Navigating today’s complex risk environment can be a monumental task. Steve Shappell, Alliant Claims & Legal, spearheads Executive Liability Insights, a monthly review of news, legal developments and information on executive liability, cyber risk, employment practices liability, class action trends and more. 

Table of Contents

DELAWARE SUPREME COURT CONFIRMS NO COVERAGE FOR APPRAISAL SUIT UNDER D&O PROGRAM

Jarden LLC v ACE Am. Ins. Co. et al., No. 273, 2021 (Del. Mar. 3, 2022)

 

In a brief opinion, the Supreme Court of Delaware recently upheld a lower court’s ruling that there is no coverage for defense costs incurred in an appraisal action under a directors and officers liability (“D&O”) policy. 

 

Read More >>

INVESTOR SUIT AGAINST SPAC FOR FAILURE TO DISCLOSE DOJ INVESTIGATION CAN PROCEED 

Bond v. Clover Health Inv., Corp. et al., No. 3:21-cv-00096U.S. (M.D. Tenn. Feb 28, 2022) 

 

Shortly after a special purpose acquisition company’s (“SPAC”) merger with a healthcare company that sells Medicare Advantage plans and offers a software tool to physicians, the public release of a short-seller's report revealed the company’s flawed operations, causing the company’s stock value to plummet. 

 

Read More >>

LATE NOTICE PRECLUDES COVERAGE UNDER D&O POLICY

Philadelphia Indem. Ins. Co. v. Great Plains Annual Conference of the United Methodist Church, No. 6:21-cv-01197-HLT-KGG (D. Kan. Feb. 22, 2022)

 

After a dispute arose between a church and a company to which it had sold property, the purchaser sent a demand to toll the statute of limitations in connection with the dispute, saying it had “discovered potential defects in the property for which it may seek recovery.”

 

Read More >>

ILLINOIS APPELLATE COURT UPHOLDS DISMISSAL OF SHAREHOLDER DERIVATIVE SUIT

Biefeldt v. Wilson et al., No. 1-21-0336 (Ill. App. Ct. Feb. 25, 2022)


Shareholders of an insurance company filed a derivative suit against the company’s directors and officers, alleging breach of fiduciary duty, corporate waste, and unjust enrichment. 

 

Read More >>

FALSE CLAIMS ACT SUIT COVERED UNDER PRIVATE COMPANY D&O POLICY

Call One Inc. v. Berkley Ins. Co., No. 1:2021cv00466 (N.D. Ill. Feb. 25, 2022)

 

A telecommunications company failed to collect taxes and fees from its customers, as required by Illinois law, and as a result, received a subpoena from the Office of the Illinois Attorney General (“OAG”) that sought business records pursuant to the Illinois False Claims Act (“IFCA”). 

 

Read More >>

COURT UPHOLDS APPLICABILITY OF INSURED V. INSURED EXCLUSION IN D&O POLICY BASED SOLELY ON FILED COMPLAINT

RSUI Indem. Co. v. Lichtenberg, No. 3:20-cv-00218-RLY-MPB (S.D. Ind. Feb. 25, 2022)

 

A music fraternity’s national executive committee filed a lawsuit against its president and executive director seeking to bar them from performing their official duties or entering the fraternity’s premises. The individuals sought coverage for the matter under the fraternity’s management liability policy, but the insurer denied coverage, citing the policy’s “insured v. insured” exclusion. 

 

Read More >>

DELAWARE COURT FINDS APPRAISAL ACTION DOES NOT TRIGGER CLAIM UNDER D&O POLICY

MPM Holdings Inc. v. Federal Ins. Co. et al., No. N20C-07-014 (Del. Super. Ct. Mar. 17, 2022)

 

Following an announced merger transaction, shareholders of an advanced materials company filed a books and records action under Delaware General Corporation Law (“DGCL”) Section 220 as well as a securities class action complaint.

 

Read More >>

NO COVERAGE UNDER PROFESSIONAL LIABILITY POLICY WHERE FUTURE CLAIM IS ONLY IMPLIED

Scott v. Certain Underwriters at Lloyd's London, No. 21-82054-CIV-MARRA (S.D. Fl. Feb. 23, 2022)


A property and casualty insurance company notified its CEO of its intention to engage in a formal conduct review to determine if termination of the CEO’s employment was warranted.

 

Read More >>

D&O POLICY’S GOODS AND PRODUCTS EXCLUSION BARS COVERAGE FOR GOVERNMENT INVESTIGATION

Sentynl Therapeutics, Inc. v. U.S. Specialty Ins. Co., No. 21-55370 (9th Cir. March 9, 2022)


This matter arose when an opioid manufacturer received subpoenas from the U.S. Department of Justice in connection with an investigation of potential violations of federal law. 

 

Read More >>

DELAWARE SUPREME COURT FINDS POLICY LANGUAGE DETERMINES CLAIM RELATEDNESS

First Solar, Inc.  v. Nat’l Union First Ins. Co. et al., No. 217 (Del. Mar. 16, 2022)


Stockholders of an energy company filed a class action suit alleging violations of various securities laws, and the company’s directors and officers liability (“D&O”) insurance provided coverage for the claim. 

 

Read More >>

NO COVERAGE FOR WRONGFUL TERMINATION CLAIM UNDER D&O POLICY WHERE ENTITY EMPLOYER NOT SUBSIDIARY 

Dunluck v. Assicurazioni Generali S.P.A., No. CV 20-136-M-DLC (D. Mont. Mar. 8, 2022)


This coverage dispute arose out of an underlying wrongful termination claim under Montana's Wrongful Discharge from Employment Act (“WDEA”). 

 

Read More >>

INSURERS SUPPORT LITIGATION FINANCING DISCLOSURE LEGISLATION

In an effort to curb the exponential rise in litigation costs, several states have proposed legislation requiring disclosure of third-party litigation financing efforts. 

 

Read More >>

CYBER CORNER

Click to read the following cases:

 

  1. COURT HEARS ARGUMENTS IN COVERAGE DISPUTE OVER CYBER CLAIM
  2. SHAREHOLDERS LOSE APPEAL FOLLOWING DISMISSAL OF SUIT OVER DATA BREACH
  3. FTC MOVES AGAINST E-ECOMMERCE PLATFORM OVER ALLEGED CONCEALMENT OF DATA BREACH

 

Read More >>

EPL CORNER

Click to read the following cases:

 

  1. NEW LAW ENDS MANDATORY ARBITRATION OF SEXUAL ASSAULT AND HARASSMENT CLAIMS
  2. EMPLOYMENT-RELATED PRACTICES EXCLUSION IN CGL POLICY DOES NOT PRECLUDE DEFENSE COSTS IN BIPA SUIT
  3. INSURERS MUST DEFEND BIPA SUIT DESPITE EMPLOYMENT-RELATED EXCLUSIONS

Read More >>

SEC CORNER

Click to view the following:

 

  1. ​MARCH 2022 NOTEWORTHY ENFORCEMENT ACTIONS FILED
  2. MARCH 2022 NOTEWORTHY SETTLEMENTS AND JUDGEMENTS

 

Read More >>

SHAREHOLDER CORNER

Click to view the following:

 

  1. ​MARCH 2022 SECURITIES CLASS ACTION FILINGS

 

Read More >>

DELAWARE SUPREME COURT CONFIRMS NO COVERAGE FOR APPRAISAL SUIT UNDER D&O PROGRAM

Jarden LLC v ACE Am. Ins. Co. et al., No. 273, 2021 (Del. Mar. 3, 2022)

In a brief opinion, the Supreme Court of Delaware recently upheld a lower court’s ruling that there is no coverage for defense costs incurred in an appraisal action under a directors and officers liability (“D&O”) policy. 

As previously reported in the August 2021 edition of Executive Liability Insights, the underlying matter arose out of a merger involving a consumer products company. Several dissenting shareholders filed suit alleging the sale process was flawed and demanded an appraisal of their shares pursuant to Section 262 of the Delaware General Corporation Law. The court found in favor of the shareholders, who then sought coverage for costs incurred in the appraisal proceeding from the company’s D&O insurers. The insurers argued that the costs of the appraisal action were not covered because it did not seek a remedy for a “wrongful act.” Coverage litigation ensued.


The Delaware Superior Court held that while the D&O policies at issue provided coverage for a securities claim brought to remedy a “wrongful act” that occurred prior to the merger, the appraisal action was “statutory in nature” and did not constitute such a claim. Furthermore, the court noted that had the merger not closed, the dissenting shareholders would have lacked standing to sue.

 

INVESTOR SUIT AGAINST SPAC FOR FAILURE TO DISCLOSE DOJ INVESTIGATION CAN PROCEED 

Bond v. Clover Health Inv., Corp. et al., No. 3:21-cv-00096U.S. (M.D. Tenn. Feb 28, 2022) 

Shortly after a special purpose acquisition company’s (“SPAC”) merger with a healthcare company that sells Medicare Advantage plans and offers a software tool to physicians, the public release of a short-seller's report revealed the company’s flawed operations, causing the company’s stock value to plummet. 

 

As a result, an investor filed suit against the SPAC alleging false and misleading statements as well as failure to disclose material facts relating to the merger. The suit asserted that in its press release announcing the merger, the SPAC touted the business while concealing that the company owed its success to kickbacks in the form of illegal gifts to healthcare practitioners, which, along with various other legal and regulatory violations the company committed, were part of an ongoing investigation by the U.S. Department of Justice (“DOJ”). The investor suit further claimed the company failed to comply with U.S. Securities and Exchange Commission (“SEC”) regulations and Generally Accepted Accounting Principles. 


The company argued the suit relied significantly on the short-seller’s report, which it characterized as unreliable, saying “such anonymous hearsay, absent particularized, corroborative allegations, cannot be the basis for a securities fraud complaint.” The court, however, rebuffed the contention, finding the investors alleged the DOJ investigation “was well-founded, broad in scope, and likely to uncover wrongdoing and flaws that would have revealed the lie at the heart of [the company’s] posture as a revolutionary tech company.” In so finding, the court noted that while the company “will have ample opportunity to argue that that characterization was false … The court, however, is required, at this stage, to accept the plaintiffs' particularized, well-pleaded allegations as true for the purposes of the motion to dismiss.”

 

LATE NOTICE PRECLUDES COVERAGE UNDER D&O POLICY

Philadelphia Indem. Ins. Co. v. Great Plains Annual Conference of the United Methodist Church, No. 6:21-cv-01197-HLT-KGG (D. Kan. Feb. 22, 2022)

After a dispute arose between a church and a company to which it had sold property, the purchaser sent a demand to toll the statute of limitations in connection with the dispute, saying it had “discovered potential defects in the property for which it may seek recovery.”

 

Several months later, the church notified its directors and officers liability (“D&O”) insurer of the dispute, by which time the church’s D&O coverage had entered a new policy period. When the purchaser subsequently filed suit against the church alleging negligent and fraudulent misrepresentation and breach of contract, the church again notified its D&O insurer.

 

The insurer asserted there was no coverage under the church’s D&O policy because the church had failed to provide timely notice of the claim. The church contended there was coverage under both the current D&O policy (the one under which the matter had been tendered) and its prior D&O policy (the one in effect when the church first received the tolling agreement demand), and that the insurer must show it suffered prejudice to avoid coverage based on late notice. 

 

In the ensuing coverage litigation, the court noted that both the policies in question defined “Claim,” in part, as a demand to toll the statute of limitations. Both policies also provided that “all Loss arising out of the same Wrongful Act and all Interrelated Wrongful Acts … shall be deemed one Loss on account of one Claim” and “such Claim … shall be deemed to be first made or to have first occurred when the earliest of such Claims … were first made or first occurred.” As such, the claim at issue was first made when the church received the tolling agreement request, the court ruled, and should therefore have been noticed under the policy in place at the time. Accordingly, no coverage was available under the current policy, which was the one in place when the matter was ultimately noticed.

 

Addressing the church’s contention that the insurer needed to show prejudice in order to deny coverage based on late notice, the court held that the notice-prejudice rule does not apply to claims-made policies, noting such application would “effectively defeat the event that triggers coverage in the first place and disturb the parties’ allocation of risk.” The court further held that because the church did not provide notice “as soon as practicable” and in no event “later than 60 days after the expiration” of the policy, as the policy’s reporting requirements stipulated, it failed to timely report the demand to toll the statute of limitations.

 

The Takeaway

As courts across the country have ruled time and again, the notice-prejudice rule does not apply to claims-made policies. To rule otherwise would be tantamount to rewriting those policies so as to afford coverage to insureds that they have not purchased. As such, timely and accurate noticing of claims under claims-made policies is vital to securing coverage and avoiding litigation like that in the case at hand.

 

ILLINOIS APPELLATE COURT UPHOLDS DISMISSAL OF SHAREHOLDER DERIVATIVE SUIT

Biefeldt v. Wilson et al., No. 1-21-0336 (Ill. App. Ct. Feb. 25, 2022)

Shareholders of an insurance company filed a derivative suit against the company’s directors and officers, alleging breach of fiduciary duty, corporate waste, and unjust enrichment.

 

The shareholders contended the company relaxed its underwriting standards to grow its book of business, resulting in higher claims frequency and thus lower profitability. The complaint also alleged individual defendants misled investors by blaming “temporary external factors” for the company’s poor performance in press releases and its filings with U.S. Securities and Exchange Commission. Notably, the shareholders did not make a pre-suit demand on the company’s board of directors to investigate the allegations because in their view, a majority of the board faced a substantial likelihood of liability.

 

The company’s charter contained a provision that exculpated directors from personal liability to the corporation “to the fullest extent permitted by Delaware law,” which eliminated any reasonable risk of monetary liability for the company’s outside directors. As such, the individual defendants argued the shareholders were not excused from making a pre-suit demand of the board. The lower court agreed with this contention and dismissed the complaint, finding the absence of any allegations that the majority of board members had breached their duty of loyalty or failed to act in good faith meant the shareholders were not excused from making a pre-suit demand. 

 

On appeal, the shareholders argued that a pre-suit demand on the board would have been futile because a majority of the board was incapable of independently evaluating such demand. Specifically, the investors maintained that more than half the board faced liability for breaches of duty of loyalty because they had signed off on a 10-K containing a statement they knew was false, played an integral role in formulating the earnings-related disclosures, and failed to correct the alleged false statements.

 

Applying Delaware law, the Illinois appellate court upheld the lower court’s dismissal, finding the complaint failed to plead “with particularity” that any of the outside directors knowingly made false statements or that the directors faced a substantial likelihood of personal liability. The court also found the shareholders failed to establish that the board was incapable of exercising independent business judgment, and therefore, a pre-suit demand was not excused.

 

The Takeaway

While recent Delaware decisions specifically cited to the new three-prong Zuckerberg test for demand futility, this Illinois court did not reference that test. Instead, the court based its decision on prior Delaware cases, finding the board’s business judgment outweighed the concerns raised by shareholders.

 

FALSE CLAIMS ACT SUIT COVERED UNDER PRIVATE COMPANY D&O POLICY

Call One Inc. v. Berkley Ins. Co., No. 1:2021cv00466 (N.D. Ill. Feb. 25, 2022)

A telecommunications company failed to collect taxes and fees from its customers, as required by Illinois law, and as a result, received a subpoena from the Office of the Illinois Attorney General (“OAG”) that sought business records pursuant to the Illinois False Claims Act (“IFCA”). 

The company provided notice of the subpoena to its directors and officers liability (“D&O”) insurer, seeking coverage for costs in responding to same. The insurer initially denied coverage, contending the subpoena did not constitute a “Claim” within the meaning of the policy, but ultimately agreed to cover defense costs arising from the company’s response to the subpoena, while maintaining it owed no further duty to defend the matter.


Subsequently, the company discovered a complaint was pending under seal in Illinois state court and requested the insurer appoint defense counsel. The insurer denied the request, reiterating that its defense obligation was limited to the subpoena and it had no duty to defend the company from the pending lawsuit. Thereafter, the company engaged in settlement discussions with the OAG and sought participation from the insurer, which was refused. Ultimately, the company settled the matter without the insurer’s participation, and coverage litigation ensued. 


The policy’s definition of “Loss” precluded coverage for matters “uninsurable under the law,” as well as for “taxes, civil or criminal fines, sanctions or penalties imposed by law … disgorgement or restitution payment by or on behalf of any Insured, including disgorgement or restitution of amounts retained, obtained, or acquired by an insured.” The company argued the D&O insurer had breached its duty to defend by failing to cover the costs of defense beyond those associated with the OAG subpoena, as well as its duty to indemnify by denying the company’s request for contribution towards the settlement. In response, the insurer contended it had neither a duty to defend nor a duty to indemnify the company in connection with the IFCA lawsuit because the amounts the OAG sought to recover constituted either uninsurable penalties or disgorgement of profits. 


An Illinois federal court found that the False Claims Act statute authorized two forms of relief, one of which does not constitute a penalty. Since the complaint sought both forms of relief, the court ruled the insurer’s reliance upon the exclusion for uninsurable penalties was unfounded. Additionally, the court ruled the damages sought by the OAG were not based on ill-gotten gains, but were instead tied to the state’s lost revenue as a result of taxes not having been collected by the company. Finding that the plain language of the statute provides for compensatory damages and not disgorgement as a remedy, the court ruled that the claims asserted were not uninsurable as a matter of law. 

 

The Takeaway

The definition of “Loss” is an extremely important component of any management liability policy and can often be a determining factor for coverage. 

 

 

COURT UPHOLDS APPLICABILITY OF INSURED V. INSURED EXCLUSION IN D&O POLICY BASED SOLELY ON FILED COMPLAINT

RSUI Indem. Co. v. Lichtenberg, No. 3:20-cv-00218-RLY-MPB (S.D. Ind. Feb. 25, 2022)

A music fraternity’s national executive committee filed a lawsuit against its president and executive director seeking to bar them from performing their official duties or entering the fraternity’s premises. 

 

The individuals sought coverage for the matter under the fraternity’s management liability policy, but the insurer denied coverage, citing the policy’s “insured v. insured” exclusion. 


In the ensuing coverage litigation, the individuals argued the insured v. insured exclusion was not applicable because the underlying lawsuit was not brought “by or on behalf of” the fraternity. To support their argument, the individuals pointed to the court’s determination in the underlying lawsuit that the executive committee did not have standing to bring the suit. The insurer, however, asserted that the applicability of the exclusion could be determined solely within the four corners of the complaint. The court agreed with the insurer, finding “it is the nature of the claim that defines the insurer’s duty to defend, not its merits.” Thus, the court found that because the complaint set forth a claim clearly subject to the exclusion, the insurer did not owe a duty to defend.

 

 

DELAWARE COURT FINDS APPRAISAL ACTION DOES NOT TRIGGER CLAIM UNDER D&O POLICY

MPM Holdings Inc. v. Federal Ins. Co. et al., No. N20C-07-014 (Del. Super. Ct. Mar. 17, 2022)

Following an announced merger transaction, shareholders of an advanced materials company filed a books and records action under Delaware General Corporation Law (“DGCL”) Section 220 as well as a securities class action complaint.

 

After the merger closing, several shareholders who felt the merger price was too low also filed appraisal actions pursuant to DGCL Section 262. The company provided notice of these matters to its directors and officers liability (“D&O”) insurer and sought coverage for defense costs and indemnification. The D&O insurer accepted coverage for the books and records complaint as well as the securities class action, but denied coverage for the appraisal action on the grounds it asserted statutory rights without allegations of wrongful conduct. 

 

Coverage litigation ensued and the company asked the court to determine whether the appraisal action constituted a “Claim” for a “Wrongful Act” under the policy. The company argued the appraisal action amounted to a “Merger Objection Claim” grounded in allegations that the company failed to obtain a fair price for shareholders, and that the directors and officers had breached their fiduciary duties. The court, however, disagreed. While the court recognized that a shareholder may introduce evidence of a “flawed negotiation process” during the appraisal proceeding, it noted that nothing in DGCL requires a shareholder to establish, or even plead, a flawed process. Therefore, the court ruled that an appraisal action was not a covered “Claim” under the policy.

The Takeaway

D&O insurers have historically disclaimed coverage for appraisal demands filed in Delaware, and this decision does little to aid policyholders in obtaining coverage for such matters. It remains to be seen whether this issue will be escalated to the Delaware Supreme Court.

 

NO COVERAGE UNDER PROFESSIONAL LIABILITY POLICY WHERE FUTURE CLAIM IS ONLY IMPLIED

Scott v. Certain Underwriters at Lloyd's London, No. 21-82054-CIV-MARRA (S.D. Fl. Feb. 23, 2022)

A property and casualty insurance company notified its CEO of its intention to engage in a formal conduct review to determine if termination of the CEO’s employment was warranted. 

As part of this review, the company sent written communications to the CEO alleging he tortuously interfered with and destabilized the company, which amounted to a breach of his contractual and fiduciary obligations. 


Upon receipt of these communications, the CEO provided notice of the matter to the company’s professional liability insurer, contending the written communications constituted a “Claim” and triggered coverage under the policy. The policy, which was written on a claims-made-and-reported basis, defined “Claim” as “a written demand for monetary damages, nonmonetary, or injunctive relief against any of the Insureds.” When the insurer refused to provide coverage, the CEO filed suit, alleging breach of contract.  


The court looked to Eleventh Circuit precedent to determine whether the written communications constituted a “Claim” under the policy and concluded the communications between the parties merely implied future action might be brought against the CEO, but there were no present demands. For example, the court noted that the written communications sent to the CEO used words such as "prepared to take" and "will be seeking.” Accordingly, the court concluded the matter had not risen to the level of a “Claim” and therefore no coverage was triggered under the policy.

 

 

D&O POLICY’S GOODS AND PRODUCTS EXCLUSION BARS COVERAGE FOR GOVERNMENT INVESTIGATION

Sentynl Therapeutics, Inc. v. U.S. Specialty Ins. Co., No. 21-55370 (9th Cir. March 9, 2022)

This matter arose when an opioid manufacturer received subpoenas from the U.S. Department of Justice in connection with an investigation of potential violations of federal law. 

 

Specifically, the investigation focused on the company’s marketing and promotion of its products. The company sought coverage under its directors and officers liability (“D&O”) policy for the costs of responding to the investigation, but the insurer denied coverage, citing an exclusion for claims arising out of “goods and products.” Coverage litigation ensued. 


The exclusion provided that the D&O policy did not cover “Loss in connection with a Claim arising out of, based upon or attributable to any goods or products manufactured, produced, processed, packaged, sold marketed, distributed, advertised or developed by the Insured Organization.” The insured contended the exclusion was limited to product liability claims, as applying the exclusion to other types of claims would render coverage under their policy illusory. However, the district court rejected this argument, concluding the exclusion barred coverage for the subpoenas. 


On appeal, the Ninth Circuit upheld the district court’s ruling, noting the exclusion used the lead-in phrase “arising out of,” which has a much broader application than “caused by,” and is “ordinarily understood to mean ‘originating from,’ ‘having its origin in,’ ‘growing out of’ or ‘flowing from’ or in short, ‘incident to, or having connection with.’” While the court acknowledged that an ambiguous exclusion must be narrowly construed against an insurer, it rejected the insured’s argument that the phrase should be narrowly construed solely because it was included in an exclusion. Furthermore, the court stated that it must give effect to the intent of the parties in light of such broad exclusionary language.


The Ninth Circuit further agreed with the district court that the costs of complying with the subpoenas “ar[ose] out of … goods or products manufactured, produced, processed, packaged, sold, marketed, distributed, advertised or developed by” the insured. The court found the subpoenas were issued as part of an investigation directed at anyone illegally profiting from opioids, and the insured’s involvement in the investigation “orginat[ed] from, ha[d] its origin in, gr[ew] out of or flow[ed] from” its opioid products. As such, the court rejected the insured’s argument that the exclusion was limited to claims based on a defect in, or characteristic of, its products, finding the language of the exclusion did not provide such a limitation and precedent supported the conclusion that a goods and products exclusion includes claims about what a seller “said and did not say about the products.” Of note, the court expressly rejected the insured’s argument that the insurer’s application of the exclusion rendered coverage illusory.

 

DELAWARE SUPREME COURT FINDS POLICY LANGUAGE DETERMINES CLAIM RELATEDNESS

First Solar, Inc.  v. Nat’l Union First Ins. Co. et al., No. 217 (Del. Mar. 16, 2022)

Stockholders of an energy company filed a class action suit alleging violations of various securities laws, and the company’s directors and officers liability (“D&O”) insurance provided coverage for the claim. 

 

Several years later, while the initial suit was still pending, some stockholders opted out of the class action and brought their own claim, alleging the same federal violations of law as well as additional state law claims for fraud and misrepresentation. 


The D&O policy in place at the time of the filing of the opt-out suit excluded coverage for “related claims,” which were defined as a claims “alleging, arising out of, based upon or attributable to any facts or Wrongful Acts that are the same or related to those that were … alleged in a Claim made against an Insured.” The policy further provided that a “related claim” was deemed first made at the time of the earlier made claim.  


After exhausting the policy’s limits in settlement of the class action, the company sought coverage from the latter policy to settle the opt-out suit, but the insurer denied the claim and coverage litigation ensued. In agreeing with the insurer that coverage was excluded, the lower court used a “fundamentally identical” standard to determine the two claims were sufficiently related. 


On appeal, however, the court rejected the “fundamentally identical” standard, concluding coverage is prescribed by the language of the policy, which determines claim relatedness. As the opt-out claim arose out of and was based upon the same alleged misconduct as the original suit, the court held it was properly related to the first action and thus excluded from coverage under the later policy pursuant to the exclusion for related claims. 

 

NO COVERAGE FOR WRONGFUL TERMINATION CLAIM UNDER D&O POLICY WHERE ENTITY EMPLOYER NOT SUBSIDIARY 

Dunluck v. Assicurazioni Generali S.P.A., No. CV 20-136-M-DLC (D. Mont. Mar. 8, 2022)

This coverage dispute arose out of an underlying wrongful termination claim under Montana's Wrongful Discharge from Employment Act (“WDEA”).

 

When a cannabis processing facility ceased operations, the plaintiff employees mailed a notice of claim to their employer’s directors and officers liability (“D&O”) insurer. The letter stated that the employees had instituted a lawsuit against their employer and demanded the insurer "acknowledge receipt of this letter and … defend and indemnify [the Insured] … for the claims asserted." The insurer, however, failed to respond to the letter, and despite being served with process, neither the insured nor the insurer ever appeared to defend the lawsuit and the employees eventually obtained a default judgment.  


In the ensuing coverage litigation, the D&O insurer defended the denial of coverage by arguing that the entity where the employees worked was no longer a subsidiary of the insured, as defined by the policy, when the employees were wrongfully terminated. In fact, that entity ceased being a subsidiary of the insured a month before the employees were wrongfully terminated, according to the insurer. The timing of the insured’s divestiture of its ownership interest in the subsidiary was not disputed.


After a lengthy analysis of choice of law and whether Montana public policy would limit the ability of an insurer to deny coverage for WDEA claims, the court found it does not violate Montana's public policy for an insurer to write a policy that does not extend directors and officers personal liability coverage to WDEA actions brought against an employer. The court also found that the entity in question had ceased being a subsidiary by the time of the alleged wrongful termination (where no directors or officers were named in the claim), and that an unsupported allegation of constructive termination at an earlier date being raised for the first time in the context of coverage litigation did not create coverage where it had not previously existed.

 

INSURERS SUPPORT LITIGATION FINANCING DISCLOSURE LEGISLATION

In an effort to curb the exponential rise in litigation costs, several states have proposed legislation requiring disclosure of third-party litigation financing efforts. 

 

Specifically, Kansas, Missouri, and Rhode Island have introduced bills that would require various levels of disclosures, several of which would force such companies to register in each state. The bills aim to protect consumers from deceptive marketing practices and establish regulatory oversight. The insurance lobby and defense bar have voiced their support for such efforts, as experts have pointed to litigation financing as contributing to the spike in damage awards, a phenomenon known as “social inflation.” Some states, including Wisconsin and West Virginia, have passed similar bills, while such legislation has been unable to gain traction in other states. 

 

Cyber Corner

COURT HEARS ARGUMENTS IN COVERAGE DISPUTE OVER CYBER CLAIM

New England Sys. Inc. v. Citizens Ins. Co. of Am., Case No. 3:20-cv-01743 (D. Conn. Mar. 3, 2022)

A federal court in Connecticut is considering an insurer’s request to toss out an IT service provider’s bad faith suit alleging the insurer improperly denied coverage under the company’s cyber policy for the loss of six customers following a data breach. 

Read More >>

SHAREHOLDERS LOSE APPEAL FOLLOWING DISMISSAL OF SUIT OVER DATA BREACH

Local 353, IBEW Pension Fund, et al. v. Zendesk, et al., Case No. 21-15785 (9th Cir. Mar. 2, 2022)

A federal appeals court recently upheld the dismissal of a shareholder suit alleging a software company misled investors about its cybersecurity measures prior to announcing a 2019 data breach. 

Read More >>

FTC MOVES AGAINST E-ECOMMERCE PLATFORM OVER ALLEGED CONCEALMENT OF DATA BREACH

In a further indicator of stepped up enforcement efforts, the Federal Trade Commission (“FTC”) recently settled an administrative complaint it filed against the parent company of an e-commerce platform, alleging the company failed to safeguard consumer information and covered up multiple data breaches. 

Read More>>

 

EPL Corner

NEW LAW ENDS MANDATORY ARBITRATION OF SEXUAL ASSAULT AND HARASSMENT CLAIMS

President Biden recently signed into law the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021.” 

Read More >>

EMPLOYMENT-RELATED PRACTICES EXCLUSION IN CGL POLICY DOES NOT PRECLUDE DEFENSE COSTS IN BIPA SUIT

State Auto. Mut. Ins. Co. v. Tony's Finer Foods Enters. Ins., No. 20-cv-6199 (N.D. Ill. Mar. 8, 2022)
A former employee sued an insured supermarket for violations of the Illinois Biometric Information Privacy Act (“BIPA”) in the use of fingerprints to clock in and out of work. 
Read More >>

INSURERS MUST DEFEND BIPA SUIT DESPITE EMPLOYMENT-RELATED EXCLUSIONS

Citizens Ins. Co. of Am., et al. v. Thermoflex Waukegan, No. 1:20-cv-05980 (N.D. Ill. Mar. 1, 2022)
This coverage dispute arose when employees of an automotive accessory company brought suit against their employer alleging the company’s collection of employees’ handprint data, which was used for authentication and timekeeping purposes, violated the Illinois Biometric Information Privacy Act (“BIPA”). 
Read More >>

 

SEC Corner

March 2022 Noteworthy Enforcement Actions Filed

 Director/Officer

 Role

 Company

 Stephen A. Baird 

 CEO 

 S-Ray Incorporated 

March 2022 Noteworthy Settlements and Judgements 

Amount

Director/Officer

Role

Company

$17,351,817.00 

Michael T. Gastauer 

CEO 

WB21 US Inc. 

Source: U.S. Securities and Exchange Commission

Shareholder Corner

MARCH 2022 SECURITIES CLASS ACTION FILINGS

Company
Sector
Rivian Automotive, Inc.
Consumer Cyclical
Celsius Holdings, Inc.
Consumer Non-Cyclical
BlockFi 
Financial
Grab Holdings Limited^
Financial
SafeMoon LLC 
Financial
Akebia Therapeutics, Inc.
Healthcare

 Cano Health, Inc.^

Healthcare
Homology Medicines, Inc.
Healthcare
FAT Brands Inc.
Services
C3.ai, Inc.
Technology
Meta Platforms, Inc.
Technology
Telefonaktiebolaget LM Ericsson
Technology
Vertiv Holdings Co.
Technology
Volta Inc.^
Technology
^SPAC-related

Source: Stanford Law School Securities Class Action Clearinghouse

ABOUT ALLIANT INSURANCE SERVICES

Alliant Insurance Services is the nation’s leading specialty broker. In the face of increasing complexity, our approach is simple: hire the best people and invest extensively in the industries and clients we serve. We operate through national platforms to all specialties. We draw upon our resources from across the country, regardless of where the resource is located.

Contributors

Steve Shappell, Esq.
Executive Vice President
Claims & Legal
Steve.shappell@alliant.com
303-885-8228



 

Abbe Darr, Esq.
Claims Attorney
abbe.darr@alliant.com

 

David Finz, Esq.
Claims Attorney
david.finz@alliant.com

 

Jacqueline Noster, Esq.
Claims Attorney
jacqueline.noster@alliant.com

 

Jacqueline Vinar, Esq.
Claims Attorney
jacqueline.vinar@alliant.com

 

Jaimi Berliner, Esq.
Claims Attorney
jaimi.berliner@alliant.com

 

Katherine Puthota
Claims Advocate
katherine.puthota@alliant.com

 

Matia Marks, Esq.
Claims Attorney
matia.marks@alliant.com

 

Meaghan Fisher
Senior Claims Advocate
meaghan.fisher@alliant.com

 

Megan Padgett
Senior Claims Advocate
megan.padgett@alliant.com

 

Robert Aratingi
Senior Claims Advocate
robert.aratingi@alliant.com


Robert Aratingi
Senior Claims Advocate
robert.aratingi@alliant.com


Robert Hershkowitz, Esq.
Claims Attorney
robert.hershkowitz@alliant.com


Steve Levine, Esq.
Claims Attorney
slevine@alliant.com


Vanessa Gonzalez
Senior Claims Advocate
vanessa.gonzalez@alliant.com