The Second Circuit recently affirmed a decision by a New York district court that the contract exclusion in a D&O insurance policy applied to all of the causes of action in an underlying action, including a cause of action for declaratory relief stemming from a shareholder agreement. See Paraco Gas Corp. v. Ironshore Indem., Inc., No. 23-1069-cv, 2024 U.S. App. LEXIS 14628, at *9 (2d Cir. June 17, 2024).

Continue Reading Second Circuit Affirms Broad Reading of Contract Exclusion in Closely Held Family Corporation Litigation

Note: This article was originally published by Law360 as an Expert Analysis column.

Following the rising trend in runaway bad faith verdicts, on March 22, 2024, the U.S. District Court for the Northern District of Indiana upheld a whopping $112 million jury verdict, including $12.5 million in punitive damages against each of the seven insurers involved.  See Ind. GRQ, LLC v. Am. Guar. & Liab. Ins. Co., No. 3:21-CV-227 DRL, 2024 U.S. Dist. LEXIS 51281, at *102 (N.D. Ind. Mar. 22, 2024).

Continue Reading Insurer Quota-Sharing Lessons From $112M Bad Faith Verdict

The Sixth Circuit has held under Michigan law that a reservation of rights letter including a right to reimbursement was sufficient to entitle an insurer to recoup defense costs paid when the insurer had no duty to defend even though the subject policy did not include language expressly providing for such right.  See Great American Fidelity Insurance Co. v. Stout Risius Ross, Inc., Nos. 23-1167/1195, 2024 U.S. App. LEXIS 8576 (6th Cir. Apr. 8, 2024).

The insureds were named as defendants in an underlying lawsuit that initially included statutory and common law causes of action. The insurer agreed to defend the insureds subject to a reservation of rights, including the right to seek reimbursement of defense costs if it had no duty to defend. The subject policy did not expressly provide for such reimbursement. The insurer commenced a declaratory judgment action, and the trial court initially ruled on summary judgment that the insurer had a duty to defend because the policy excluded coverage only for the statutory causes of action and not the common law causes of action. After the underlying complaint was amended to eliminate the common law causes of action, however, the trial court ruled that the insurer had no duty to defend following the amendment and was entitled to reimbursement of any defense costs it paid after the amendment.

On appeal, the Sixth Circuit affirmed. It found that the insurer’s explicit reservation of its right to reimbursement and the insured’s acceptance of the defense after receiving notice that the insurer might seek reimbursement gave rise to an implied-in-fact contract for reimbursement when there was no duty to defend. Although the Sixth Circuit stated that the Michigan Supreme Court has not recognized implied-in-fact contracts in the insurance context, it has recognized them in other contexts, and at least one Michigan appellate court has permitted an insurer to recover defense costs on an unjust enrichment theory while recognizing other jurisdictions that permit reimbursement based on implied-in-fact contract theory. See NCMIC Ins. Co. v. Dailey, No. 267801, 2006 Mich App. LEXIS 2260 (Mich. Ct. App. July 20, 2006). The Sixth Circuit also previously permitted reimbursement based on a timely reservation of rights letter expressly reserving the right to seek reimbursement. See Continental Cas. Co. v. Indian Head Indus., Inc., 666 F. App’x 456 (6th Cir. 2016).

The First Circuit has held, under Massachusetts law, that an insurer’s actual knowledge of a claim does not excuse the insured from reporting the claim to the insurer as required by the policy. President and Fellows of Harvard College v. Zurich Am. Ins. Co., 77 F.4th 33 (1st Cir. 2023). In so holding, the court followed a “well-beaten path” in Massachusetts recognizing that notice provisions in claims-made policies must be strictly enforced regardless of whether the insurer is prejudiced by the insured’s failure to comply with the policy’s notice requirements.

Continue Reading First Circuit Strictly Enforces Claims Made and Reported Policy Terms and Finds Actual Notice of Claim Insufficient to Excuse Failure to Comply With Notice Requirements

Note: This article was originally published by Law360 as an Expert Analysis column.

Like most jurisdictions, Kentucky follows the general rule that an insurance bad faith claim cannot be maintained against an insurance company when the underlying claim is not covered by the policy.  See Davidson v. Am. Freightways, Inc., 25 S.W.3d 94, 100 (Ky. 2000).

Continue Reading Supreme Court Of Kentucky Permits Third-Party Bad Faith Claim To Proceed Against Insurer Before Final Adjudication Of Coverage

The Eleventh Circuit has held, in a matter of first impression under Georgia law, that a reservation of rights letter including a right to reimbursement did not entitle insurers to reimbursement of defense costs absent policy language expressly providing for such right. See Continental Casualty Co. v. Winder Laboratories, LLC, __ F.4th __, 2023 U.S. App. LEXIS 17852 (11th Cir. July 13, 2023).

Continue Reading Eleventh Circuit Holds That Georgia Law Does Not Require Reimbursement of Defense Costs Paid Subject to a Reservation of Rights Absent Policy Language Requiring Reimbursement

The Fourth Circuit has held in a published decision that a 2015 reverse triangular merger between Willis Group Holdings plc (“Willis”) and Towers Watson & Co (“Towers Watson”) was “the acquisition of all or substantially all the ownership interest in or assets” of Towers Watson within the terms of the Bump Up Provision in the Towers Watson D&O policies.  See Towers Watson & Co. v. National Union Fire Insurance Co. of Pittsburgh, Pa., 67 F.4th 648 (4th Cir. 2023).

Continue Reading Fourth Circuit Holds That Reverse Triangular Merger Was Acquisition of Insured Entity for Purpose of Subject D&O Policy’s Bump Up Provision

The Fourth Circuit has held that an insurer correctly denied coverage for costs that the insured law firm and one of its attorneys incurred when the government investigated the attorney because neither a search warrant executed at the firm’s office nor letters the government sent to the attorney were “Claims,” as that term is defined in the subject professional liability policy. See Brown Goldstein Levy LLP v. Federal Insurance Co., No. 22-1023, 2023 U.S. App. LEXIS 12217 (4th Cir. May 18, 2023).

Continue Reading Fourth Circuit Holds Government Investigation Costs Are Not Covered Under Lawyers Professional Liability Policy Because Search Warrant and Target Conflict Letters Are Not Claims Against An Insured

The Southern District of New York recently addressed a “Wrongful Employment Practices Act” exception to an Insured versus Insured (“IVI”) exclusion in In re Seabury FxOne LLC v. U.S. Specialty Ins., No. 21-cv-837, 2023 U.S. Dist. LEXIS 31255 (S.D.N.Y. Feb. 24, 2023). In 2015, the CEO of Seabury FxOne LLC (“Seabury”) issued a demand letter alleging corporate misconduct and interference with the CEO’s ability to perform. Soon after the initial demand letter, the CEO resigned, arguing constructive discharge and retaliation as he allegedly had been cut off from critical information. Additional demand letters were exchanged and an unsuccessful mediation occurred, with the CEO ultimately initiating arbitration in August 2018 against Seabury and several related entities. By that point, the CEO’s allegations had evolved so the arbitration demand focused on dilution of the CEO’s shares, while the earlier demands focused on alleged wrongful termination and retaliation.

Continue Reading Southern District of New York Holds Employment Practices Wrongful Act Exception to an Insured Versus Insured Exclusion Applied To Former CEO’s Claims, but That an Allocation Was Required

The Ninth Circuit has held that California Insurance Code § 533 bars indemnity coverage for retaliation claims brought against the County of Sacramento Sheriff’s Department under California’s Fair Employment and Housing Act (“FEHA”). See County of Sacramento v. Everest National Insurance Co., No. 22-15250, 2023 U.S. App. LEXIS 3387 (9th Cir. Feb. 13, 2023).

Continue Reading Ninth Circuit Holds That California Insurance Code Section 533 Bars Indemnity Coverage for Employment Retaliation Claims