Trying the Environmental Coverage Case in 2017

James R. Murray and Omid Safa

murraysafaIt can be easy for insurance trial lawyers to become complacent when fighting the ancient coverage wars over asbestos and pollution related-liabilities. But good trial lawyers know how to revisit their time-tested themes with renewed energy and vigor each time. They face each trial fresh, as if it is the first time the words have been spoken, because the trial lawyer knows that for the jury, that might as well be true. The evidence and the themes will be all new.

While there are potential nuances and variations that can affect the approach to a jury trial in a specific environmental coverage dispute, certain themes are staples. Regardless of venue or the particular facts of a case, most if not all of the following simple but time-honored themes should be brought home to the jury:

“This Case is About Insurance, Not Pollution”

Pollution issues have the potential of turning an insurance trial on its head. All of a sudden, a trial that should be about recalcitrant insurers can morph into a “pollution” case with the policyholder sitting as the de facto defendant. If insurers are successful in this regard, the policyholder can lose the high ground — along with most of the logical, tactical and ethical advantages of being the plaintiff.

So it is critical to keep the case on track. Do not let the jury be distracted by environmental aspects of the case to the point where they lose sight of the fact that “this is an insurance case.” Jurors need to be reminded strongly during opening statement and throughout the case that the only question to be answered is whether there is insurance for the policyholder’s liability. Not whether the site will be cleaned up, or when it will be safe for jurors to picnic there.

Remind them that insurance is purchased in case things go wrong, and coverage does not depend on their view of the policyholder or its alleged wrongdoing. In many instances, one can also point out that the case is not about pollution because the policyholder has already acknowledged responsibility under the superfund or other legislation and has already met that obligation without being taken to court. In such cases, you should be sure to tell the jurors that they will see no questions in the verdict form about whether the insured is responsible or whether it should pay for the cleanup. That issue is resolved.

“Three Little Words are Not a Giant Loophole”

Most cases will involve a verdict form that asks whether the property damage was “expected or intended” by the insured. Jurors should be told in opening and reminded whenever possible that this phrase is nothing more than three words out of the entire insurance contract. It’s a narrow loophole to deny coverage to a policyholder under specific circumstances, not a sweeping exclusion that eliminates coverage for anyone that sees the need to purchase insurance to guard against potential risks.

A possible visual could include a listing of what the insured could not have expected: new federal or state regulations, development of new technologies or new monitoring methods or changes in definitions of and public perception about pollution.

So, three words out of thousands. One line out of pages. Look at all the language that the insurers are not talking about. If the insurers had marketed the loophole as being as extensive as they now claim, they would never have been able to sell the policy in the first place.

“Title to the Garbage has Passed”

Many environmental coverage cases involve disposal at third-party sites or through arms-length vendors. There is often an intuitive appeal to the argument that once waste is passed to a site operator, the policyholder’s intent to harm the environment cannot be readily assumed. Jurors will often use their own garbage as an example to persuade fellow jurors that when waste passes into the control of an operator responsibility also passes to that operator. This is especially the case if the evidence supports the statement that the policyholder was entirely truthful about the type of waste they were delivering to the operator of the site.

Moreover, jurors give substantial weight (responsibility) to government agencies whether local, state or federal, for any role in licensing or approving historical waste site. In closing, argue “if the county and state have certified and licensed a business, you should not have to inspect it yourself. No more than you should have to inspect a restaurant that has a health department sticker on the wall.” It is fair for companies to rely on the experts in the area at the time to know more about the field than they do.

If the third-party site had any form of regulation or oversight, run with it. Again in closing, it is fair game to stress that we all rely on regulators and inspectors in virtually every minute of our lives: the milk in your coffee, the heat in your office, the electrical codes governing your house and home.

“Don’t Punish the Good Deed”

In discovery, insurers will always be looking for documents that purportedly show “what you knew, and when you knew it.” Such documents may include site inspection reports or studies prepared by the policyholder or consultants in a proactive effort to improve operations, safety, and performance. But at trial, such documents may be thrust front and center as the insurers attempt to prove that “no good deed goes unpunished.”

Fortunately, such reports can usually be used to benefit the policyholder and affirmatively rebut an alleged expected or intended defense. The theme is simple. When you know something, you do not hire consultants, or send out your own investigators to conduct repeated tests to tell you what you already know.

“Cars, Cars and Cars”

There is that apt episode of Seinfeld when Jerry is asked by a car rental agent if he wants to buy car insurance. Jerry responds, “Yeah, you better give me the insurance because I am going to beat the hell out of this car.” Evidence of expected damage or self-awareness of his own human frailty, including a proclivity for negligence? That is up to a jury.

Jurors generally have a strong affinity for automobile insurance analogies. They are clear, concrete and familiar. Thus, regardless of the complexity of the environmental case, a well-constructed auto insurance analogy can help drive your point home.

This is especially true when insurers muse that a policyholder started procuring insurance because it purportedly had knowledge or expectation as to the possibility of environmental liabilities arising out of its manufacturing activities — or as the insurers would refer to it, “pollution activities.”

Arguments that companies started buying insurance because they allegedly knew they were “going to start polluting” are tired arguments, but they are not dead yet. One might underscore to the jury that such insurers might as well be saying that if you buy insurance for your car then that means you intend to go out and drive it into a telephone pole. If buying insurance is an indicia of intent to harm insurers should not be selling insurance in the first place.

“This Case is Not About Breaking Any Law”

In most environmental coverage trials, jurors should be told clearly and often that the case is not about breaking the law and that no such allegations have ever been made against the policyholder. This is best done in opening during an explanation of the underlying liability, most likely federal or state superfund-retroactive, strict and no-fault liability. The theme needs to come out during witness testimony and be hammered home in closing.

Insurers do their best to make the case feel like a criminal case against the “polluter” and policyholder counsel needs to repeat this point to make sure that jurors neither speculate nor decide to punish the insured.

“Long, Long Ago, There Were No Microwaves”

Coverage lawyers in progressive injury cases live in the past. Intentionality — and the benchmarks of credibility by which jurors assess intent — is measured by the state of mind of the triggered policy year, not by contemporary standards or norms. Often we live in the ‘70s or ‘60s or earlier.

Jurors have a great deal of difficulty applying contemporaneous, rather than current standards in many cases, particularly very young jurors. It is important that jurors understand that those decades are “prehistoric” in terms of environmental awareness — before the superfund statute, before the U.S. Environmental Protection Agency existed.

In closing, consider the great photos of Babe Ruth in a Red Sox uniform, or doctors raving about the freshness of menthol cigarettes. Possibly construct a demonstrative listing scientific milestones — highlight that the policyholder’s waste disposal occurred before the space program, computers, VCRs, color televisions and microwave ovens — alas, before the Beatles.

Finally, remind the jurors in closing that the insurance company defendants are not the EPA, no matter how much they pretend to talk like it. They are private parties to insurance contracts and they are trying to avoid paying the claim decades after collecting premiums from the policyholder.

“Trying the Environmental Coverage Case in 2017,” by James R. Murray and Omid Safa was published in Law360 on November 2, 2016. To view the article online, please click here.

The Ins and Outs of Cyber Extortion Insurance Coverage

James S. Carter

According to FBI data, cyber-criminals are on pace this year to collect approximately $1 billion through cyber extortion. This is a practice in which extortionists threaten to cripple a computer system or obtain and/or release confidential information unless their demands (usually for money) are satisfied. Although much of this money is coerced from individuals in increments of several hundred dollars, more and more organizations are finding themselves in cyber extortionists’ crosshairs, including documented incidents against local governments, schools, hospitals and businesses in a range of industries. As cyber extortionists increasingly target organizations rather than individuals, security professionals fear the costs of cyber extortion incidents could dramatically increase.

Cyber extortion can take various forms, but ransomware is by far the most common variant. Ransomware is a type of malicious software that, when launched within a computer (usually from an e-mail opened by an unsuspecting employee), encrypts data or locks access to critical applications. An anonymous demand for payment then overlays the computer screen demanding payment, usually in bitcoin—a form of electronic currency that is difficult to trace—in exchange for the decryption key. In February, a California hospital reportedly paid $17,000 in bitcoin after ransomware hobbled its computer systems and prevented employees from sharing communications electronically for 10 days.

Other forms of cyber extortion include denial-of-service attacks that disrupt networks until payment is made, or threats to disclose customer data or other confidential information unless a specific demand is met. For example, in 2007, Nokia reportedly paid millions of euros to cybercriminals to prevent the release of an encryption code that could have compromised the security of its customers’ phones and, in 2015, a hacker released customer data from a bank in the United Arab Emirates after it refused to pay a bitcoin ransom of about $3 million.

A cyber extortion threat can exert enormous pressure on an organization to decide whether to satisfy an extortion demand, and there are strong reasons for refusing to do so. Law enforcement agencies discourage paying ransoms, for starters, and there is no guarantee that the extortionists will remove the threat if payment is made, or the threat accompanying the demand may be preventable or lack credibility to begin with.

In some instances, however, an organization may determine that the cost of paying a ransom pales in comparison to the potential operational, reputational and other losses that could result if the demand is not met. According to a Cloud Security Alliance survey of more than 200 IT security professionals worldwide, 24% of companies would be willing to pay some amount of money as a ransom to prevent a cyberattack, and 14% would be willing to pay a ransom of $1 million or more.

To help manage cyber extortion exposures, many organizations have purchased cyber insurance policies or other types of policies that specifically cover cyber extortion. But the terms of this coverage are relatively new, often not well understood or developed, and vary from one policy to another. To make the most of this coverage and avoid surprises, insureds should familiarize themselves with the specific terms of their policies and be prepared to engage their insurer if and when a cyber extortion event occurs.

As with any type of unexpected event that an organization may face, insureds threatened by a cyber extortion incident should consider all potentially applicable insurance policies and coverages, not just cyber extortion coverage. Depending on the specific situation, a cyber extortion event may trigger various provisions in a cyber insurance policy, such as coverage for forensic investigation costs, business interruption and extra expense, and data restoration. Such an event could also trigger coverage under other types of insurance, such as kidnap and ransom or commercial crime policies.

Cyber extortion coverage, however, is specifically marketed to cover losses that an insured incurs in response to a cyber extortion incident, and therefore may offer the best opportunity for an insured to secure a favorable coverage determination from its insurer. As a result, organizations that are concerned about cyber extortion should familiarize themselves with their cyber extortion coverage and pay particular attention to the following four policy terms: trigger of coverage, notice requirements, consent requirements and types of covered loss.

Trigger of Coverage

Cyber extortion coverage in many cyber insurance policies is triggered when an insured receives a threat in which the extortionist threatens to either attack the insured’s computer system or to release confidential information in the insured’s possession for the purpose of demanding something of value, usually money, from the insured.

As to the first scenario, policies often employ different wording to define the type of attacks that, if threatened, trigger coverage. Some policies simply refer to an intentional attack against the computer system while others may enumerate a list of malicious attacks that negatively impact the computer system. Some polices that list specific types of attacks are more comprehensive than others. Whatever the approach, the breadth of the trigger may depend on definitions of computer system or other terms defined in the policy that appear in the trigger wording. The policy wording should be broad enough to encompass any type of threat to corrupt, damage, destroy or restrict access to the computer system, including programs and data stored in the system.

The good news for insureds is that cyber extortion coverage typically does not require an actual violation of computer security—the wording in many policies appears to contemplate threats to commit future attacks. Whether the demand is made to avoid a potential attack or to end an ongoing attack, such as ransomware or denial of service, should make no difference in terms of coverage, and policies that suggest otherwise should be avoided.

The second type of threat that triggers coverage—the threatened disclosure of confidential information—may seem to overlap the first type, but this is not always the case. For example, criminals may have stolen confidential information months prior to launching their extortion scam or obtained confidential information by means other than accessing an insured’s computer system. (That said, some policies do tie cyber extortion coverage to an event involving threatened or alleged unauthorized access to an insured’s computer system.)

Insureds may expect that a threat to disclose their own confidential information would trigger coverage. Many cyber policies, however, draw a distinction between the insured’s own information and that of third parties in the insured’s possession. Such policies may only cover threats to disclose customers’ personally identifiable information or a partner’s trade secrets. Insureds would be better served by policies for which the trigger of coverage for a cyber extortion incident includes a threat to disclose any confidential information in the insured’s possession, not just a third party’s confidential information.

In addition, some policies may limit coverage to threats specifically seeking money. Although cyber extortionists demand money in most instances, demands could seek intellectual property or some action by the insured. For instance, hackers threatened to and ultimately did release the personal information of 37 million Ashley Madison users after the company ignored their demand to shut the website down.

To be most effective for the types of cyber extortion risks businesses are now facing and may face in the future, the trigger wording of cyber extortion coverage should be drafted in broad terms to encompass any type of cyber or disclosure threat made for the purpose of seeking any type of action.

Notice Requirement

Once cyber extortion coverage is triggered, the insured must provide notice to the insurer. But notice may not be the first thing that comes to an insured’s mind in the emergency atmosphere of a cyber extortion event. Notice requirements differ considerably, for example, some policies require the insured to report a cyber extortion threat in writing “as soon as practicable” and/or within a certain number of days while other policies require “immediate” notice. In some policies, the notice requirements specific to the cyber extortion coverage differ from those applicable to other coverages in the same policy. A failure to provide timely notice can jeopardize coverage. To provide insureds with breathing room to handle the emergency and evaluate their coverage rights, policies should require the insurer to demonstrate that it has been actually prejudiced by an insured’s late notice before such notice can serve as a basis for denying coverage.

Some policies also require the insured to notify law enforcement authorities of a cyber extortion threat. Although many facing a cyber extortion incident do not need prompting to contact the police or the FBI, insurers appear concerned that some insureds may be reluctant to involve authorities. In light of the variation in notice requirements among or even within policies, it is important for insureds to understand the notice requirements applicable to the cyber extortion coverage in their policies.

The key to securing coverage and reducing potential delays in obtaining the insurer’s approval is understanding from the outset that the insured may have to engage its insurer while the cyber extortion event is unfolding, without knowing all of the facts.

Consent Requirement

The most distinctive feature of most cyber extortion coverage is the consent requirement. Before satisfying a cyber extortion demand or incurring other costs in response to a cyber extortion event, many policies require an insured to first obtain the insurer’s approval to pay or incur costs. But many policies do not delineate under what circumstances an insurer must give its consent. Some policies suggest that the threat must be “credible” or “immediate,” but do not define what such terms mean. What constitutes a credible cyber extortion threat may differ from one case to another.

Widespread claims experience data for cyber extortion coverage is not available, and many insurers may be willing to readily consent to the payment of cyber extortion demands. Circumstances may arise, however, where an insured and insurer do not see eye to eye about whether a threat is credible or immediate or, even if there is agreement, whether, when or how to satisfy an extortion demand. There may also be disagreements over whether cyber extortion coverage under the particular wording of a policy is triggered. In general, insurers must have a good faith basis to withhold consent, but no court decisions have addressed the consent requirement in the context of cyber extortion coverage. At a minimum, policies should state that the insurer’s consent may not be unreasonably withheld.

The key to securing coverage and reducing potential delays in obtaining the insurer’s approval is understanding from the outset that the insured may have to engage its insurer while the cyber extortion event is unfolding, without knowing all of the facts. The insured must then convince its insurer to consent to the costs of retaining consultants and satisfying the extortion demand. Insureds should promptly notify the insurer and law enforcement of the cyber extortion threat and quickly retain qualified specialists (with the insurer’s consent, if required by the policy) to investigate a cyber extortion threat with the aim of determining and documenting its credibility and immediacy. Law enforcement may also play a role in evaluating the threat.

If the insurer’s consent is not forthcoming, the insurer may be willing to consent while reserving its rights to challenge coverage on other grounds. This is less than ideal, but it is an approach that has been followed in other insurance contexts where, for instance, insurers have expressed reservations about consenting to the settlement of a lawsuit, as in U.S. Bank National Assoc. v. Indian Harbor Insurance Co.

Covered Loss

Finally, cyber extortion coverage differs from policy to policy in terms of the types of losses covered. In its most basic form, it covers the loss that an insured incurs to pay a cyber extortion demand. The coverage in some policies, however, broadly applies to any expenses that an insured incurs in response to a cyber extortion event, including the costs of investigating and assessing such a threat.

Cyber extortion coverage is often written on a reimbursement basis. Thus, the insured typically must pay for the costs of investigating and assessing the threat and may be responsible for paying the extortion demand before the insurer reimburses the insured for such payments. For many insureds, coverage on a reimbursement basis introduces the headache of marshalling resources to retain consultants to address the threat and to pay the demand, as well as obtaining bitcoin, the electronic currency typically demanded.

Cyber extortion coverage also is often subject to a retention. Low-dollar extortion demands may not exhaust the retention, but the other costs an insured incurs in response to the incident may. Although an incident might not seem very costly at first, insureds should still consider providing notice to the insurer in case the costs ultimately add up and exceed any applicable retention.

Some policies appear to tie coverage for the cost of investigating a cyber threat to whether the insured actually satisfies the extortion demand. Such a structure is disadvantageous to an insured that expends significant sums to investigate a threat only to decide against paying the extortion demand. Investigation expenses should be covered even if the insured ultimately decides against paying the ransom.

Cyber extortion coverage can be a valuable tool for mitigating losses arising from the growing cyber extortion threat to businesses and other organizations. To fully realize the benefits of this coverage, however, risk managers and in-house counsel should familiarize themselves with the particular terms of their organization’s coverage and understand the steps they need to follow to secure and maximize their coverage.

“The Ins and Outs of Cyber Extortion Insurance Coverage,” by James S. Carter was published in Risk Management Magazine on December 1, 2016. To view the article online, please click here. Reprinted with permission from Risk Management Magazine. Copyright 2016 Risk and Insurance Management Society, Inc. All rights reserved.

Concurrent Cause Doctrine: The Most Efficient Approach?

Anna Svensson

On December 1, the Florida Supreme Court held that in the first party context where concurrent perils result in a loss, the concurrent cause doctrine applies to determine coverage.

Background: The case in front of the Florida Supreme Court involved two parties: homeowner John Sebo, who purchased his Naples home in 2005, and his insurer, American Home Assurance Co., or AHAC. The applicable insurance policy insured against “all risks” and provided additional coverage for the loss of use of Sebo’s home.

Flooding commenced shortly after Sebo bought the lavish residence, leading to problems such as leaks in the main house foyer, the living room, dining room, piano room, exercise room, and multiple bathrooms. When Sebo reported the flood and other damages to AHAC for coverage, AHAC denied it because construction defects were the primary cause of the resulting damage and the policy explicitly excluded damage due to faulty, inadequate, or defective planning. Sebo sued AHAC, among other defendants, seeking a declaration that the homeowner’s policy provided coverage for his damages. The issue for the Court was whether coverage exists under Sebo’s policy where multiple perils, including the non-covered defective construction and other covered perils, created the resulting damage to his home.

The doctrines: “All risk” property insurance policies cover all causes of loss, unless explicitly excluded. In cases involving multiple perils—one peril which is not excluded by the policy and one which is excluded—resulting in loss, courts must determine whether recovery is permissible using a causal test. The two most common tests are the efficient proximate cause rule and the concurrent cause rule. These two rules were analyzed by the justices in Sebo v. American House Assurance Company Inc.:

  1. Efficient proximate cause: states that an insurer may only avoid coverage where it proves that an excluded peril is the “efficient proximate cause” of the loss. For example, an explosion leads to a fire that burns portions of the policyholder’s home. If the policy excludes loss caused by explosion and does not exclude loss caused by fire, and the insurer fails to prove that the efficient proximate cause of the resulting loss was an excluded peril (here, explosion), the entire loss will be covered.
  2. Concurrent cause doctrine: states that a policyholder may recover where two or more perils contribute to the loss and at least one of the causes is not excluded under the terms of the policy. For example, wind and rain from a hurricane both cause loss to a policyholder’s home. If wind is not an excluded cause under the policy and loss caused by flooding is excluded, pursuant to the concurrent cause test, the loss will be covered.

The Florida Supreme Court determined that the concurrent cause doctrine applies to Sebo’s case, rejecting the Second District’s concern that “a covered peril can usually be found somewhere in the chain of causation, and to apply the concurrent causation analysis would effectively nullify all exclusions in an all-risk policy.”[1]

Why the Florida Supreme Court got it right: While the Court’s decision is not binding outside of Florida, other courts nationwide may consider adopting the justices’ reasoning:

  1. Contract interpretation: Typically, ambiguities in insurance contracts of adhesion are interpreted against the insurer. Thus when a loss is caused, even partially, by a non-excluded peril, any exclusion that the insurer advances should be interpreted against the insurer to allow for coverage. The notion of contra proferentem, or interpretation against the drafter, is more aligned with the concurrent cause doctrine. And insurers can still offer policies with clear anti-concurrent cause language to contract around this assumption.
  2. Judicial economy: In most situations, the efficient proximate cause of a loss will need to be litigated. Where an insurer asserts that an excluded peril caused a loss that involves both excluded and non-excluded contributing causes, the insurer bears the burden to prove that the insured’s loss was caused by an excluded cause. This is an issue of fact and may result in a battle of the experts during litigation in order to instruct and convince a finder of fact. Using the concurrent cause doctrine takes out this burdensome, and costly, step.
  3. Public policy: Because it is consistent with the rules of contract interpretation, conserves judicial resources by reducing the likelihood and scope of coverage litigation, and makes default a standard that both reduces insurers’ ability to deny coverage and eases the burden on policyholders to establish it, the concurrent cause doctrine is good public policy.

[1] American Home Assurance Co. v. Sebo., 141 So. 3d 195, 203 (Fla. 2d DCA 2013).

How to Use the Attack on Dyn to Improve Your Companies’ Cyberinsurance

James S. Carter

Carter, James S.October was National Cyber Security Awareness month. The goal was to raise awareness about the importance of cybersecurity. That message was underscored on October 21, 2016, when attackers staged a massive cyberattack against Dyn, a company that provides services that help Internet users connect to Dyn’s customers’ websites. The attack on Dyn had the effect of disrupting access to major websites, such as Twitter, Netflix, and The New York Times, as well as perhaps lesser known but no less critical websites that many companies rely on for hosted services that they use to operate their businesses. Continue reading “How to Use the Attack on Dyn to Improve Your Companies’ Cyberinsurance”

Buying Rep & Warranty Insurance? Be Sure to Watch Your Language!

Lisa Campisi

campisiNumerous commentators have written as to how Representations and Warranty Insurance (“Rep & Warranty Insurance”) can be a valuable tool in getting deals closed. Indeed, numerous difficult deals that may have otherwise died, or at least gone sideways, have been able to close thanks to the prudent use of Rep & Warranty Insurance.

As noted at a recent Blank Rome CLE presentation to several hundred in-house and outside counsel, like any other insurance policy the quality of a Rep & Warranty Insurance policy will depend on essentially one thing: the policy language. Accordingly, this post does not focus on whether or how to obtain such insurance, but on some of the key terms to analyze and seek to negotiate or enhance if you do.

The good news is that much of the language in Rep & Warranty Insurance policies can be negotiated, sometimes even more so than with respect to other insurance policy forms. Before paying the premium and binding coverage, the intended insured (which is often, but not always, the buyer) would be well-served to have experienced insurance counsel review the policy language and, where possible, revise it to be as favorable as possible. Outlined below are certain key terms in such policies of which clients and counsel should be aware and seek enhancement:

  • Definition of Breach: Rep & Warranty Insurance essentially covers losses resulting from breaches of reps and warranties in the relevant purchase agreement. Because the trigger of coverage is a “Breach,” that definition should be as broad as possible.
  • Definition of Loss: Like the definition of Breach, the definition of Loss should be as broad as possible, given that the policy’s key promise is to pay “Loss” on account of a “Breach.” Thus, carve outs from the Loss definition should be closely scrutinized.
  • Actual Knowledge Definition: A key limitation to the coverage available under a Rep & Warranty Insurance policy is that it will not cover losses resulting from breaches of reps and warranties to the extent that the insured had knowledge of the Breach when the Policy Period incepts. Counsel can and should seek to have the knowledge/actual knowledge definition be as narrow and specific as possible.
  • Exclusions: While Rep & Warranty Insurance policies will likely contain certain “standard” exclusions, and at times certain additional “deal specific” exclusions, the wording of such exclusions varies. The more broadly worded the exclusion, the more potential for the insurer to apply that exclusion to bar coverage not only to what it is apparently intended to bar, but to other losses that are at most tangentially related to the purportedly excluded matters.
  • Choice of Law: The law applicable to the interpretation of insurance contracts is not uniform, and varies greatly across the 50 states on numerous issues. And, unlike many other insurance policies which do not specify which state’s law will apply to the interpretation of the policy in the event of a dispute, Rep & Warranty Insurance policies frequently include a choice of law provision. Specifying the law most favorable to coverage in the body of the policy is critical.
  • Claims handling provisions: Coverage for a covered claim may be forfeited if there is non-compliance with any one of the numerous policy conditions relating to claims handling. For example, such conditions may require notice to be given in a specified and relatively short period of time (e.g., within 30 days of the insured becoming aware of the breach, or even circumstances that could give rise to a breach). Because non-compliance with such provisions may limit or void coverage, care should be taken by counsel to remove or revise the language to make them less onerous. Likewise, counsel should also look to include language (to the extent not already present in the policy form) requiring the insurer to timely respond to a claim for coverage.
  • Dispute Resolution provisions: Like many financial lines-type insurance products, Rep & Warranty Insurance policies typically contain provisions governing when and how disputes with the insurer will be handled. For example, numerous Rep & Warranty Insurance policies contain mandatory arbitration and/or mediation provisions, along with jurisdictional and venue provisions. While the hope of every insured is that such provisions never become relevant, an insured purchasing this coverage should ensure that such provisions are as favorable as possible.

Rep & Warranty Insurance policies should not be viewed as an “off the shelf” product. Instead, they can and should be greatly improved with the assistance of coverage counsel experienced not only in deal-related but insurance-related issues.

Insurance Liability, Risks, and Options in Augmented Reality: Catch ‘Em All

Kevin Doherty, Kevin Bruno and James S. Carter

Kevin R. Doherty Kevin J. Bruno Carter, James S.The rising Pokémon Go sensation has dramatically increased the popularity of augmented reality games, but it has also brought with it increased risks and liabilities for both game users and developers alike. For those who don’t know, Pokémon Go is a mobile app that, although released just last month, has already been downloaded over 75 million times, generated more than $75 million in revenue, and boasts daily usage statistics that have exceeded Snapchat, Twitter, Instagram, and Facebook. It’s a location-based augmented reality game that allows users to partake in virtual scavenger hunts. Using the user’s GPS and mobile camera, players are encouraged to explore their surroundings, seek out animated characters in real world places, and “catch ‘em all.” The characters are overlaid on the player’s screen and displayed as if they exist in reality. Unfortunately, distracted players on the hunt can end up wandering (or driving) into places they shouldn’t be, and becoming injured or injuring others as a result.

The number of Pokémon Go calamities increases daily, with incidents ranging from the mundane to the absurd and dangerous. In the few short weeks since its debut, users have experienced or caused numerous personal injuries, property damage, and car accidents. Some users have become stuck in trees and locked in cemeteries, while more serious incidents involve users straying onto train tracks, falling off cliffs, or entering restricted nuclear power facilities—all while on the hunt for Pokémon characters. Still others in pursuit of Pokémon have trespassed on private property, and some users have even been robbed after being targeted and led to specific locations using the app.

The question that lies ahead is whether and to what extent insurance coverage may be available to respond to the unfortunate and escalating losses we see from this augmented reality product, and others that are sure to follow. For those who use the app, or have been injured by those using it, several types of policies generally provide personal liability coverage, including your standard homeowner’s insurance or renter’s insurance policy, your auto insurance policy, and your uninsured motorist coverage (which in many states is mandatory). But coverage isn’t just for the app user.

Aspiring app developers and companies that develop, manufacture, market, and distribute augmented reality apps or provide augmented reality services should not underestimate the value of appropriate insurance coverage. New companies focused on bringing their product to market in a competitive environment often overlook the value of insurance, in particular relatively new insurance products such as cybersecurity policies. Such coverages are particularly important when considering the fact that pop-up disclaimers and end-user license agreements that are common among mobile app developers don’t always provide adequate protection, and don’t necessarily apply to those injured by game players. In fact, a lawsuit has already been filed in Florida challenging the terms of Niantic’s license agreement (the company that developed Pokémon Go). And even if a licensing agreement is upheld in court, an augmented reality company may incur substantial costs defending itself.

It is therefore important for these types of game developers and companies to have sufficient liability coverage, which might be available through commercial general liability policies and errors and omissions policies; however, the unique nature of many of these claims and corresponding losses might not fit squarely into the types of insurance policies we would typically turn to in these situations. Such policies should contain broad language that clearly cover bodily injury and property damage related to, among other things, the risks associated with augmented reality.

Companies that introduce augmented reality apps would also be wise to obtain additional coverage for cybersecurity due to the potential of such apps to collect vast troves of personal data and the prevalence of data breaches today. See Blank Rome IP attorney Gabriella E. Ziccarelli’s article, The Price of Pokémon Go. As with most cases, whether coverage ultimately exists depends on the facts of the situation and the terms of your policy, so pay close attention and seek the assistance of qualified advisors when purchasing coverage to evaluate the risks, and help avoid potential gaps in coverage for augmented reality risks.

Whether Pokémon Go becomes a long-term success for Nintendo Co. remains to be seen. Nintendo stock soared earlier last month, only to plummet last week after realizations came to light that it didn’t actually develop or publish the game (Niantic, Inc. did; Nintendo only has a percentage interest in the company that markets and licenses the Pokémon franchise to outside developers). Nevertheless, the game’s status is at an all-time high and augmented reality games are likely to become more prevalent, thus increasing the need for sufficient coverage. As augmented reality continues to rise in popularity, it will becoming increasingly important for policyholders to know what insurance options are available to them, and developers of augmented reality products must be mindful of ensuring their business is adequately insured and protected.

Although it’s too soon to know whether carriers will start to offer new coverages and/or apply exclusions specific to augmented reality, at least some specialty insurance options have already popped up. One company claims to offer “Pokedex Insurance” (which is limited to the cost of one’s phone), while a Russian bank just announced that it will provide “free insurance” to its customers who play the game (up to $800). Whether or not these are mere marketing ploys looking to capitalize on the Pokémon frenzy remains to be seen. In any event, savvy policyholders, insurers, and brokers will no doubt have their eye on the augmented reality space as it continues to grow in popularity.

Ensure You Are Covered as Food Companies Face Recall Risks

Justin F. Lavella


A wide number of companies have been in the news in recent months as a result of food contamination or food recall events. However, such problems are not isolated to companies with poor safety records or lackadaisical quality controls. In fact, a report issued by Swiss Re, the international reinsurer, has found that the number of United States food recalls—and the costs associated with those recalls—have nearly doubled since 2002. And this is a trend that is likely to continue as the food industry becomes increasingly integrated, the regulatory requirements become increasingly complex, and infectious diseases become increasingly drug resistant. Accordingly, all companies involved in either the food or health supplement industry must plan not for “if,” but “when” a recall is necessary.

To this end, insurance should be a key component of every company’s risk management strategy, and there are a number of specific insurance products on the market to assist. For example, a number of insurers have started marketing policies to “food and beverage” companies that purport to provide coverage for “accidental contamination” and/or “recall.” Unfortunately, these products have only recently been tested in the courts, and policyholders have been generally disappointed to learn that these policies do not provide the breadth of coverage expected. Continue reading “Ensure You Are Covered as Food Companies Face Recall Risks”