Jared Zola, John D. Heintz, and Justin F. Lavella
Insurance for Property Damage and Business Interruption Losses
Businesses and communities throughout Texas and the Gulf Coast are bracing for the impact of Hurricane Harvey that is expected to wreak havoc this weekend. Harvey is unique because it quickly and unexpectedly transformed from what was predicted to be a smaller-scale storm to a Category 2 hurricane—and may be upgraded to Category 3 before it makes landfall. This transformation has left many major businesses and facilities in the storm’s expected path with significantly less time to prepare, and in some cases shutdown operation, than would ordinarily be expected. Continue reading “Insurance Recovery for Losses Related to Hurricane Harvey”
Justin F. Lavella and Kyle P. Brinkman
Last month the United States Court of Appeals for the Sixth Circuit issued its anticipated decision in Indian Harbor Insurance v. Zucker, affirming a 2016 decision from a federal district court in Michigan that an Insured v. Insured (“IVI”) exclusion bars coverage for a claim brought by a post-bankruptcy litigation trustee for the benefit of the insured debtors’ creditors. The district court’s Indian Harbor decision was driven largely by the mistaken conclusion that a post-bankruptcy trustee is an ordinary assignee of the debtor company—an insured—and therefore purportedly stands in the shoes of the insured debtor for purposes of the IVI exclusion. As we described at the time, that decision, however, ignores the fundamentally different nature of transfers pursuant to Bankruptcy Code Section 1123 when compared to ordinary assignments pursuant to state contract law and the fact that a post-bankruptcy trustee assumes special powers as an estate representative. Unfortunately, after appeal, this issue still remains unresolved.
Continue reading “Policyholders (and the Courts) Continue to Ignore Section 1123 When Analyzing Insured v. Insured Exclusions”
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”
Justin F. Lavella and Kyle P. Brinkman
The Insured v. Insured (“IVI”) exclusion is a frequent and important issue for directors & officers (“D&O”) liability coverage, particularly where the bankruptcy of an insured entity may blur the lines of who is an insured and who is acting on behalf of an insured. Nevertheless, because the exclusion generally bars coverage for a claim made against an insured individual that is “brought or maintained by or on behalf of” the insured entity, whether the IVI exclusion applies is often the single most important coverage issue for the many claims often asserted against a debtor’s former directors and officers in bankruptcy.
Although the applicability of the IVI exclusion to bankruptcy-related claims has been litigated several times and often decided in favor of insurers, none of those cases has addressed the critical question of the primacy of Bankruptcy Code Section 1123, and how this provision may prevent application of the exclusion in such circumstances. Therefore, as insurers become more emboldened by their prior victories, debtors, their former directors and officers, as well as their bankruptcy and coverage counsel should be careful to consider Section 1123 both when drafting the debtor’s plan of reorganization and in any subsequent insurance coverage litigation. Continue reading “The Insured v. Insured Exclusion and Section 1123: the Primacy of Bankruptcy Law and the Importance of Planning Ahead”
Justin F. Lavella
Bolstered by the strong United States dollar and cheap energy costs, the current wave of corporate takeovers and mergers shows no sign of abating. In fact, according to last month’s bi-annual report on corporate dealmaking from Ernst & Young, 56 percent of responding companies stated that they intend to make acquisitions in the coming year, which was a significant increase from the 31 percent reported in April 2014. Ernst & Young also noted that the number of deals in the pipeline is up 19 percent from this time last year.
As this expanding inventory of corporate transactions moves toward completion, an increasing number are likely to involve the purchase of “representations and warranties” insurance. While R&W insurance has been available in the market for more than 15 years, it has seen rapid growth in only the last five or so years. Whereas mergers and acquisitions lawyers once tried to negotiate around potential problems, lawyers for both sellers and buyers are now increasingly looking to shift the risk of unintentional and unknown breaches of the representations and warranties in a Purchase and Sale Agreement to an insurance company. Nevertheless, among the common types of available insurance products, R&W insurance may be the least understood. Continue reading “Representations and Warranties Insurance”
Justin F. Lavella
“The duty to defend is broader than the duty to indemnify.” For many policyholders, this oft-repeated maxim of insurance law embodies a variety of different expectations. The first and foremost expectation is that policyholders are entitled to a defense from their insurer even if coverage for future liability may be in doubt. A second common expectation is that a policyholder’s defense costs will be paid by its insurers as those costs are incurred. A third expectation is that a judicial decision obligating a primary carrier to pay defense costs will ensure that excess insurers also are obligated to pay any unreimbursed defense costs once the primary policy is exhausted.
Unfortunately, as many policyholders’ mass tort liabilities—such as asbestos and environmental claims—have begun to implicate higher-level excess policies, many of the above expectations have not only gone unsatisfied but have come under attack by increasingly obstructionist excess insurers. For some policyholders, this has resulted in a second generation of coverage litigation over liabilities and coverage issues long thought to have been resolved. Continue reading ““Common Sense” Prevails: Court Rejects Excess Insurer’s Position that Defense Costs Coverage Is Dependent on Payment of Damages”