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”
Justin F. Lavella and Alexander H. Berman
In April 2017, white collar and securities attorneys, as well as potential defendants, cheered the Supreme Court’s unanimous opinion in Kokesh v. SEC, which held that civil disgorgement, when imposed as part of a Securities and Exchange Commission (“SEC”) enforcement proceeding, is a “penalty” and therefore subject to a five-year statute of limitations. At the time, Kokesh was hailed as limiting the size of future disgorgement awards, in some cases dramatically. However, the court’s categorization of SEC disgorgement as a “penalty” may have much wider ripple effects that could jeopardize billions of dollars in potential future insurance recoveries. This ripple effect first manifested itself in J.P. Morgan Sec., Inc. v. Vigilant Ins. Co., where New York’s intermediate appellate court recently held that an SEC disgorgement settlement was no longer a covered “loss” under the defendant’s insurance policy, because Kokesh recategorized such disgorgements as non-covered “penalties.” Continue reading “Insurers Seize on Kokesh Ruling to Disclaim Coverage for SEC Disgorgement”
Jared Zola, Linda Kornfeld, John E. Heintz, and Alan Rubin
Like the 2017 Atlantic Hurricane season before it, the 2018 season brought devastating storms to the United States. A prime example: One of the most powerful hurricanes on record to hit Florida’s Panhandle wreaked havoc in October 2018 and left a trail of devastation in its wake as it weakened to tropical storm status but still brought large-scale destruction to southeastern states.
Hurricane Michael made landfall on October 10 approximately 20 miles southeast of Panama City, Florida, with biblical 155 mph sustained winds, violent waves, and heavy rain. The extent of the damage in Florida is still being evaluated, but it is extensive to the naked eye. Two hospitals were evacuated. Many homes were destroyed, power lines were downed, cars and trucks overturned and destroyed.
It took weeks before roads were cleared and electricity was fully restored. Even once businesses reopened, the storm’s destruction prevented employees from traveling to work. In addition, municipalities reported decreased tax revenues from business closures. The economic impact of storm-related losses for businesses and municipalities combined will be significant. Continue reading “Insurance Coverage for Hurricanes: Insurers May Dispute “Causation””
David A. Thomas and Linda Kornfeld
Like a number of states, California prohibits insurers from indemnifying policyholders for liability based on intentional conduct that was committed with the intent to cause harm, although it does not bar a defense against such claims. California’s public policy is codified in Insurance Code Section 533, which provides: “An insurer is not liable for a loss caused by the wilful act of the insured; but he is not exonerated by the negligence of the insured, or of the insured’s agents or others.”
A significant body of law has elucidated the rules for application of Section 533. Reckless or grossly negligent conduct generally does not trigger application of the statute. Nor, with very limited exceptions, does the mere fact that a policyholder intended the act that caused the harm bring the conduct within Section 533. Instead, the policyholder must have intentionally performed a liability-producing act for the express purpose of causing harm or with knowledge that harm was highly probable or substantially certain to result. Fraud and malicious prosecution are common examples. Section 533, however, does not bar coverage for intentionally harmful acts based solely on vicarious liability. Continue reading “California Corner: California’s Bar on Coverage for Willful Acts under Insurance Code Section 533—Don’t Assume It Applies”
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”
Amy J. Spencer
“Phishing” is a scheme in which criminals use spoofed e-mails, copycat websites, or other deceptive communications to trick unwitting companies or individuals into sharing valuable personal information or into wiring money to sham bank accounts. As these schemes become unfortunately more common and sophisticated, companies are increasingly turning to their insurance policies to cover their monetary losses. However, many businesses that have purchased crime insurance to cover this type of “computer fraud” may not realize that e-mail-based thefts are not always covered. Businesses may reasonably assume that coverage exists under a crime insurance policy covering computer fraud because the loss is computer related, but insurance companies will likely insist on proof of a direct causal relationship between the computer fraud and the loss of funds before providing coverage.
The American Tooling case is the most recent pronouncement from the courts on “computer fraud” coverage. On July 13, the United States Court of Appeals for the Sixth Circuit ruled in favor of the policyholder and reversed the Michigan district court’s grant of summary judgment to Travelers Casualty and Surety Company of America. Am. Tooling Ctr., Inc. v. Travelers Cas. & Sur. Co. of Am., No. 17-2014, 2018 WL 3404708, — F.3d. — (6th Cir. July 13, 2018). Continue reading “American Tooling and Medidata: The Latest Rulings on Coverage for Phishing Scams”