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Since the Illinois Supreme Court’s ruling that class actions alleging violations of the Illinois Biometric Information Privacy Act (“BIPA”) trigger general liability coverage, the focus of BIPA coverage litigation has shifted to the applicability of three exclusions often found in general liability policies: (1) the Employment Related Practices exclusion, (2) the Violation of Statutes exclusion, and (3) the Access or Disclosure exclusion.  Although the first quarter of 2022 brought a mixed bag of opinions, with four out of seven resulting in a finding of coverage, the scorecard with respect to each specific exclusion tells a different story that generally favors the policyholders.  As outlined in this blog post, insureds facing BIPA lawsuits therefore have plenty of reason to continue pressing their insurers for coverage.

Employment-related practices exclusions

The Employment-Related Practices exclusion bars coverage for bodily injury or personal and advertising injury to a person arising out of any of the following:

  • Refusal to employ that person
  • Termination of that person’s employment
  • Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, or discrimination directed at that person

In coverage disputes arising out of employment-based BIPA class actions, the issue is whether the conduct at issue is an employment-related practice that falls within the third prong of the exclusion.

As outlined in a previous blog post, there is case law outside of the BIPA context standing for the proposition that the phrase “employment-related” has a narrow meaning and only refers to matters that concern the employment relationship itself. According to this line of case law, where the conduct at issue in a lawsuit does not arise out of personnel management or employee discipline (i.e., the employment relationship), but instead merely happens to involve an employee, the third prong of the exclusion does not bar coverage.Continue Reading Recent opinions provide support for insureds seeking coverage for BIPA claims

Businesses with liability insurance coverage governed by Illinois law should be mindful to take advantage of Illinois’ “targeted tender” rule, which provides insureds a unique strategy for maximizing insurance recoveries for claims triggering multiple different policies. This rule recognizes an insured’s right to “target tender” one or more concurrent insurance policies from a group of policies that potentially apply to a claim against the insured, regardless of insurer efforts to offset their insuring obligations through “other insurance” or contribution.  Kajima Constr. Svcs., Inc. v. St. Paul Fire & Marine Ins. Co., 227 Ill.2d 102 (2007); John Burns Constr. Co. v. Indiana Ins. Co., 189 Ill.2d 570 (2000). Once an insured targets its tender to a particular insurer, “[t]hat insurer may not in turn seek equitable contribution from the other insurers who were not designated by the insured,” who may knowingly forgo an insurer’s involvement. John Burns, 189 Ill.2d at 575.

Illinois insureds can “target tender” away from policies with high retentions or deductibles

The “targeted tender” rule thus is particularly powerful for insureds trying to avoid or minimize the amount of risk they must absorb from “fronting” coverage or policies with substantial self-insured retentions or deductibles. For example, assume a construction company is sued in a wrongful death lawsuit after one of its truck drivers hauling heavy equipment to a job site runs over a pedestrian. The underlying complaint alleges liability triggering the construction company’s commercial auto coverage, which provides dollar-one defense coverage outside of policy limits, as well as the company’s professional liability coverage, which is subject to a $2 million retention before any coverage attaches.  After the construction company notifies both insurers of the lawsuit, they agree to split the insured’s defense costs 50/50, but the professional liability insurer refuses to reimburse any of its 50% share of the defense costs until the $2 million retention has been satisfied. Working with knowledgeable coverage counsel, the insured construction company can obtain a fully funded defense of these lawsuits by “targeting” its tender solely to the commercial auto insurer.Continue Reading “Illinois’ ‘targeted tender’ rule – a powerful strategy for insureds to select and deselect triggered policies to maximize coverage

One of the top issues facing business today is the risk of business interruption resulting from a cyber-related attack. Regardless of the form of attack – ransomware, denial of service, data theft, or other form of malware – any resulting failure of an organization’s network systems can have severe consequences, financial and otherwise. These may include loss of productivity, lack of or impaired access to websites, and, importantly, loss of sales or income.

Given the potential for significant losses, a strategy for calculating and minimizing losses, and maximizing insurance recoveries for damage from a business interruption should be part of every organization’s cyber incident response plan.  Because every business is unique, there is no “one size fits all” plan that will neatly apply to all businesses or to all business interruption claims. Nevertheless, certain best practices exist and can be applied and adapted to individual businesses to facilitate an efficient and effective response to a cyber-related business interruption.

1. Know your insurance coverage

The first step to maximizing recovery for business interruption is understanding the coverage provided under the applicable insurance policies. Many stand-alone cyber liability insurance policies provide coverage for lost net profits and mitigation costs, and may also cover continuing expenses, such as employee salaries, resulting from a cyber incident. However, there are also certain limitations to such coverage common in most cyber policy forms, even though they are far from standardized. For example, most business interruption coverage includes a waiting period of a certain number of hours before coverage begins. The length of that waiting period can be critical as losses attributable to the business interruption may continue to grow until the network system and level of service has been fully restored.  Insurers also may limit the “period of interruption,” the period of time for which the policy will pay for losses. Depending on the policy language, coverage may end before operations are fully restored.

It is important to understand these limitations when purchasing cyber insurance and to obtain the insurance that best fits the needs of your business. For this reason, we recommend involving insurance coverage counsel to assist in the insurance placement and renewal process.Continue Reading Responding to a cyber-related business interruption: best practices

As a recent decision from the Eleventh Circuit highlights, when purchasing insurance for workplace bodily injuries, policyholders need to be mindful of how all of their policies fit together, keeping an eye out for policy language that insurers may exploit to manufacture unexpected and unintended gaps in coverage.

Covering the workplace

Typically, employers seek three types of coverage to manage liabilities arising from accidents in the workplace: workers’ compensation coverage, employer’s liability coverage, and comprehensive general liability (“CGL”) coverage. These three types of policies are designed to work together, with workers’ compensation coverage providing protection against most bodily injury claims sustained by employees while working; CGL coverage providing protection against most bodily injury claims asserted by third parties; and employer’s liability coverage filling in any coverage gaps for bodily injury claims brought by employees. To avoid duplicative coverage, employer’s liability policies typically include a workers’ compensation exclusion and CGL policies typically include both a workers’ compensation exclusion and an employer’s liability exclusion.

The intent of these coverages (and exclusions) is to meet the twin goals of ensuring seamless coverage to the employer without having to pay for needless overlapping of coverage. As one treatise explains:

The intent of the employment exclusion [in a CGL policy] appears to be to avoid duplication of coverage provided under Workers’ Compensation and Employers Liability policies.  Accordingly, any interpretation of the commercial general liability exclusion that bars coverage for claims not covered under a Workers’ Compensation and Employers Liability policy would appear to deny coverage erroneously and to create a gap in coverage that almost surely was not intended by the policyholder.

See 21-132 Appleman on Insurance Law & Practice Archive § 132.5 (2nd 2011).

Unfortunately, such intentions may not always align with its insurer’s resolve to avoid paying claims. Just last month, the Eleventh Circuit rejected an insurer’s attempt to improperly expand the scope of a CGL policy’s employer’s liability exclusion. That decision provides helpful ammunition for policyholders to resist similar efforts, and serves as a useful reminder to avoid complacency and watch out for potential ambiguities when purchasing coverage.Continue Reading “Mind the gap”: Guarding against unintended gaps in coverages

Cyberattacks continue to grow in sophistication and frequency, with attackers targeting businesses of all industries and sizes with seeming impunity. In the wake of this ongoing pervasive and indiscriminate threat, corporate risk departments are taking measures to assess cyber risks and update network security and protocol in hopes of staying one step ahead of potential hackers.

But just as risk departments are reacting in real time to this ever-growing threat, so too are members of the insurance industry. As cyberattacks grow in sophistication and frequency, costs expended to recover from these attacks grow in kind, which has led to an explosion in insurance claims under cyber insurance policies and other responsive coverage. With insurers obligated to pay substantial sums to settle these claims, the result has been a tightening of the cyber insurance and related markets for renewals and placements and, with respect to claims under existing policies, heightened scrutiny and application of existing terms in rendering claims decisions.

The Court’s decision

An example of such novel application became front and center in a recent decision in Merck & Co., Inc. et al. v. Ace American Ins. Co. et al., Case No. UNN-L-2682-18 (N.J. Sup. Ct.). Merck, a multinational pharmaceutical company, sued its insurers after they denied coverage under an “all risks” insurance policy for a 2017 cyberattack that crippled Merck’s computer systems and caused an alleged $1.4 billion in losses to the company.

Although it was undisputed that the policies at issue provide coverage for “loss or damage resulting from the destruction or corruption of computer data and software,” insurers pointed to an unusual exclusion to support their argument that coverage must be denied: the “Hostile/Warlike Action Exclusion.”Continue Reading Lessons from Merck v. Ace: A cyberattack does not amount to an ‘act of war’

Nearly two years into the COVID-19 pandemic, the battles over threshold business interruption coverage issues like the presence of physical loss or damage, causation, and the applicability of policy exclusions continue to rage.  Results have been mixed, with insurers notching wins in federal courts, and policyholders faring better in state courts and in certain jurisdictions.

But scores of policyholders who have avoided pre-discovery dismissal are now grappling with how other policy terms will impact their recovery.

Chief among these – particularly for policyholders with diverse and widespread physical locations and operations – is the impact of a classic question typically dealt with in handling catastrophic liability claims: how many occurrences are there?

The answer has profound implications for the amount of recovery, as it affects not only how deductibles may (or may not) apply but also how primary and excess coverage might respond to a large loss.

Three “tests” have emerged in case law to deal with this problem in the liability context. The “cause” test (adopted by the majority of jurisdictions) determines the number of “occurrences” by looking to the number of causes of injury or loss. The “effect” test determines the number of “occurrences” by looking to the number of resulting injuries or losses. And the “continuous process” test determines the number of occurrences by looking at the number of processes resulting in damage that were continuous, repetitive, and interrelated. See, e.g., Unigard Ins. Co. v. United States Fid. & Guar. Co., 728 P.2d 780 (Idaho Ct. App. 1986).Continue Reading “Occurrences” in COVID-19 business interruption litigation

Cannabis and the D&O market in 2022

In the early days of 2022, cannabis companies and investors have cause for guarded optimism. The once very real specter of federal intervention in the burgeoning industry seems to have faded into the background as successive presidential administrations have declined to push the issue, and now, all but two states have legalized cannabis in some form. With the cannabis industry reporting record profits despite a global pandemic and continued federal illegality, and numerous states and localities turning to it to fill revenue gaps left by COVID-19, it seems fair to say that cannabis has gone mainstream (see Earl Carr “What You Need to Know About Cannabis in 2022 and Beyond” Forbes).

Yet, as much as some things change, others stay the same. Despite the maturation and growth of the cannabis industry and its significant players, the directors and officers (D&O) insurance marketplace remains treacherous. Many major insurers still refuse to offer D&O coverage to the cannabis industry altogether (see Matthew Lerner “Finding D&O coverage remains a challenge for cannabis companies” Business Insurance), while a minority have decided that the opportunity outweighs the risk – with “opportunity” here meaning the ability to charge cannabis policyholders premiums between two and ten times the market average for coverage that is often quite limited. (See David Kennedy “Directors and officers liability insurance is increasingly important – and costly – for cannabis companies” MJBizDaily).

Cannabis companies, for their part, face a Hobson’s choice: either pay a substantial mark-up for a D&O policy that may or may not provide any meaningful coverage, or remain completely uncovered (others have turned to alternatives like captive insurance, a topic for another article (see, e.g., Ryan Smith, “ARS Launches Captive for Cannabis Company,” Insurance Business Magazine)). At a time when D&O insurance is increasingly expensive across all industry sectors, these factors have led some analysts to describe the cannabis D&O marketplace as “a hard market within a hard market.” (See Kimberly E. Blair, Jonathan E. Meer, & Ian A. Stewart “Cannabis Directors and Officers Liability: Cause for Optimism?” The National Law Review Vol. XI, 189, July 8, 2021)Continue Reading D&O insurance for the cannabis industry

On December 31, New York’s Governor Kathy Hochul signed into law a change to the insurance disclosure requirements that applies to all civil cases filed in New York state’s courts. CPLR section 3101(f).  The new statute by its terms applies to both pending cases and new filings, with continuing disclosure obligations through appeals, and places heavy burdens on defendants and their counsel, going far beyond the previous insurance disclosure rules for New York state courts and the rules that apply in federal courts.

In signing the statute, which had flown under the radar since being worked up by the legislature last spring, however, the governor signaled that changes were needed [Signing Memorandum], but it was unclear which of the many new requirements of the statute were the focus of her concern.  As of this week, however, we have some insights.  On January 18, the Senate Rules Committee took up Senate Bill 7882, and the Assembly’s Committee on Judiciary took up the parallel Assembly Bill 8852, containing a raft of amendments that would, if passed and signed by Governor Hochul, substantially limit the scope of the statute she signed less than a month ago.  Most significantly, the statute would no longer apply to cases pending prior to the statute’s effective date, only to those commenced on or after its effective date. S7882/A8852 section 4.

Narrowing new insurance disclosure requirements

For any potentially responsive “insurance agreement,” the statute requires production within 90 days of the defendant’s answer of:

all primary, excess and umbrella policies, contracts or agreements issued by private or publicly traded stock companies, mutual insurance companies, captive insurance entities, risk retention groups, reciprocal insurance exchanges, syndicates, including, but not limited to, Lloyd’s Underwriters as defined in section six thousand one hundred sixteen of the insurance law, surplus line insurers and self-insurance programs sold or delivered within the state of New York insofar as such documents relate to the claim being litigated;Continue Reading NY’s new comprehensive insurance disclosure law is in flux

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)