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When the COVID-19 Pandemic incepted, and issues arose as to whether affected policyholders could seek Business Income and Civil Authority coverage from the presence or suspected presence of SARS-CoV-2 and consequent orders of Civil Authority, I thought that the easiest question to answer was whether such policyholders had suffered physical loss or damage (“PLOD”) to…

Introduction

The Eleventh Circuit Court of Appeals’ recent decision in ECB USA, Inc. v. Chubb provides several important lessons for corporate policyholders faced with potential coverage issues arising from their consulting or professional services.

The issue in ECB was whether Chubb’s professional services liability policy applied to claims against an accounting firm for a faulty…

Hurricane Beryl has caused destruction in the Caribbean, Mexico and Texas. Continuing issues include power outages, both rolling and continuous, issues regarding access to clean water, severed communications, roads that remain impassable and issues accessing necessities like food and fuel.

Hurricanes cause dramatic damage to businesses and commercial properties every year, totaling some $9 billion…

On December 29, 2023, an Arkansas court in the case of Walmart, Inc. v. ACE Am. Ins. Co., 04CV-22-2835-4, 2023 WL 9067386, (Ark. Cir. Ct. Dec. 29, 2023) found that defendant insurers owe Walmart a duty to pay or reimburse defense costs that Walmart incurred while defending prescription opioid liability lawsuits. 

Like many in the pharmaceutical supply chain, Walmart is a defendant in thousands of lawsuits filed by state and local government entities acting in their parens patriae capacity. These lawsuits allege that Walmart knowingly, recklessly, or negligently caused bodily injuries, like addiction, death, and property damage, by failing to monitor, detect and report suspicious orders of prescription opioids. In 2022, Walmart entered into a “National Settlement” that resolved many of those governmental suits. The settlement reimbursed costs the government plaintiffs alleged they incurred for treating its citizens’ bodily injury and property damage.  Walmart sought defense and indemnity coverage from AIG and other insurance companies providing excess coverage under its general liability policies. The insurers denied coverage.Continue Reading A win for Walmart! An Arkansas court finds insurers have a duty to defend certain prescription opioid liability lawsuits

Navigating the complex landscape of California’s insurance regulations, particularly when dealing with non-admitted insurers, is a challenge many policyholders face. At the heart of the non-admitted insurer challenge lies a powerful but underutilized tool: The Unauthorized Insurers Process Act, codified at California Insurance Code Section 1610, et seq. Section 1616, is a key component of the Act and yet is often overlooked by policyholders faced with a coverage dispute involving a non-admitted insurer.  

Admitted versus non-admitted insurers in California

An “admitted” or “licensed” insurer is an insurance company that must file its rates with the Department of Insurance (“DOI”) and is required to participate in the California Insurance Guarantee Association (“CIGA”). In the event that an admitted insurer becomes insolvent, CIGA is supposed to step in and pay covered claims, subject to various statutory limitations. 

Conversely, a “non-admitted” or “surplus lines” insurer is allowed to conduct business in California but is not required to file its rates with the DOI and is not a member of CIGA. By not filing rates with the DOI, non-admitted insurers sometimes have more flexibility in the coverage offered and the prices charged.  The DOI maintains a List of Approved Surplus Lines Insurers (“LASLI”) that has met certain capitalization requirements, but the DOI also permits non-U.S. domiciled alien insurers to issue coverage in California that has not met those standards. Thus, the financial strength and stability of a non-admitted insurer can sometimes be significant issues.Continue Reading Empowering policyholders: Forcing non-admitted insurers to post a bond before answering a complaint

Increased litigation alleging exposure to per- and poly-fluoroalkyl substances (PFAS) present potential significant losses for companies in a wide range of industries. PFAS are a group of chemicals commonly used in consumer products and manufacturing applications. After health studies linked PFAS exposure to adverse health impacts, there has been increased regulatory attention and significant litigation. The risks from this litigation to companies that manufactured or sold PFAS-containing products is manifest. And with that increased litigation risk, so too, the need to secure insurance coverage has grown. As is often the case, the ability to secure coverage for PFAS-related claims will depend on the specific facts and language of the policies at issue. Through this post, we identify several of the coverage issues associated with these claims.

What are PFAS?

PFAS are chemicals commonly used in manufacturing, industrial and consumer products such as food packaging, nonstick cook-wear, and cosmetics. PFAS have been used since the 1940s and are commonly referred to as “forever chemicals” due to how long they take to degrade naturally. Because of their popularity, PFAS are found virtually everywhere, including in drinking water, household products, personal care products, and soil and groundwater near waste sites. And because they are slow to break down, PFAS can build up in people and the environment over time. According to the EPA, research suggests that exposure to certain PFAS may lead to adverse health outcomes. See Our Current Understanding of the Human Health and Environmental Risks of PFAS. Continue Reading Insurance coverage implications for PFAS-related liabilities

When James W. Marshall found gold in 1848 in California, over 300,000 prospectors migrated to California to take part in the new financial economy. The Oregon gold rush started a few years later at Josephine Creek, and a smaller rush happened in Washington State in the early 1880s starting at Swauk Creek. As a result of this influx of prospectors to the gold-rich West Coast, and the high risk/high reward nature of the business, appetite for risk in the region increased dramatically. Prospectors knew that it was a big risk to get a big reward.

This appetite for risk continues to this day in the realm of third-party liability coverage. When you purchase a general liability policy, the insurer agrees that it will pay any covered settlement or judgment up to the “policy limits,” an amount negotiated when the policy is purchased. But the insurance policy does not typically require an insurer to settle a case before trial. Courts have changed that.Continue Reading The Gold Rush – Risks and Rewards When an Insurer Prospects for a Defense Verdict

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