Executive Summary Blog

Executive Summary Blog

Legal developments affecting professional liability insurers

Disputes Over Amounts of Premiums and Claims Paid Prevent Summary Judgment in Rescission Case

Posted in Rescission

The United States District Court for the Southern District of Indiana, applying Indiana law, denied an insurer’s motion for summary judgment based on rescission, holding that there was a question of material fact where the insurer did not provide evidence of the amount of claims paid or premiums received for the policies to be rescinded.  Proassurance Indemn. Co., Inc. v. Wagoner, 2017 WL 3421983 (S.D. Ind. August 9, 2017).  The court also held that there was an issue of material fact regarding when the insurer knew about the insured’s alleged breach of the policy that may entitle the insurer to rescind the policies.

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No Coverage for $3.5 Million in Pre-Notice Defense Expenses Where Notice Was a Year Late

Posted in Consent to settle/incur defense costs, Defense Costs, Notice of Claim

Applying Delaware law, a federal court in New York has held that where an insured waited more than a year to report a lawsuit to its insurer and during that period incurred more $3.5 million in legal fees, the insurer had no obligation to pay pre-tender defense costs, without regard to whether the insurer could show prejudice from the delay in notice.  Abrams v. RSUI Indem. Co., 2017 WL 3433108 (S.D.N.Y. Aug. 10, 2017).

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Missouri Federal Court Denies Motion to Stay Coverage Action Pending Resolution of State Insolvency Proceedings Against Insured

Posted in Rescission

In a win for Wiley Rein’s client, a Missouri federal court has denied a motion to stay a coverage action against an insolvent insurer pending the resolution of insolvency proceedings in state court, holding that the insolvent insurer had failed to demonstrate that the case presented one of the exceptional cases where abstention is appropriate.  Allied World Surplus Lines Ins. Co. v. Galen Ins. Co., 2017 WL 3503473 (E.D. Mo. Aug. 16, 2017).

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Single Lawsuit Alleging Multiple Wrongful Acts Constitutes Single Claim

Posted in “Claim”

The United States Court of Appeals for the Third Circuit, applying Pennsylvania law, has held that a single lawsuit alleging three causes of action and up to eight discrete wrongful acts constituted a single claim under a professional liability insurance policy.  Westport Ins. Corp. v. Mylonas, 2017 WL 3327798 (3d Cir. Aug. 4, 2017).

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Fraudulent Instruction Loss Caused by Social Engineering Scheme Does Not Trigger Computer Fraud Coverage Under Commercial Crime Policy

Posted in Cyber Policies and Issues

A Michigan federal district court has held that a fraudulent instruction loss caused by a social engineering scheme did not constitute a “direct loss” that was “directly caused by computer fraud” and therefore did not trigger computer fraud coverage under a commercial crime policy.  American Tooling Ctr., Inc. v. Travelers Cas. & Sur. Co. of Am., 2017 WL 3263356 (E.D. Mich. Aug. 1, 2017).

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Insurer’s Duty to Defend Ends at Tender of Policy Limits

Posted in Defense Costs

The United States District Court for the Eastern District of Kentucky, applying Kentucky law, has held that an insurer’s duty to defend under a medical professional liability policy ended when the insurer tendered policy limits to the insured, despite the ongoing lawsuit against the insured.  Mt. Hawley Ins. Co. v. MESA Med. Grp., PLLC, 2017 WL 3082662 (E.D. Ky. July 19, 2017).

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Insurer May Not Rescind Renewal Policy Based on Misrepresentations in Prior Policy’s Application

Posted in Loss, Prior Knowledge/Warranty Exclusion, Rescission

An Illinois intermediate appellate court, applying Illinois law, has held that a renewal insurance policy may only be rescinded based on material misrepresentations made in the renewal application, and not based on misrepresentations made in applications for prior policies.  Ill. State Bar Ass’n Mut. Ins. Co. v. Rex Carr Law Firm, 2017 WL 2806126 (Ill. App. Ct. June 27, 2017).  The court also held that application of the policy’s prior knowledge provision depended on the insured law firm’s subjective expectation of whether the relevant circumstance might lead to a claim.

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Computer Fraud Coverage Extends to Manipulation of External Email Server

Posted in Cyber Policies and Issues

The United States District Court for the Southern District of New York, applying New York law, has held that a cloud-based service provider’s loss resulting from fraudulent wire instructions is covered under a computer fraud and funds transfer fraud policy because the fraudulent email changed data in the provider’s computer system despite use of a third-party external email service.  Medidata Solutions, Inc. v. Federal Ins. Co., No. 15-CV-907 (S.D.N.Y. July 21, 2017).  The court also held that the fraud precluded any finding that coverage was excluded based on the provider’s knowledge or consent to the wire transfer.

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Inviting a Second Bite at the Apple: Delaware Chancery Court Suggests New Approach to Evaluating Preclusive Effect of Prior Unsuccessful Derivative Litigation

Posted in Corporate Considerations

In response to the Delaware Supreme Court’s question in connection with remand, the Delaware Chancery Court has suggested reevaluation of its prior willingness to dismiss subsequent derivative litigation where an earlier derivative action has been dismissed due to demand futility.  In re Wal-Mart Stores, Inc. Delaware Derivative Litigation, C.A. No. 7455-CB (consol.), supp. op. (Del. Ch. July 25, 2017).  Where the court previously would dismiss subsequent efforts to re-litigate demand failure, the new approach suggested by the Chancery Court provides that an earlier action should not be given preclusive effect if it failed to survive a motion to dismiss pursuant to Delaware Chancery Court Rule 23.1, the Delaware analog to Federal Rule of Civil Procedure 23.1.

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