A court ruled that a service provider for biotechnology companies (the “Insured”), had stated a claim for a “Privacy Event,” thus triggering coverage under its professional liability policy. Customers accused the Insured of wrongfully revealing confidential and trade secret information that the Insured could use for its own benefit. The claim was settled prior to the filing of a lawsuit and the Insured sought coverage for the defense and settlement of the claim from its carrier. The carrier denied coverage, arguing the policy did not cover the intentional theft of customers trade secrets and that the claim did not qualify as a Privacy Event. The carrier further held that the intellectual property exclusion, the contractual liability exclusion, and the unfair business practices exclusion all barred coverage.

The policy defined a Privacy Event, in part, as:

The carrier argued that "information" within this definition must mean "Personal Information," which does not extend to trade secrets, and the underlying complaint did not contain any allegations relating to Personal Information. The carrier also argued there was no actual theft of information within the Insured’s care, custody or control.

The court disagreed, finding that the policy’s Intellectual Property exclusion specifically did not apply to “disclosure, loss, or theft of a trade secret or idea resulting from a Privacy Event” and therefore a Privacy Event was not limited solely to theft of “Personal Information.” The court also found that theft included “when a party ‘legally receives’ the ‘property of another’ and ‘fraudulently converts the same to the person's own use,’” thus the Insured adequately asserted the elements of a Privacy Event. Finally, the court determined that none of the exclusions cited by the carrier applied to the claim because they all included carve-backs for Privacy Events.

A bankruptcy court held that while a D&O insurance policy may be the property of a bankruptcy estate, the insurer is permitted to advance defense costs to former officers and the estate does not have an interest in the policy’s proceeds unless the debtor is entitled to coverage under the policy.

An oil company (the “Debtor”) filed for Chapter 7 bankruptcy (liquidation of assets) and a Trustee was assigned. The Trustee sued certain former officers (the “Officers”) seeking to enlarge the estate. The Officers moved to lift the automatic stay to permit the D&O insurer to advance and/or reimburse their defense costs under their management liability policy. The Trustee countered that the stay should remain in place because the policy and insurance proceeds were property of the estate. The Trustee argued the estate had an interest in the proceeds under both the entity liability and individual directors’ and officers’ liability coverage parts.

The court agreed that the policy itself was the property of the estate; however, the Trustee failed to demonstrate that the proceeds from the policy were as well. Whether a debtor has an interest in the proceeds of an insurance policy is fact-specific, and proceeds of an insurance policy are only classified as property of the estate when the debtor itself is otherwise entitled to coverage under the policy. The court found that the Trustee failed to show the Debtor had a covered Claim that would entitle it to coverage under the policy and therefore the estate did not have an interest in proceeds under the entity liability coverage.

Regarding the individual liability, the Trustee argued the estate had interest in the proceeds because if the Trustee were to obtain a settlement against the Officers, then the insurance proceeds would be paid to the estate. Regardless of whether the payment of proceeds to the Officers reduced payments available to the estate or if those proceeds would flow back to the estate, coverage was for the benefit of Insured Individuals, and not for the benefit of Insured Entities, such as the Debtor. 

A biopharmaceutical company (the “Company”) agreed to settle a matter with its investors following allegations that the Company inflated its share prices by failing to disclose timeline and growth problems.

In its lawsuit, the investors alleged that the Company boosted its share price by covering up the need for extra testing on several medications that complicated the timeline and potential approval of the Company’s application to the Food and Drug Administration (“FDA”), while hiding problems on different medications. As the Company’s flagship medication approached its expiration date, the Company began to “prop up” its share price by stating two new medications would serve as “sources of revenue to fill the void” and claimed in its FDA application that one of the medications was approved despite the drug never having completed crucial first testing phase.

The FDA ultimately declined to review the new medication application, which resulted in a decline in the share price that underscored the testing problems and delays. The Company also exaggerated the growth prospects for medications “despite receiving repeated internal warnings that achieving this guidance was impossible.” The Company repeatedly told investors that the drug would generate billions in net sales, despite knowing there were problems with the drug’s pricing, effectiveness, and patient access. 

A federal court held a private equity fund jointly and severally liable for the withdrawal liability for some of its portfolio companies because the court determined that it was a part of the same “controlled group” and that the fund was a “trade or business.”

An asset management company, (the “Sponsor”) created a private equity fund (the “Fund”) and had a general partner (the “GP”). The Fund was established to purchase stakes in businesses and seek to increase those businesses’ value and selling them for a profit. Two of the Fund’s portfolio companies (the “PortCos”) which the fund owned a substantial indirect interest, were contributing to a multi-employer Pension Trust plan (the “Plan”), but eventually, dissolved and withdrew from the Plan. Years later, the Plan sent a letter to the PortCos, the Sponsor, and the GP demanding payment related to withdrawal liability alleging that they comprised a controlled group.

Under ERISA, an employer that withdraws from a multi-employer pension plan must pay its share of the plan’s unfunded vested benefits which extends to the “controlled group” obligation to all “trades and businesses” that are under “common control.” This rule held withdrawing employers and each controlled group jointly and severally liable. If the withdrawing employer was owned by a private equity fund, the plan may seek to hold the fund, its sponsor, GP, and their PortCos jointly and severally liable for the withdrawal liability.

Siding with the Plan, the court held that the Fund was a controlled group member. The court determined that the Fund was a “trade or business” because it owned and actively managed the PortCos. The Fund appointed members to their board and had operational advisors, with the sole purpose of generating profit. The court held that it was undisputed that the Fund owned a majority of the PortCos, was a trade or business under common control with the PortCos, and, thus, was jointly and severally liable for their withdrawal liability.

The court did not extend liability to the GP or the Sponsor, holding that the GP was merely a pass-through entity that had delegated all its responsibilities and powers to the Sponsor and had no employees. Similarly, the court held that the Sponsor had only a nominal, indirect ownership interest in the Fund and the actions that were taken were done in accordance with the management agreement with the GP. 

A court affirmed that an insurer had no obligation to defend or indemnify an insured for the insured’s underlying conduct that predated the policy’s retroactive date and, thus, fell outside of coverage.

In the underlying class action, it was alleged that the insured, an IT consulting firm (the “Firm”), violated Section 15(c) of Illinois Biometric Information Privacy Act (BIPA), which prohibited private entities from selling, leasing, trading, or profiting from an individuals’ biometric information. Particularly, the action alleged that the Firm, when acting as a purchasing agent, violated BIPA by selling access to a facial recognition database which contained unauthorized biometric data of Illinois residents.

Coverage was denied because the alleged wrongful act occurred prior to the policy’s retroactive date, resulting in coverage litigation. The lower court found that the Firm’s alleged “wrongful acts” and “enterprise security event” predated the retroactive date on the policy and, therefore, were not covered. The Firm appealed and the Appellate court ruled in favor of the insurer.

The court highlighted the distinction between the claim-reporting and claims-coverage policy sections, emphasizing that the plain language of the policy required the enterprise security event to have “first occurred on or after the retroactive date and prior to the end of the policy period.” Given the Firm had purchased and resold the product at issue prior to the retroactive date, the Firm’s conduct fell outside coverage regardless of notice of the action. 

A federal court reminded why duty to defend is a broad, coverage-preserving concept that insureds could use to their strategic advantage.

A lawyer who represented a husband and wife in a RICO case allegedly distributed funds and auction proceeds to the husband’s (and not the wife’s) account. The husband subsequently filed for divorce and the ex-wife sued the lawyer and their firm for malpractice, breach of fiduciary duty, breach of contract, and failure to disclose a conflict of interest.

The lawyer sought coverage for the malpractice lawsuit from its professional liability insurer who denied coverage. The insurer cited the misappropriation exclusion which provided that coverage was not available for “any claim[s] or other request[s] involving or relating to any conversion, improper commingling, or misappropriation, whether by an Insured or any other person, and whether intentionally or not, of client funds or trust account funds or funds of any other person held by any Insured in any capacity.”

The court disagreed with the Insurer’s broad reading of the exclusionary language and the “involving and relating to” phrase. The court noted that there were multiple claims in the suit, including ones that did not implicate the misappropriation exclusion. For instance, the court stated that allegations of “failure to seek waiver of the conflicts or withdraw from representation—have nothing to do with misappropriation, conversion, or improper commingling, and, thus, fall outside the misappropriation exclusion.” According to the court, the Insurer had the duty to defend the entire claim because some allegations triggered coverage.