs.Continue Reading The importance of drafting clear contractual indemnity provisions

Supply chain disruptions due to natural and man-made events, such as the COVID-19 pandemic, climate change, and global and regional conflicts, have become more prevalent in recent times. Businesses need to focus on these issues more carefully as part of their risk management strategies. Many companies seek to insure potential losses caused by disruptions to their supply chain through first-party or property insurance coverage. The insurance industry has designed a range of coverages for this exposure, the main one being contingent time element (or dependent property) coverage, which provides coverage when (typically) physical loss or damage to a third-party supplier or customer prevents that third party from supplying goods to or purchasing goods from the policyholder. Policyholders need to be aware of certain key issues with this coverage.Continue Reading Tomorrow’s supply chain – First-party insurance coverage for supply chains

In addition to insurance companies’ broad duty to defend all claims arising from complaints seeking damages potentially covered by their policies, Pennsylvania law provides an opportunity for policyholders to have their insurance companies pay for litigation costs associated with claims and/or suits that overlap or are intertwined with a suit the insurance company is already defending.  

The magic words are “inextricably intertwined”

Policyholders may seek defense costs for related litigation if those claims are made as: (1) counterclaims in suits the insurance company is already defending, or (2) separate, independent lawsuits with facts or defense work that overlap with a suit the insurance company is defending. The insurance company’s duty to defend such related claims is not automatic, however. Pennsylvania courts make it clear that in both instances, the cases or claims must be “inextricably intertwined” in order to trigger the insurance company’s obligation to pay litigation costs.Continue Reading Insurers must foot the bill for “inextricably intertwined” counterclaims in Pennsylvania 

The U.S. Supreme Court’s ruling in Dobbs v. Jackson Women’s Health Organization and its progeny have sparked confusion and uncertainty for individuals, medical providers, and employers with respect to the consequences of providing, seeking, or facilitating abortion care. Moreover, for both medical providers and employers, questions arose as to whether and how liability insurance might help alleviate these risks.

Now that a year has passed since the Dobbs decision, it is worth revisiting the liability landscape, as well as the question of how insurance coverage might play a role in providing relief with respect to the ongoing risk of litigation.

Background

The Dobbs decision, which held that access to abortion care is no longer a constitutionally protected right, raised a host of questions as to whether medical providers and employers might face civil or criminal liability for facilitating access to abortions, particularly in states that responded by enacting a panoply of restrictions in response to Dobbs. This uncertainty was heightened by inevitable litigation concerning the viability of the new statutes and has led to widespread confusion in many states. This confusion has been exacerbated by the Centers for Medicare & Medicaid Services (“CMS”), which initiated investigations into hospitals in Missouri and Kansas, asserting that they were in violation of the law by failing to offer necessary, life-saving abortion services.Continue Reading One year after Dobbs: Are medical providers and employers still at risk for lawsuits stemming from abortion access, and should they consider the role of liability coverage?

Cybercrime, including ransomware, is one of the top challenges facing organizations today. Businesses across the globe are suffering staggering cyber-related losses, losing around $60 billion on cyber crime annually.  

We are excited to launch our thought leadership campaign, “Cyber Insurance claims: Minimize risk, maximize recovery,” which provides a comprehensive look into the key issues relating to cyber insurance and ransomware claims and how clients can minimize their risk and maximize their recovery before and after a cyberattack.Continue Reading Cyber insurance claims: Minimize risk, maximize recovery

In a world of uncertainty, few things in life are more guaranteed than liability insurers reflexively rejecting claims for pre-notice defense costs, even where there is no legitimate or principled basis to do so. In a perfect world, insureds would immediately notify their insurers as soon as a claim or suit arises to avoid insurers refusing to pay or credit pre-notice defense costs. But companies operating in the real world for various reasons sometimes investigate and defend claims or suits before formally notifying their insurers.  In that circumstance, insurers should not be permitted to avoid their coverage obligations for so-called “pre-tender” defense costs for each of the following reasons.

Many courts only require notice to the insurer – not “magic words” or a formal “tender” – to trigger an insurer’s defense obligations

Insurers often argue their defense obligations only arise after the insured formally “tenders” or specifically requests a defense of a claim or suit, even though many courts have flatly rejected this premise. E.g., White Mountain Cable Constr. Corp. v. Transamerica Ins. Co., 631 A.2d 907, 910 (N.H. 1993) (“in order for an insured to tender the defense to the insurer, it need only put the insurer on notice of the claim”). Indeed, many courts correctly have held that the insurer’s defense obligations are triggered upon receipt of “actual notice” from any source – even if not directly from the insured seeking coverage. E.g., Cincinnati Cos. v. West Am. Ins. Co., 701 N.E.2d 499, 505 (Ill. 1998) (“the insurer’s duty to defend is triggered by actual notice of the underlying suit”).  Absent specific policy language or legal precedent to the contrary, insureds should not be required to formally “tender” or request a defense to obtain the benefit of its coverage once the insurer is on notice of the claim or suit – particularly where the insurance policy delegates the duty to defend to the policyholder rather than the insurer.Continue Reading Maximizing recovery of pre-notice defense costs: Considerations for policyholders