Alexander H. Berman, Robyn L. Michaelson, and Justin F. Lavella
One of the most basic discovery requests in insurance coverage litigation is for the insurer’s claims-handling documents and coverage analysis. A policyholder suing for insurance coverage is entitled to understand the insurer’s pre-denial coverage analysis, which is after all one of the core business functions of an insurance company along with marketing and selling policies.
Simply put, an insured must be allowed access to all documents held by the insurer, including communications and claim files that might speak to why the insurer denied the claim. In recent years, however, insurers have begun to involve both in-house and outside counsel in these deliberations, and have consequently asserted the protections of the attorney-client privilege and the work product doctrine to shield these critical business documents from discovery.
Fortunately, New York courts are developing a body of case law that properly treats such communications as discoverable. When an insurer communicates with counsel to assist in determining whether a claim is covered in the first instance, such communications are made primarily in furtherance of the insurer’s business function, as opposed to legal advice, and therefore are not immune from discovery. Any resulting memoranda simply reflects the same work that claims handlers have been performing since the establishment of the insurance industry. That the analysis was undertaken by an attorney rather than a non-attorney has no significance in the nature and purpose of the work being performed and the discoverability of the resulting analysis and documents. Continue reading “New York Courts Skeptical of Insurers Seeking to Hide Coverage Analysis as Privileged”
Linda Kornfeld, John E. Heintz, Alan Rubin
Communities and businesses throughout California are dealing with the serious, and for some, catastrophic effects of historic wildfires. The fires have devastated homes and businesses across a large swath of the state, and while their full impact is not yet known, they are sure to cause long-term disruption to individuals and families, residential areas, businesses and the economic health of the entire region. Our thoughts are with those affected by these events, and our interdisciplinary Severe Weather Emergency Recovery Team (“SWERT”) has prepared two resources that are immediately helpful to those in the affected areas: Continue reading “California Corner: Resources for Those Impacted by California Wildfires”
Last week, the Seventh Circuit had occasion to consider the scope of a contractual liability exclusion in the context of professional liability coverage. In Crum & Forster Specialty Ins. Co. v. DVO, Inc., No. 18-2571, 2019 WL 4594229 (7th Cir. Sept. 23, 2019), an insurer insisted that its contractual liability exclusion did not render the professional liability coverage it sold illusory. The Court disagreed, however, holding that the exclusion was overbroad and would, if applied, defeat the fundamental purpose of the insurance. The Court further concluded that the policy must be reformed to meet the policyholder’s “reasonable expectations” of coverage.
The insurer had sold both primary and excess insurance policies to its policyholder, DVO, a company which designs and constructs anaerobic digesters. Pursuant to the coverage grant, the insurer agreed to pay DVO’s liabilities for, among other things, “damages or cleanup costs because of a wrongful act” arising out of “a failure to render professional services.” The Court opined that the essential purpose of this insurance was to provide coverage for professional malpractice. Continue reading “Case Review: Seventh Circuit Repudiates Insurer’s Attempt to Sell Illusory Coverage to Policyholder”
Ian Ascher and Jared Zola
The insurance market has proven to be a difficult environment for buyers in 2019. The long tenure of the soft insurance market cycle is changing, and is presenting challenges with pricing, capacity, and sustainability of favorable coverage terms. Coming out of difficult natural catastrophe years in 2017 and 2018, the property insurance market took a sharp turn to protect insurers’ bottom lines. While hardening of the property insurance market was expected, the broader casualty market has taken this opportunity to drive corrective action on their portfolios as well, leaving insurance buyers with little leverage.
How Insurers Are Reacting to the Market Shift
Insurers are approaching the market shift with different strategies, some focused on rate increases, while others are focused on restricting terms, or both. While individual loss experience still plays a role in renewal outcomes, there appears to be more of a portfolio-level push on rate and terms regardless of individual quality of risk factors for any given policyholder. In this environment, stricter control over capacity deployment leads to less competition, which may force the buyer into tough decisions regarding what utility insurance provides for its organization. The guarantee of comprehensive coverage at a fair price becomes harder to balance in a setting where definitively having both is less than certain. Continue reading “Pay Attention to Policy Language in a Hardening Insurance Market”
Jared Zola and Daniel R. Belzil
Almost two years after Hurricane Harvey devastated parts of Texas and Louisiana, Central America, and several Caribbean islands, the coverage issues arising out of it are far from resolved. The court decisions addressing these coverage issues have not all been positive from the insured’s perspective. In particular, one recent decision in the United States District Court for the Southern District of Texas, Pan Am Equities, Inc. v. Lexington Insurance Company, No. H-18-2937 (May 2, 2019) (“Pan Am Equities”), should give insureds in Texas and elsewhere pause heading into the 2019 Hurricane Season.
The Dispute—Which Deductible Applies?
The insured in that case owned several commercial properties in Houston, including an apartment building and parking garage that sustained more than $6.7 million in flood damage as a result of Hurricane Harvey. Its properties were insured by a commercial property insurance policy that provided “Flood” coverages as well as coverages for loss caused by the peril of “Windstorm and Hail.” Continue reading “Hurricane Harvey Insurance Claim Gets Twisted”
Omid Safa and Daniel R. Belzil
The strategic importance and economic value of intellectual property (“IP”) can hardly be overstated in today’s global marketplace. Recognizing this, companies devote considerable time and resources to protect their vital IP assets and minimize the financial harm if/when problems arise. Evaluating the risks, understanding the insurance options available, and purchasing meaningful coverage that aligns with the needs of the business are critical pieces of the risk-management puzzle. Navigating the various options can be difficult. This article outlines some of the major issues.
Initially, policyholders have traditionally looked to their Commercial General Liability (“CGL”) policies to respond to IP disputes. Standard-form CGL policies typically cover “advertising injury” (sometimes called “personal and advertising injury”) which, depending on how these terms are defined in the policy, can cover some types of IP claims.
However, not all IP-related claims will fall within the “advertising injury” coverage in a CGL policy. Continue reading “An Overview of Intellectual Property Insurance Issues”
James S. Carter and Amy J. Spencer
The “WannaCry” and “NotPetya” computer viruses that infected computer systems around the world in 2017 sounded a wakeup call. They demonstrated the power of a cyber event to disrupt the core operations of numerous companies and other organizations. Now some fear that another unpleasant surprise related to the 2017 virus attacks may be on the horizon—this time from the insurance industry. A recent lawsuit alleges that an insurer denied coverage for losses arising out of the “NotPetya” virus based on an exclusion for “hostile and warlike actions.” A version of this war exclusion appears in virtually all insurance policies, including cyberinsurance policies, which are supposed to address cyber events like “WannaCry” and “Not Petya.”
The lawsuit is Mondelez International, Inv. v. Zurich American Insurance Company. Filed late last year in Illinois state court, the policyholder, a snack food and beverage maker, alleges that it suffered a nightmare cyber scenario. Two separate intrusions of the “NotPetya” virus at different locations “rendered permanently dysfunctional approximately 1700 of [the policyholder’s] servers and 24,000 laptops.” According to the complaint, the virus caused property damage, commercial supply disruptions, unfulfilled customer orders, reduced margins, and other covered losses aggregating well in excess of $100,000,000. Continue reading “Recent Lawsuit Highlights Need for Careful Review of Cyberinsurance Policies”