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.
FEATURED ARTICLE
INSURER WEAPONIZES SECTION 533 IN DENIAL OF COVERAGE FOR A WILLFUL ACT DESPITE FINAL ADJUDICATION LANGUAGE IN THE POLICY
Aspen Specialty Insurance Company v. Miller Barondess, LLP et al., No. 22-55032, 2023 U.S. App. LEXIS 6151 (9th Cir. Mar. 15, 2023).
In the underlying action, the Insured was named in a lawsuit that alleged the Insured engaged in specific acts of malicious prosecution. Such acts included making false statements about forged documents, concealing evidence of their client’s own misconduct, and knowingly submitting perjured testimony.
In This Issue:
INSURER WEAPONIZES SECTION 533 IN DENIAL OF COVERAGE FOR A WILFUL ACT DESPITE FINAL ADJUDICATION LANGUAGE IN THE POLICY
Aspen Specialty Insurance Company v. Miller Barondess, LLP et al., No. 22-55032, 2023 U.S. App. LEXIS 6151 (9th Cir. Mar. 15, 2023).
In the underlying action, the Insured was named in a lawsuit that alleged the Insured engaged in specific acts of malicious prosecution. Such acts included making false statements about forged documents, concealing evidence of their client’s own misconduct, and knowingly submitting perjured testimony.
Read More >>
INTENTIONAL ACTS, BARS COVERAGE UNDER AN OCCURRENCE BASED POLICY
Bridging Cmtys., Inc. v. Hartford Cas. Ins. Co., No. 355955, 2023 Mich. App. LEXIS 1495 (Ct. App. Mar. 2, 2023).
The underlying case arose when a mortgage loan provider (the “Insured”) hired a broadcasting service to conduct a fax advertising campaign. The broadcasting service providers sent thousands of fax advertisements to various recipients (the “Recipients”) without obtaining the Recipients’ permission.
Read More >>
COURT REJECTS INSURER'S MOTION TO DISMISS SUIT SEEKING CRIME COVERAGE FOR $213,000 CRIME LOSS ON DEFINITION OF "OWNERSHIP" OF LOST FUNDS
Montachem Int'l Inc. v. Fed. Ins. Co., Civil Action No. 20-20100 (ZNQ) (DEA), 2023 U.S. Dist. LEXIS 38640 (D.N.J. Mar. 8, 2023).
A New Jersey District Court denied an insurance carrier’s motion to dismiss a coverage suit brought by its Insured seeking coverage for funds lost due to a bad actor misdirecting the Insured’s customer to pay a fraudulent account.
Read More >>
CLAIM THAT PREDATES POLICY INCEPTION IS DENIED COVERAGE
Pine Mgmt. v. Colony Ins. Co., No. 1:22-cv-02407 (MKV), 2023 U.S. Dist. LEXIS 46854 (S.D.N.Y. Mar. 20, 2023).
A real estate manager (the “Manager”) brought a breach of contract claim against its professional liability carrier (the “Carrier”) for denying coverage for an underlying suit that concerned the Manager’s real estate services. The Carrier denied coverage because the claim was not timely noticed pursuant to claims made and reported policy.
Read More >>
EXCLUSIONS THAT REDUCE COVERAGE WITHOUT NOTICE IS PRECLUDED FOR A SINGLE POLICY, NOT FOR SUBSEQUENT POLICIES
Florence Cap. Advisors, LLC v. Thompson Flanagan & Co., LLC, 2023 NY Slip Op 01358 (N.Y. App. Div. 1st Dept., 16 Mar. 2023).
A New York court determined that under New York Insurance Law, the prohibition on coverage reductions in renewal policies where notice of reductions was not provided to the insured directly applies only for a single policy term.
Read More >>
MEANING OF OTHER INSURANCE DEPENDS ON SUBTLE BUT MEANINGFUL DISTINCTION
Berkley Assurance Co. v. Macdonald-Miller Cacility Sols., No. 19-CV-7627 (JPO), 2023 U.S. Dist. LEXIS 46846 (S.D.N.Y. Mar. 20, 2023).
A General Liability carrier (the “CGL Carrier”) requested reimbursement from a Professional Liability carrier (the “PL Carrier”) and to split the defense costs that the CGL incurred defending the insured. The PL Carrier sought a judgment that it was not required to reimburse the CGL Carrier for costs it incurred, and the court agreed to rely on a New York Federal Court that stated, plain unambiguous language of contracts controls the disputes arising out of other insurance clauses.
Read More >>
ILLINOIS SUPREME COURT HOLDS THAT UNION EMPLOYEES CANNOT SUE FOR BIPA VIOLATIONS OUTSIDE OF COLLECTIVE BARGAINING AGREEMENT
Walton v. Roosevelt Univ., 2023 IL 128338 (Ill. Mar. 23, 2023).
The Illinois Supreme Court resolved the certified question of whether the Labor Management Relations Act preempts Biometric Information Privacy Act (“BIPA”) claims asserted by bargaining unit employees under a collective bargaining agreement.
Read More >>
SOCIAL MEDIA GAINT'S DERIVATIVE SUIT DISMISSED; VICE CHANCELLOR CRITICAL OF PLAINTIFFS' LACK OF FACTUAL SUPPORT FOR THEIR ALLEGATIONS OF COMPETITIVE BULLYING
The Delaware Court of Chancery sided with a social media giant (the “Company”) and dismissed all allegations in a shareholder derivative suit. The Company was targeted by federal anti-trust regulators following its “monopolistic” acquisition of several social media platforms.
Read More >>
ANTITRUST COVERAGE OF D&O POLICY LIMITED BY PROFESSIONAL SERVICES EXCLUSION
Atl. Specialty Ins. Co. v. Blue Cross & Blue Shield of Kan. Inc., No. 18-2371-DDC-ADM, 2023 U.S. Dist. LEXIS 51987 (D. Kan. Mar. 27, 2023).
In the underlying Multi-District Litigation (the “MDL Action”), there was a coverage dispute that alleged monopolistic pricing and reimbursement for the Insured’s products violating antitrust laws. The carrier sought a declaratory judgment to determine that the Managed Care (professional liability) Exclusion, the Prior and Pending Exclusion, and the Related Claims Provisions precluded coverage.
Read More >>
CYBER CORNER
Click to read the following cases:
- WHITE HOUSE UNVEILS NATIONAL CYBERSECURITY STRATEGY: WHAT IT MEANS FOR BUSINESSES
- SENATE BILL CALLS FOR CLARITY AROUND CYBER INSURANCE COVERAGE
- OFFBOARDING CYBER EXPOSURES
Read More >>
SECURITIES CORNER
Click to read the following cases:
- THE SEC HAS BEEN BUSY
- COVERAGE UNDER D&O POLICY FOR PRE-MERGER CONDUCT CASE REVIVED
- DELAWARE BARS LATE ATTEMPT TO SUPPLEMENT SPAC LITIGATION
- DELAWARE ALLOWS FOR BREACH OF DUTY SUIT AGAINST SPAC TO PROCEED
- SPECIFIC ENTITY EXCLUSION APPLIED TO LAWSUIT AGAINST INSURED ALLEGING CONFLICT OF INTEREST BASED ON ITS AFFILIATION WITH THE EXCLUDED ENTITY
- MARCH 2023 NOTEWORTHY ENFORCEMENT ACTIONS FILED
- MARCH 2023 NOTEWORTHY SETTLEMENTS AND JUDGEMENTS
Read More >>
SHAREHOLDER CORNER
Click to read the following cases:
- MARCH 2023 SECURITIES CLASS ACTION FILINGS
Read More >>
INSURER WEAPONIZES SECTION 533 IN DENIAL OF COVERAGE FOR A WILLFUL ACT DESPITE FINAL ADJUDICATION LANGUAGE IN THE POLICY
Aspen Specialty Insurance Company v. Miller Barondess, LLP et al., No. 22-55032, 2023 U.S. App. LEXIS 6151 (9th Cir. Mar. 15, 2023).
In the underlying action, the Insured was named in a lawsuit that alleged the Insured engaged in specific acts of malicious prosecution. Such acts included making false statements about forged documents, concealing evidence of their client’s own misconduct, and knowingly submitting perjured testimony. The Insured tendered the claim under its professional malpractice policy, but the carrier denied coverage for a proposed settlement. The carrier cited a California law Section 533 of the insurance code that stated, “an insurer is not liable for a loss caused by the willful act of the insured.”
The trial court, ruled in favor of the Insured because the carrier could not deny coverage for “willful acts” and could not do so unless or until there was a final adjudication on the merits of the malicious prosecution claim. This case eventually made its way to the 9th Circuit. The 9th Circuit reversed the trial court’s decision and held that under California law, the court could examine the allegations of the underlying complaint and use its own judgment to determine if the “willful act” exclusion bars coverage for the alleged conduct. In so holding, the 9th Circuit seemingly accepted the carrier’s allegations as true without imposing any particular judicial determination of proof.
The Takeaway
This decision highlights troubling and problematic carrier behavior of insurers ignoring well-crafted wording requiring final adjudication and asserting a defense outside the four corners of the policy. The fact that this behavior was ratified by the 9th Circuit is equally disturbing.
INTENTIONAL ACTS, BARS COVERAGE UNDER AN OCCURRENCE BASED POLICY
Bridging Cmtys., Inc. v. Hartford Cas. Ins. Co., No. 355955, 2023 Mich. App. LEXIS 1495 (Ct. App. Mar. 2, 2023).
The underlying case arose when a mortgage loan provider (the “Insured”) hired a broadcasting service to conduct a fax advertising campaign. The broadcasting service providers sent thousands of fax advertisements to various recipients (the “Recipients”) without obtaining the Recipients’ permission. As a result of the campaign, the Recipients of unsolicited advertisements filed a federal class action which, eventually, settled.
A federal court then entered a judgment against the Insured for the successful transmission of advertisements. Following the settlement and the judgment, the Recipients sought coverage under the advertising injury and property damage coverage sections for the alleged violation of the Telephone Consumer Protection Act (“TCPA”). The TCPA established a private right of action to recover actual monetary loss or statutory damages for each violation, as well as damages for a knowing or willful violation.
In the coverage dispute, the Insured argued that the carrier was required to provide coverage for the damages awarded in the federal class action. The policy provided coverage for the Insured for “property damage” caused by an “occurrence” and “’personal and advertising injury’ caused by an offense arising out of [the Insured’s] business . . .” during the policy period. The Insured further argued that their unsolicited fax campaign injured or destroyed the Recipient’s personal property, including fax toner and paper, and fax machines; thus, coverage under the property damage provision was triggered.
To resolve the Insureds’ allegations, the court focused on whether the carrier’s policy provided coverage under the property damage provision. The parties agreed that this determination depended on whether the alleged property damage was caused by an “occurrence,” which the policy defined as an “accident” (not to be confused with property damage that is “expected or intended from the standpoint of the [I]nsured”).
The court held that the Insured’s intentional action of sending the faxes created an expected risk that the Recipients would sustain damage to their fax machines, paper, and ink or toner. Therefore, since the damage was foreseeable, there was no coverage under the policy’s property damage provision. The court noted that even if the Insured’s conduct were an “occurrence,” coverage would nevertheless be precluded by the statutory right to privacy exclusion.
COURT REJECTS INSURER’S MOTION TO DISMISS SUIT SEEKING CRIME COVERAGE FOR $213,000 CRIME LOSS ON DEFINITION OF “OWNERSHIP” OF LOST FUNDS
Montachem Int'l Inc. v. Fed. Ins. Co., Civil Action No. 20-20100 (ZNQ) (DEA), 2023 U.S. Dist. LEXIS 38640 (D.N.J. Mar. 8, 2023).
A New Jersey District Court denied an insurance carrier’s motion to dismiss a coverage suit brought by its Insured seeking coverage for funds lost due to a bad actor misdirecting the Insured’s customer to pay a fraudulent account. In this case, the Insured suffered a compromise of its business email account, which allowed a bad actor to advise the Insured’s customer to update their payment information and issue payment to a new (and fraudulent) bank account.
The customer paid (the fraudulent account) an invoice owed to the Insured totaling approximately $213,000. The Insured then sought coverage for the loss from its insurance carrier. The Insurer denied the claim because the customer was not the entity that transferred the funds and never owned the funds transferred to the bad actor.
The court focused its analysis on the definition of “Ownership” within the policy. The policy required that the Insured establish that it either “owned” the stolen funds, “held” the stolen funds, or “was legally liable for” the stolen funds. The Insured argued that it had shown “ownership” based on its “holding” of the account receivable, which—it asserts—falls within the Policy’s “held . . . within any capacity” language. The court found that the Insured had sufficiently pled its interest in the funds to fall within the scope of coverage in the Policy and denied the insurer’s motion to dismiss.
Notably, the court distinguished this matter from a similar ruling that found in favor of the insurance carrier because the policy’s ownership language in this matter— “held . . . in any capacity”—was broader than the “owns” or “holds” language at issue in its prior ruling.
CLAIM THAT PREDATES POLICY INCEPTION IS DENIED COVERAGE
Pine Mgmt. v. Colony Ins. Co., No. 1:22-cv-02407 (MKV), 2023 U.S. Dist. LEXIS 46854 (S.D.N.Y. Mar. 20, 2023).
A real estate manager (the “Manager”) brought a breach of contract claim against its professional liability carrier (the “Carrier”) for denying coverage for an underlying suit that concerned the Manager’s real estate services. The Carrier denied coverage because the claim was not timely noticed pursuant to claims made and reported policy. While the underlying complaint against the Manager was filed during the policy period, an attorney letter regarding the claim had been sent to the Manager over a year before the complaint was filed and before the policy’s inception. The Manager argued that the letter did not constitute a claim as it merely recited points of law and requests to review documents and fell short of making demands. The court disagreed.
In denying the policyholder’s request for coverage, the court concluded that the letter was a claim because it highlighted the following: 1) claims against the Manager; 2) analysis of the allegations that would support the claims; 3) identification of monetary and non-monetary forms of relief; and 4) a plan of resolution. Furthermore, on account of the letter, the policyholder was aware of wrongful acts before the policy’s inception.
The Takeaway
This decision serves as a reminder to notify claims as soon as practicable. To avoid late-notice issues, the policyholders should review any written demand with a qualified broker to determine whether a given writing triggers a notice obligation.
EXCLUSIONS THAT REDUCE COVERAGE WITHOUT NOTICE IS PRECLUDED FOR A SINGLE POLICY, NOT FOR SUBSEQUENT POLICIES
Florence Cap. Advisors, LLC v. Thompson Flanagan & Co., LLC, 2023 NY Slip Op 01358 (N.Y. App. Div. 1st Dept., 16 Mar. 2023).
A New York court determined that under New York Insurance Law, the prohibition on coverage reductions in renewal policies where notice of reductions was not provided to the insured directly applies only for a single policy term and not to subsequent renewals containing that same reduction. In the instant matter, for several years, an Insurer issued a series of professional liability policies to an investment advisor (the “Company”). During one of the policy renewals, the Insurer added a Hedge Fund Exclusion which remained on each subsequent policy.
A few years later, the Company became involved in a lawsuit brought by a former client claiming injury due to the Company’s advice to invest in a fund that later became insolvent. The Insurer denied coverage based on the Hedge Fund Exclusion. In response, the Company filed a coverage action and argued that the Hedge Fund Exclusion had been added in violation of the New York Insurance Law. The Company also argued that the notice to their brokers was insufficient, and the Insurer could not rely on the exclusion in any subsequent policy periods until it cured the violation.
The Insurer argued that even if the exclusion were added in violation of the New York Insurance Law, the statute only prevented the application of the coverage reduction in the single policy period that immediately followed the statutory violation. The Insurer argued that the prevention of the coverage reduction should not apply perpetually, or, in other words, in subsequent renewals. The court agreed with the Insurer and ruled that even if the Hedge Fund Exclusion had been added in violation of the New York Insurance Law, the statute would prevent the exclusion’s application only in one additional policy period.
The Takeaway
Courts around the country have disfavored notions of perpetual coverage. Thus, as shown above, time can cure such asserted violations that exist on insurance policies for longer than one year. Therefore, best practices reiterate the need to carefully review coverage for any reductions with a qualified insurance broker. Moreover, the brokers must ensure streamlined communications with the policyholders and keep them appraised of any changes affecting their coverage.
MEANING OF OTHER INSURANCE DEPENDS ON SUBTLE BUT MEANINGFUL DISTINCTION
Berkley Assurance Co. v. Macdonald-Miller Cacility Sols., No. 19-CV-7627 (JPO), 2023 U.S. Dist. LEXIS 46846 (S.D.N.Y. Mar. 20, 2023).
A General Liability carrier (the “CGL Carrier”) requested reimbursement from a Professional Liability carrier (the “PL Carrier”) and to split the defense costs that the CGL incurred defending the insured. The PL Carrier sought a judgment that it was not required to reimburse the CGL Carrier for costs it incurred, and the court agreed to rely on a New York Federal Court that stated, plain unambiguous language of contracts controls the disputes arising out of other insurance clauses.
The PL Carrier’s policy stated that "[w]hen any other insurance has a duty to defend a Claim, [the PL Carrier] will have no duty to defend the Claim." The PL Carrier highlighted that its Other Insurance Clause did not include the word “loss,” and focused only on covered Claims. This “subtle but meaningful” distinction differentiated the PL Carrier’s policy wording from other policies that provide they would serve as excess only when any other policy covered "any Loss resulting from any Claim." The PL Carrier’s claims-focused clause, as opposed to the loss-focused clause, asked whether the claim, not the underlying loss, was covered by another policy. The CGL Carrier did not cover loss that overlapped with the PL Carrier’s coverage. Yet, the same was not true about claims; therefore, the CGL Carrier’s broad duty to defend did not have any overlap with the PL Carrier’s duty to indemnify.
Moreover, the PL Carrier’s Other Insurance Clause narrowed its duty to defend by stating that "if no such other insurance defends the Claim, [the PL Carrier] will have the right but not the duty to defend the Claim." The court noted that this clause restricted the PL Carrier’s duty to defend facts where another party had a duty to defend and even when another party had no duty to defend. Since the CGL Carrier had the duty to defend which was broader than the duty to indemnify, the CGL Carrier had the obligation to defend the underlying claim without the PL Carrier’s contribution.
The Takeaway
Although the clashes of “other insurance” clauses may be tricky, as the court above demonstrated, the resolution of such disputes mostly depends on the language that the carriers see in front of them, so such litigation may be avoided if parties are willing to allow the language, they drafted to control the outcome of issues.
ILLINOIS SUPREME COURT HOLDS THAT UNION EMPLOYEES CANNOT SUE FOR BIPA VIOLATIONS OUTSIDE OF COLLECTIVE BARGAINING AGREEMENT
Walton v. Roosevelt Univ., 2023 IL 128338 (Ill. Mar. 23, 2023).
The Illinois Supreme Court resolved the certified question of whether the Labor Management Relations Act preempts Biometric Information Privacy Act (“BIPA”) claims asserted by bargaining unit employees under a collective bargaining agreement.
The employee and class members sued a university where they were employed as security guards. The university used a handprint scanner for employees to clock in and out of work each day. The allegations were that the university failed to comply with BIPA by not obtaining proper consent, not disclosing a retention policy, and not revealing the purpose or length of time for which the biometric information would be stored.
The university asserted that the claims against it were preempted by the Labor Management relations Act, as the employees had agreed to a collective-bargaining agreement with the university. The lower court disagreed, and the matter was taken up on appeal, eventually reaching the Illinois Supreme Court.
The Illinois Supreme Court focused on two prior Federal Court rulings that held that Privacy Act claims for use of a time clock are pre-empted by federal labor law. In the analysis under these holdings, the courts also noted that the employee’s unions had consented and received notice of the use of biometric data for time-keeping either expressly, or through their collective-bargaining agreements management right clauses, and that BIPA "provides that a worker or an authorized agent may receive necessary notices and consent to the collection of biometric information." The Illinois Supreme Court held that when an employer invokes a broad management-rights clause from a collective-bargaining agreement in response to a Privacy Act claim, the claim is preempted because it is up to an arbitrator to determine "whether the employer properly obtained the union's consent.”
The Takeaway
BIPA litigation continues to keep the Illinois courts busy. This ruling provides a potential defense for employers sued under BIPA when the employees are unionized under a collective-bargaining agreement. As only about 6% of private-sector U.S. workers are union members, the ruling is unlikely to impact the vast majority of U.S. employers.
SOCIAL MEDIA GIANT’S DERIVATIVE SUIT DISMISSED; VICE CHANCELLOR CRITICAL OF PLAINTIFFS’ LACK OF FACTUAL SUPPORT FOR THEIR ALLEGATIONS OF COMPETITIVE BULLYING
The Delaware Court of Chancery sided with a social media giant (the “Company”) and dismissed all allegations in a shareholder derivative suit. The Company was targeted by federal anti-trust regulators following its “monopolistic” acquisition of several social media platforms.
The underlying lawsuit accused directors and officers of conspiring to dominate the social media advertising markets through anti-competitive, or, simply put, “bullying” behavior. Further, it was alleged that the former CEO and COO (the “Board”) failed to oversee and ensure the legitimacy of the advertising measurement systems.
According to the complaint, the Company knowingly implemented a monopolistic model in violation of the Sherman, Clayton, and FTC Acts and ignored the material risks associated with pursuing such anti-competitive efforts. Specifically, plaintiffs alleged the Board breached its fiduciary duties of care and loyalty.
In its ruling, the court rejected the shareholders’ efforts to pursue the breach of fiduciary duty claims under the Delaware’s General Corporation law. That was before the federal anti-trust claims adjudicated in another courthouse have been ruled upon.
The court commented on the quality of the shareholder allegations and harshly noted that the complaint was not “targeted” but, instead, seemed to be brought as “triage.” In other words, the court pointed to how the stockholders did not critically analyze whether the complaint contained enough facts to support the claims they attempted to pursue. Notably, the court distinguished Caremark claims, which focused on directors’ duty of care and oversight, from the yet unresolved federal anti-trust claims.
ANTITRUST COVERAGE OF D&O POLICY LIMITED BY PROFESSIONAL SERVICES EXCLUSION
Atl. Specialty Ins. Co. v. Blue Cross & Blue Shield of Kan. Inc., No. 18-2371-DDC-ADM, 2023 U.S. Dist. LEXIS 51987 (D. Kan. Mar. 27, 2023).
In the underlying Multi-District Litigation (the “MDL Action”), there was a coverage dispute that alleged monopolistic pricing and reimbursement for the Insured’s products violating antitrust laws. The carrier sought a declaratory judgment to determine that the Managed Care (professional liability) Exclusion, the Prior and Pending Exclusion, and the Related Claims Provisions precluded coverage.
The Directors and Officer’s (D&O) Policy expressly defined and provided coverage for Antitrust matters that included specifically defined Antitrust Activities. The policy also contained a Managed Care Exclusion that encompassed items such as pricing, fee collecting, and services related to the professional services that the Insured provided. Noting that the exclusion precluded coverage for claims involving the Insured’s commercial services and not all claims related to its business, the court rejected the Insured’s arguments that the allegations of Antitrust Activities, when viewed in the context of the Managed Care Exclusion, created illusory coverage. The court went further and clarified that the D&O policy would cover wrongdoings that involved merger, acquisition, equity or debt, indictments of directors or officers, and a myriad of other claims against directors and officers arising from commercial transactions.
Years prior to the MDL Action, and prior to the inception of the D&O policy, a class action (“Prior Action”) was filed against the Insured, which also alleged similar monopolistic practices related to the Insured’s products. The Insured, in the MDL Action, utilized the determination in the Prior Action to argue res judicata and collateral estoppel (previously decided) defenses based upon the agreements reached in the Prior Action. The court held that MDL Action alleged “the same or essentially the same facts, or the same or related Wrongful Acts” as the Prior Action, and, therefore, the Prior and Pending Litigation Exclusion and the Related Claims Provision also served to preclude coverage for the MDL Action.
Cyber Corner
WHITE HOUSE UNVEILS NATIONAL CYBERSECURITY STRATEGY: WHAT IT MEANS FOR BUSINESSES
The Biden administration has announced a new national cybersecurity strategy that calls for greater regulatory scrutiny of the private sector’s handling of cyber threats. The plan also proposes a shift in liability for flaws in technology products which leaves their end users vulnerable to an attack.
SENATE BILL CALLS FOR CLARITY AROUND CYBER INSURANCE COVERAGE
A bipartisan bill introduced in the U.S. Senate seeks to provide small businesses with the information they need to make better use of their cyber insurance policies. The “Insure Cybersecurity Act of 2023” is being co-sponsored by Senators John Hickenlooper of Colorado and Shelly Moore of West Virginia.
OFFBOARDING CYBER EXPOSURES
One of the most popular social media platforms found its confidential source code posted on an online collaboration platform for software developers. While the country’s concerns about the security of social media users’ data have been on the rise, this leak is also a major exposure of intellectual property for the social media company.
SEC Corner
THE SEC HAS BEEN BUSY
In the new round of proposals, the SEC has highlighted three areas of emphasis and opened a 60-day comment period, which will begin following publication in the Federal Register.
COVERAGE UNDER D&O POLICY FOR PRE-MERGER CONDUCT CASE REVIVED
Liberty Ins. Underwriters, Inc. v. Cocrystal Pharma, Inc., No. 22-2242, 2023 U.S. App. LEXIS 7405 (3d Cir. Mar. 29, 2023).
A panel for the 3rd Circuit (the “Panel”) revived an Insurer’s suit that sought to avoid paying defense costs related to an SEC investigation. In the underlying litigation, a pharmaceutical company faced charges involving stock manipulation that allegedly took place before the company came into existence through a reverse merger.
DELAWARE BARS LATE ATTEMPT TO SUPPLEMENT SPAC LITIGATION
A Delaware court rejected an attempt by counsel to supplement a class action shareholder complaint with net-cash-per-share failure allegations in a SPAC suit while dismissal was pending. The shareholders claimed the proxy was misleading as to the per-share value of a hydrogen-fuel-cell vehicle maker in advance of finalizing its merger with the SPAC.
DELAWARE ALLOWS FOR BREACH OF DUTY SUIT AGAINST SPAC TO PROCEED
Cody Laidlaw v. GigAcquisitions2 LLC, et al., No. 2021-0821-LWW (Del. Ch. Mar 1, 2023).
Delaware’s Vice Chancellor declined to dismiss a class action investor claim against a SPAC for breach of fiduciary duty in a merger where the sponsor and directors made large returns at the expense of the investors. After the SPAC completed its Initial Public Offering, stockholders were given the choice of redeeming their per-share investment or investing in the post-merger company.
SPECIFIC ENTITY EXCLUSION APPLIED TO LAWSUIT AGAINST INSURED ALLEGING CONFLICT OF INTEREST BASED ON ITS AFFILIATION WITH THE EXCLUDED ENTITY
Capwealth Advisors, LLC v. Twin City Fire Ins. Co., No. 3:21-cv-00036, 2023 U.S. Dist. LEXIS 53831 (M.D. Tenn. Mar. 29, 2023).
A Tennessee District Court recently ruled in favor of an insurance carrier based on the applicability of a specific-entity exclusion. The lawsuit arose out of an SEC investigation into an investment advisory firm, its former broker-dealer, and certain members with shared interests in both entities.
MARCH 2023 NOTEWORTHY ENFORCEMENT ACTIONS FILED
|
Director/Officer |
Role |
Company |
|
Ryan R. Riley |
Owner/Officer |
Mustang Oil & Gas, Inc. |
|
Terren S. Peizer |
Executive Chairman |
Ontrak, Inc. |
|
Wright W. Thurston |
Founder |
Green United, LLC |
|
Samir Rao |
COO |
Ozy Media, Inc. |
|
Director/Officer |
Role |
Company |
|
Ryan R. Riley |
Owner/Officer |
Mustang Oil & Gas, Inc. |
|
Terren S. Peizer |
Executive Chairman |
Ontrak, Inc. |
|
Wright W. Thurston |
Founder |
Green United, LLC |
|
Samir Rao |
COO |
Ozy Media, Inc. |
MARCH 2023 NOTEWORTHY SETTLEMENTS AND JUDGMENTS
|
Amount |
Director/Officer |
Role |
Company |
|
$ 69,000.00 |
Kurt W. Streams |
CFO |
SITO Mobile, Ltd. |
|
$ 50,000.00 |
Gerard R. Hug |
CEO |
SITO Mobile, Ltd. |
|
Amount |
Director/Officer |
Role |
Company |
|
$8.5 Million |
Imran Parekh |
Director |
Evoqua Water Technologies Corp. |
|
$1,126,606 |
Joshua Dax Cabrera |
CEO |
Medsis International |
|
$45,000 |
Philip R. Jacoby |
Officer |
Osiris Therapeutics, Inc. |
|
$2,550,259.98 |
Martin Silver |
Founder |
International Investment Group |
|
$771,213.21 |
Andrew Stack |
CEO |
Preston Royalty Corp. |
Source: U.S. Securities and Exchange Commission
Financial
Source: Stanford Law School Securities Class Action Clearinghouse
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Claims Attorney
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David Finz, Esq.
Claims Attorney
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Claims Advocate
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Jacqueline Vinar, Esq.
Claims Attorney
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Jaimi Berliner, Esq.
Claims Attorney
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Malia Shappell, Esq.
Claims Attorney
malia.shappell@alliant.com
Michael Radak, Esq.
Claims Attorney
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Robert Aratingi
Senior Claims Advocate
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Robert Hershkowitz, Esq.
Claims Attorney
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Steve Levine, Esq.
Claims Attorney
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