Category: Duty to Defend

DEI Claims in Higher Education: Why Control over the Claims Resolution Process Matters and What Universities Need to Know to Maximize Their Influence over the Outcome

Natasha Romagnoli and Anna K. Milunas

When more than just university dollars are at stake, understanding and maximizing control over the claims resolution process in advance is essential for higher education policyholders.

Diversity, equity, and inclusion (“DEI”) have always been controversial topics at colleges and universities, but the last several years have seen DEI debates amplified to the greatest degree as more educational institutions take open and affirmative steps toward addressing discrimination and intolerance on campus.

At a time when issues of racial injustice and implicit bias are so much in the forefront of the national conscious, even nascent allegations of student or employee discrimination (or reverse discrimination) can subject institutions to instantaneous and major public relations (“PR”) crises that come at a great cost to a university’s reputation, which is paramount to its continued success.

Negative PR, however, is not the only thing schools must contend with in this new environment. Claims that universities and colleges have violated federal or state anti-discrimination laws, or failed to adhere to their own anti-discrimination or DEI policies, are now more than ever resulting in formal lawsuits, in addition to complaints filed with state anti-discrimination commissions and other similar oversight bodies.

Consider Smith College, for example, where a former employee plans to sue the school—in addition to filing a claim with the Massachusetts Commission Against Discrimination, for creating a “racially hostile workplace” after Smith mandated anti-bias training for its white employees in the aftermath of an alleged July 2018 racial profiling complaint by a student. Or a community college in San Diego, where five current and former Black employees are suing for a “palpable climate of anti-Blackness at Southwestern College.” DePaul University was sued twice in six months by Black professors for alleged discrimination in the form of “irregularities,” “increased scrutiny,” and “microaggressions” in the tenure track evaluation process that violated DePaul’s anti-discrimination policies. A former employee of Cal State University, Northridge also filed a lawsuit against the university for discrimination, harassment, retaliation, and failure to accommodate a disability. Further, in May 2020, U.S. District Court Judge Indira Talwani permitted a breach of contract and section 1981 claim by a former student disciplined by Harvard University for sexual assault to move forward against the university on grounds that the university racially discriminated against the student in its handling of a Title IX complaint.

These claims come at a significant cost to educational institutions—not only in terms of immediate crisis management response and defense costs—but in settlements, which are often expensive, multifaceted, and even at times, unconventional. The University of Iowa, for example, reportedly agreed to pay a former field hockey coach and her partner a total of $6.5 million to settle two discrimination lawsuits. New York University recently reached a settlement that reportedly involved an agreement to effectuate new anti-discrimination policies and training, in addition to maintaining records of discrimination complaints and the university’s response to them.

To read our full client alert, please click here.

Under Pressure to Diversify: Availability of D&O Coverage for Corporate Diversity Claims

Natasha Romagnoli and Hannah K. Ahn

With the recent rise in novel diversity lawsuits, which have targeted some of the leading companies across the country, and are sure to be a hot topic of litigation this year and beyond, policyholders are highly encouraged to review their existing directors and officers (“D&O”) insurance policies to ensure that they have adequate protection in place to cover diversity claims.

If you are one of the more than 100 million people who watched the Super Bowl, you noticed that companies are starting to be more vocal about the importance of diversity. With ads featuring all Black actors and more modern families, companies are celebrating inclusion and promising to join the fight to end systemic racism. The NFL itself is a prime example of this change in messaging. Years after Colin Kaepernick faced backlash for kneeling to protest inequality, the NFL ran its own ad this year that highlighted its pledge to spend $250 million to end racism.

Talk of diversity and inclusion has been growing—and growing more insistent—starting with the first Black Lives Matter protests in 2013 and building to last year’s protests following the murder of George Floyd, who died while being forcibly detained by Minneapolis police. Despite their messages of support for diversity and inclusion, however, many companies have struggled to promote diversity in their own ranks, especially with respect to their boards of directors and C-suite executives. But consumers and investors alike are now pressuring companies to meaningfully respond to their demands for internal change. Of late, this includes shareholder derivative lawsuits that use federal securities law not only to target the company’s lack of success in diversifying, but also to challenge the commitment of the company’s directors and officers to enact change. These novel “diversity lawsuits” open a new realm of potential liability, in addition to forcing companies to consider how to promote diversity in their ranks and respond to internal and customer demands for change.

While there have only been a handful of diversity lawsuits filed as of today’s date, the allegations against some of the best known names in business, like Facebook, Oracle, and Monster Beverages, could easily apply to other publicly-traded companies across the country. The individual details vary from case to case, but the common charge against the directors and officers of the sued companies is that they breached their fiduciary duties and violated Section 14(a) of the federal Securities Exchange Act by failing to include diverse directors on their boards and in their senior executive ranks, while at the same time touting their commitment to diversity, equality, and inclusion in the company’s proxy statements and other corporate publications. Corporate counsel can forget about their old playbook for dealing with employee discrimination complaints or outside groups threatening a boycott. This is new legal terrain being staked out by stakeholders in companies (in some cases, institutional investors) and the class action lawyers representing them.

To read our full client alert, please click here.

This client alert was reprinted in Wolters Kluwer Legal & Regulatory Solutions U.S. in April 2021.

Top 10 Tips for Insurance Policyholders (Fall 2020)

John A. Gibbons

1. Assess the policies you have and reassess the policies you should buy in the future.

2020 has brought a host of unwelcome events: pandemics, fires, floods, cyberattacks, financial failures, etc. An insurance program tailored to the risks and business opportunities of your specific company can provide for recovery during dark times, and specialized insurance products can help you safely expand your business. It is time to consider how tailored your current program is, and how you can better align insurance assets to your business in the future.

2. Use indemnities and additional insured status to expand your insurance assets.

Everyday business for many companies involves the use of terms and conditions; sales or services orders; and leases that address indemnification, minimum insurance requirements, and additional insured status. A well-thought-out use of additional insured status can allow you to leverage the insurance assets and insurance premiums of counterparties.

3. Ensure that you get the full benefits of your liability and property insurances.

Insurance policies provide many coverages, policy limits, and extensions that may not be readily apparent, and all of which may provide substantial financial assistance in the event of a loss. In addition, specialized forms of insurance, additional riders, or policy wording upgrades can better tailor policies to your specific business attributes. Use the renewal season to explore your options.

4. Avoid “conventional wisdom” about what is or is not covered.

With insurance, words matter! In fact, the wording determines the outcome. Do not accept statements about what others think a policy does or should cover. For example, claims for intentional wrongdoing and punitive damages often are covered by liability policies. Likewise, losses from your supply chain may be covered under your property policies. Non-payments of debts and breaches of contractual promises are covered under various forms of policies. Let the words lead you to coverage.

5. Give notice once you know of a loss or claim.

Typically, notice should be given soon after a loss, claim, or lawsuit, but remember that a delay in giving notice will not necessarily result in the loss of coverage. Consider the potentially applicable insurance assets that may apply and give notice.

6. Insist your insurers fully investigate claims.

Insurers have a duty to investigate claims thoroughly and must look for facts that support coverage.

7. Watch what you say.

Communications with an insurer or an insurance broker regarding a lawsuit against you or a loss are not necessarily privileged.

8. Don’t take “no” for an answer.

A reservation of rights is almost always the start of the insurance claim process, and a denial should not dissuade you from pursuing your rights. Even if coverage is not obvious at first, it may be there, if you look in the right places.

9. Document, document, document your claim.

Whether it is a first-party loss or a liability suit against you, write to your insurer and document your submission of information and materials. Require your insurer to respond in writing and to explain its position. A well-documented chain of correspondence narrows disputes, helps to limit shifting of insurer positions, or helps to make such shifting very apparent if your claim proceeds to formal enforcement measures.

10. Insist that your insurers honor their duties.

In the liability context insurers frequently owe broad duties to defend with independent, conflict-free counsel, even if uncovered claims dominate the lawsuit against you. In property insurance contexts, insurers have duties to help you on an expedited emergency basis to protect your interests immediately after a loss. It is important to hold insurers to their duties to protect you immediately upon assertion of liability or after a loss—delay only benefits insurers.

 

California Corner: Insurer’s Failure to Immediately Commence Defense Waives California Civil Code Section 2860 Rate Limitations for Independent Counsel

Julia K. Holt

California courts strictly enforce an insurer’s duty to immediately commence defending its insured. The insurer’s delay in doing so, even if the delay is short, constitutes a breach of this important duty. In fact, California imposes a 40-day time limit for an insurer to provide its written coverage position under the Prompt, Fair and Equitable Settlement of Claims requirements stated in Title 10 of the California Code of Regulations at Section 2695.7.

A breach in this regard results in a waiver of any claimed right of the insurer to control the defense of its insured. This includes a waiver of the insurer’s ability to seek to impose any Civil Code Section 2860 rate limitations for independent counsel. See Travelers Indem. Co. of Connecticut v. Centex Homes, No. 11-CV-03638-SC, 2015 WL 5836947, at *5 (N.D. Cal. Oct. 7, 2015), objections overruled, No. 11-CV-03638-SC, 2015 WL 6164429 (N.D. Cal. Oct. 8, 2015). In Centex Homes, the Court found “that Travelers breached its duty to defend by failing to provide Centex with a defense at least 30 days after the complaints were filed in the [noticed] actions . . . [and therefore] Travelers also lost its right to control Centex’s defense.” Id. Continue reading “California Corner: Insurer’s Failure to Immediately Commence Defense Waives California Civil Code Section 2860 Rate Limitations for Independent Counsel”

Case Review: Seventh Circuit Repudiates Insurer’s Attempt to Sell Illusory Coverage to Policyholder

Shareen Sarwar

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”

Insurer Liability for Retained Counsel’s Malpractice

Frank M. Kaplan

The Hypothetical Facts

Take the following hypothetical: A California company is sued in the Los Angeles Superior Court for personal injuries suffered by the driver of a vehicle that was injured in a crash involving the company’s car. The company has insurance for bodily injury liability. Its insurance company, however, does not believe there is coverage and denies that it has any duty to indemnify its insured. The insurer agrees, however, that it will defend the insured subject to a reservation of rights.

The insurance company retains a lawyer employed by one of its panel firms. The lawyer has litigated personal injury suits for 15 years and appears, at least outwardly, competent to handle the insured’s case.

It turns out, though, that the retained lawyer does a very poor job of defending the insured, failing to take or follow up on critical discovery and missing various deadlines. The insurance company is aware of the lawyer’s incompetent performance, but does nothing about it. As the case approaches trial, the insured settles the case, using $250,000 of its own money and a small amount begrudgingly offered by the insurer. Continue reading “Insurer Liability for Retained Counsel’s Malpractice”

Seeking Insurance Coverage for Data Breach Claims? A Recent Case Confirms that Certain D&O Policies Potentially Provide Coverage

James S. Carter

Businesses are increasingly purchasing dedicated cyber insurance policies to address their cyber and data security exposures. To date, however, many of the judicial decisions addressing insurance for cyber exposures have done so under other, more traditional, types of insurance policies such as commercial general liability (“CGL”) and commercial property policies. Some of these rulings have disappointed policyholders by concluding that such non-cyber insurance policies do not cover cyber exposures. But a recent decision by the United States Court of Appeals for the Fifth Circuit demonstrates that certain non-cyber policies potentially afford coverage for cyber exposures. In Spec’s Family Partners, Ltd. v Hanover Insurance Co., No. 17-20263, 2018 U.S. App. LEXIS 17246 (5th Cir. June 25, 2018), the court of appeals found that a contractual liability exclusion in a management liability policy did not excuse the insurer of its duty to defend its policyholder, a private company, against a claim arising out of a payment card data breach. Continue reading “Seeking Insurance Coverage for Data Breach Claims? A Recent Case Confirms that Certain D&O Policies Potentially Provide Coverage”

Unenforceable “Policy Interpretation” Provision

Frank M. Kaplan

There are certain immutable truths. For example, we know that the sun will rise in the east tomorrow, that the earth is not flat, that coverage grants in an insurance policy are to be interpreted broadly consistent with the insured’s reasonable expectations, and that policy exclusions are to be interpreted narrowly. The latter two, which together with others, are long-held canons of insurance policy interpretation protecting insureds that appear in thousands of court decisions and are not subject to reasonable dispute by lawyers on either side of the insurance coverage bar.

So what happens when an insurer attempts to alter these and other fundamental, bedrock principles of policy interpretation by unilaterally altering them in a form, non-manuscript insurance policy? Must a court abandon decades of settled jurisprudence in favor of policy language that seeks just that result? The answer should be “no.” Continue reading “Unenforceable “Policy Interpretation” Provision”

The Ninth Circuit Reconfirms that under California Law an Insurer Bears a Heavy Burden to Demonstrate an Exclusion Eviscerates Its Defense Duty

Julia K. Holt

Under California law, the insurer has the heavy burden of establishing there is no potential for coverage of an underlying claim. With respect to the duty to defend, “[t]o prevail, the insured must prove the existence of a potential for coverage, while the insurer must establish the absence of any such potential. In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot.” Montrose Chem. Corp. v. Superior Court, 6 Cal. 4th 287, 300 (1993). The Ninth Circuit reconfirmed this fundamental principle earlier this year in Hanover Insurance Co. v. Paul M. Zagaris, Inc., No. 17-15477, 2018 U.S. App. LEXIS 5429 (9th Cir. March 2, 2018), when it upheld the district court’s decision that the insurer failed to establish that an exclusion for deceptive business practices applied to the entire proposed class action for an alleged kickback scheme. Continue reading “The Ninth Circuit Reconfirms that under California Law an Insurer Bears a Heavy Burden to Demonstrate an Exclusion Eviscerates Its Defense Duty”

Government Investigators at Your Door? Check Your Insurance Policies.

Robyn L. Michaelson and Omid Safa

A governmental entity may initiate an investigation with something as seemingly innocuous as an “informal” request for information, or as ground shaking as armed government officials executing a full-blown search and seize warrant at your company’s headquarters. In either scenario, the ensuing investigation is likely to be expensive, time consuming, and a distraction from your business operations. Any governmental investigation can quickly escalate into an extensive and protracted inquiry that forces your company to spend significant time, resources, and legal fees responding to (and defending against) the government’s investigatory demands. These investigations may also result in subsequent legal or administrative enforcement actions, which expose the company and its directors and officers to potential liability for damages, fines, penalties, and other financial obligations. These actions pose a serious threat to the organization and its top brass, and must be met with a vigorous defense. The crucial question is: How will you pay for your response and defense? The answer may lie with your insurance portfolio. Continue reading “Government Investigators at Your Door? Check Your Insurance Policies.”

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