Executive Summary Blog

Executive Summary Blog

Legal developments affecting professional liability insurers

Insurer Obligated to Pay Full Policy Limits on Loss Despite Potentially Concurrent Policies With Competing “Other Insurance” Clauses

Posted in Other Insurance

A federal court in South Carolina has held that an insurer breached its contract with its insured by not paying the full policy limits even though its policy included an “other insurance” clause and there was another insurance policy that potentially covered the same loss.  Michelin North America, Inc. v. Federal Ins. Co., No 6:17-1599 (Nov. 7, 2017).  In so holding, the court noted that the dispute between the two insurers (only one of which was a party to the case), as to the appropriate proration of the insured’s loss has “no impact” on the insured’s right to fully recover under the one insurer’s policy.

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No Coverage Available Where Insured Fails to Provide Notice of Potential Claim During First Policy Period and Knew About, But Failed to Disclose, Potential Claim Prior to Second Policy Period

Posted in “Claim”, Notice of Claim, Prior Knowledge/Warranty Exclusion

The United States District Court for the District of Maryland has held that where notice of a potential claim is not reported during the first policy period and the insured knew about, but failed to disclose, the potential claim prior to the second policy period, coverage is precluded under both policies.  James River Ins. Co. v. Brick House Title, LLC, 2017 WL 5126154 (D. Md. Nov. 6, 2017).  Furthermore, because the insured’s failure to notify the insurer of a potential claim is not a breach of contract, the insurer is not required to show prejudice under Maryland’s notice-prejudice rule for claims-made-and-reported polices.

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Federal Court Limits Information Discoverable by Insurer Concerning Insured’s Prior Knowledge

Posted in Discovery Issues, Prior Knowledge/Warranty Exclusion

The United States District Court for the Middle District of Florida has ruled regarding the discoverability of a broad array of documents sought by an insurer in a declaratory judgment action concerning application of a prior knowledge condition.  Berkley Assurance Co. v. Expert Grp. Int’l Inc., 2017 WL 4574599 (M.D. Fla. Oct. 13, 2017).  The court’s order included mixed rulings on seven of the insurer’s requests for production (RFPs) and one interrogatory.

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No Crime Coverage for Amounts Wired by Insured’s Customer to Fraudster Posing as Insured

Posted in Cyber Policies and Issues

A New Jersey federal district court has held that a commercial crime policy does not afford coverage for a loss caused by a fraudulent wire instruction scheme where an imposter, posing as the insured, directed the insured’s customer to pay receivables to the impostor’s account.  Posco Daewoo America Corp. v. Allnex USA, Inc., No. 52:17-cv-00483-JMV-MF (D.N.J. Oct. 31, 2017).  The court did not address threshold issues regarding trigger and causation but instead held that there was no coverage because the insured did not own the funds at issue.

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Carve Out for Fines and Amounts Imposed by Statute Bars Coverage

Posted in Breach of Contract – coverage for amounts due pursuant to contract, exclusions

Applying California law, the United States District Court for the Central District of California has held that an insurer owed no coverage for an underlying lawsuit because the suit sought amounts that fell completely within a carveout from the definition of “damages” for fines and amounts imposed by statute.  Local Initiative Health Auth. for Los Angeles County v. OneBeacon Prof’l Ins., Inc., 2017 WL 3579491 (C.D. Cal. July 7, 2017).

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Insured Fails to Allege Bad Faith Damages When Settlement Was Funded by Another Insurer

Posted in Bad faith/duty to settle

A California federal district court has held that an insured did not suffer damages sufficient to support a bad faith claim for failure to indemnify because another excess insurer during a prior policy year had paid for the settlement.  Genesis Ins. Co. v. Magma Design Automation, Inc., No. 2017 WL 4642443 (N.D. Cal. Oct. 16, 2017).

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Court Declines to Hold Broker Accountable for Insured’s Failure to Report Known Claims in Application

Posted in Notice of Claim

A Massachusetts federal court has held that, absent special circumstances, an insurance broker does not owe a fiduciary duty of care to its client and therefore is entitled to accept its clients’ representation that all known claims had been reported in its application and has no duty to investigate whether potential claims were not reported.  Biochemics, Inc. v. Axis Reins. Co., 2017 WL 4317384 (D. Mass. Sept. 28, 2017).

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Insurer Was Not Prejudiced by Insured’s Failure to Cooperate

Posted in Cooperation

Applying Maryland law, the United States District Court for the District of Maryland has held that an insurer was required to satisfy an underlying judgment because its insured’s failure to cooperate did not prejudice the insurer’s ability to defend.  Mora v. Lancet Indem. Risk Retention Group, Inc., 2017 WL 4618461 (D. Md. Oct. 16, 2017).

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SEC Subpoenas & Formal Investigative Order Are Not “Claims” Alleging “Wrongful Acts”

Posted in “Claim”

The United States Court of Appeals for the Tenth Circuit, applying Colorado law, has held that a formal investigative order issued by the U.S. Securities & Exchange Commission (“SEC”) and related subpoenas did not constitute “Claims” alleging “Wrongful Acts” as defined under a D&O policy.  MusclePharm Corp. v. Liberty Ins. Underwriters, Inc., 2017 WL 4675701 (10th Cir. Oct. 17, 2017).

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Contract Exclusion Bars Coverage for Claims Arising from Asset Purchase Agreement’s Non-Compete Clause

Posted in Breach of Contract, Defense Costs, Wrongful Act

Applying North Dakota law, a federal district court has held that a contract exclusion contained in a directors and officers liability policy precludes coverage for claims arising from a non-compete clause in an asset purchase agreement.  Mau v. Twin City Fire Ins. Co., 2017 WL 4479731 (D.N.D. Oct. 3, 2017).  The court also held that the insurer had no duty to defend an officer against claims arising from the alleged violation of the non-compete agreement because the officer did not commit the acts underlying the violation in his capacity as officer of a defined subsidiary of the insured entity.

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