A court held that an excess carrier properly denied coverage because the regulator’s initial civil investigative demand (“CID”) did not meet the follow-form E&O policy’s definition of Claim. 

A technology company sought coverage for costs it incurred after a federal regulator investigated its privacy and security practices, which spawned several related consumer lawsuits. The company settled with its primary carrier and all excess carriers but one. The remaining dispute centered on whether the CID constituted a Claim as defined by the followed policy. The CID stated that its purpose was to determine whether the company engaged in any wrongdoing and requested answers to interrogatories and documents related to potential violations. The regulator later issued a complaint based on its findings and eventually consumer watchdogs filed civil litigation. 

The policy defined Claim as a demand for non-monetary relief or a Regulatory Proceeding, which was defined as: 

a suit, civil investigation or civil proceeding by or on behalf of a government agency, government licensing entity, or regulatory authority, commenced by the service of a complaint, or similar pleading based on an alleged or potential violation of Privacy or Cyber Laws as a result of a Cyber Incident. 

The carrier argued that the CID was neither a demand for non-monetary relief (because it only sought documents and responses to interrogatories) nor a Regulatory Proceeding (because it sought information regarding a potential violation of Privacy or Cyber Laws).  

The court concluded that “‘non-monetary relief’ cannot be construed to include mere demands for information or documents sought by a civil investigation or administrative subpoena.” The court determined that the definition of Claim was not broad enough “to include demands for information, absent any allegation of wrongdoing.” The court also determined that the CID did not constitute a Regulatory Proceeding because the initial demand for information was not based on an alleged or potential violation of a Privacy or Cyber Law. Because the CID did not meet the policy’s definition of a Claim, coverage was never triggered, and the carrier had no obligation to cover the costs associated with the subsequent investigation or related lawsuits.

A court held that a carrier had the duty to indemnify two executive insureds for a judgment arising from a failed business deal with allegations of misrepresentation and trade practice violations. 

In the underlying lawsuit, two executive directors, (the “Executives”) were accused of negligent misrepresentation and violations of unfair deceptive trade practices while entering into a debt relief agreement. Specifically, the lawsuit alleged that the Executives’ misstatements and misrepresentations were relied upon. At trial, a jury issued a judgment against the Executives for compensatory and treble damages. 

To satisfy the judgment, the Executives submitted the matter to their D&O Carrier. The policy required the Carrier to “pay on behalf of an Insured Person all Loss for which such Insured person is not indemnified by the Company” and is “legally obligated to pay as a result of a Claim for a Wrongful Act . . . .” The Carrier denied coverage, citing the definition of Loss which excluded coverage for any contractually owed amounts or any disgorgement or restitution of ill-gotten gains. 

The court rejected the Carrier’s argument because the verdict did not indicate that the damages awarded “amounted to any disgorgement, restitution of ill-gotten gains, or recessionary damages,” nor did the Executives receive any profit or advantage from their actions. Furthermore, the court noted that the judgment “itself explicitly labeled the damage award as ‘compensatory,’ and not restitutionary.” Thus, the Carrier was obliged to provide coverage for the judgment awarded against the Executives.

A court held that a D&O carrier was required to continue advancing defense costs because the carrier could not establish that all allegations fell within the policy’s Retroactive Date Exclusion (the “Exclusion”). 

The underlying lawsuits and an SEC investigation alleged that the company and certain directors and officers (collectively, the “Insureds”) made misrepresentations regarding vehicle orders both before and after the policy's inception. The carrier denied coverage, arguing that the claims were all related to conduct that occurred prior to the inception of the policy and, thus, fell within the Exclusion. The Exclusion barred coverage for any claim that arose out of (1) wrongful acts occurring before the policy’s effective date, or (2) conduct or wrongful acts that occurred during the policy’s effective date that were related to or shared a common nexus with wrongful acts occurring before the policy’s effective date.

The court disagreed with the carrier noting that the complaints alleged more than misrepresentations regarding vehicle orders. Specifically, the pleadings included allegations of insider trading, concealment of testing failures, corporate mismanagement, and unjust enrichment. In affirming the lower court's decision, the court emphasized that the applicability of the Exclusion had to be analyzed on a claim-by-claim basis. While some allegations may have fallen within the exclusion, the carrier failed to demonstrate that every cause of action was excluded. Since some claims potentially arose from conduct outside the Exclusion, the court held that the Insured remained entitled to advancement of defense costs.

A state court ruled that a carrier properly denied coverage by asserting a D&O policy’s capacity exclusion despite initially making a partial payment of defense costs. 

This coverage dispute arose from two lawsuits accusing the chairman of a pharmaceutical company (the “Company”) of orchestrating a self-dealing scheme that diverted assets and distribution rights from a third-party entity the chairman controlled to benefit himself and the Company. Following a large settlement, the D&O carrier allocated a percentage of coverage to the Company subject to a reservation of rights. 

The carrier raised the capacity exclusion (the “Exclusion”) which barred claims “in any way involving” wrongful acts by an uninsured person acting in their capacity with an uninsured entity. The carrier argued that the underlying allegations arose from the chairman’s role at the uninsured entity and asserted that it consistently reserved its rights under the Exclusion throughout the claim process. The Company countered stating that the carrier forfeited its right to rely on the Exclusion by making a partial payment of defense costs before withdrawing its defense of the matter. The Company added that the carrier was estopped from asserting the Exclusion because it failed to timely disclaim all coverage, having raised the capacity issue only after a five-year delay. 

The court ultimately sided with the carrier, holding that the carrier had properly reserved its rights with respect to the Exclusion in its communications with the Company throughout the claim process. Applying the scope of the Exclusion, the court found that it broadly applied to all underlying allegations, as every claim was connected to the chairman’s relationship with the uninsured entity. Furthermore, the court held that the carrier did not act in bad faith nor violate its contractual obligations by refusing to fund the settlement.