Executive Summary Blog

Executive Summary Blog

Legal developments affecting professional liability insurers

No Second Bite for Derivative Plaintiffs: Delaware Supreme Court Rebuffs Invitation to Undermine Preclusive Effect of Prior Unsuccessful Derivative Action

Posted in Corporate Considerations

The Delaware Supreme Court, once again addressing questions of issue preclusion in the context of shareholder derivative litigation, has rejected suggestions by the Chancery Court that giving preclusive effect to initial, unsuccessful efforts to litigate demand futility violates the Due Process rights of shareholders attempting to bring a subsequent action elsewhere. California State Teachers’ Retirement System, et al. v. Aida M. Alvarez, et al. and Wal-Mart Stores, Inc., No. 295, 2016 (Del. Jan. 25, 2018).  According to the Court, such issue preclusion does not necessarily violate Due Process rights, at least where the various plaintiffs have a common interest and legal representation is adequate in the initial action.

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Lawsuit Filed by Company Against Former Officer Does Not Trigger Employment Practices Liability Coverage

Posted in Defense Costs, Notice of Claim, Wrongful Act

The United States District Court for the District of Oklahoma has held that a lawsuit filed by a company against its former president did not implicate its policy’s Employment Practices Liability coverage because the lawsuit was not filed by or on behalf of an employee, as required by the policy.  Statton v. Allied World Specialty Ins. Co., 2018 WL 454563 (N.D. Okla. Jan. 17, 2018).  Furthermore, because the former officer failed to tender the Claim within fifteen days of the date on which it was first made, as required by the coverage section’s “Right to Tender Defense” provision, the individual was not entitled to a defense.

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Ninth Circuit Affirms Allegations of Discrimination and Harassment Triggered Duty to Defend Class Action for California Labor Code Violations

Posted in Wrongful Act

The United States Court of Appeals for the Ninth Circuit has held that an employment practices liability insurer had a duty to defend a class action complaint alleging various California Labor Code violations based on the presence of potentially covered allegations of discrimination and harassment.  PHP Ins. Serv., Inc. et al. v. Greenwich Ins. Co., 2018 WL 455915 (9th Cir. Jan. 17, 2018).

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Insurer Entitled to Rescind Policy But Not to Reimbursement of Defense Costs

Posted in Rescission

The United States District Court for the Southern District of West Virginia, applying West Virginia law, has held that an insurer which was entitled to rescind a lawyer’s professional liability policy, and thus owed no duty to defend the underlying action, was not entitled to reimbursement of defense costs.  ALPS Prop. & Cas. Ins. Co. v. Turkaly, 2018 WL 385195 (S.D. Va. Jan. 11, 2018).

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Insurer May Rescind Policy Where Insured Failed to Disclose Pending Investigation

Posted in Rescission

Applying California law, the United States Court of Appeals for the Ninth Circuit has held that an insurer was entitled to rescind a directors and officers liability insurance policy where the insured failed to disclose a pending investigation in response to an application question.  Western World Ins. Co. v. Professional Collection Consultants, 2018 WL 259309 (9th Cir. Jan. 2, 2018).

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Breach of Fiduciary Duty Claim Against Lawyer Acting as Both Escrow Agent and Attorney for Counterparty Triggers Duty to Defend Notwithstanding Business Enterprise Exclusion

Posted in Professional Services

The Illinois Intermediate Appellate Court, applying Iowa law, has affirmed that a professional liability insurer must provide a defense for an attorney who allegedly mishandled funds that he was holding in escrow related to the plaintiff’s transaction with another company for which the attorney was vice president and legal counsel. Willey v. Minn. Lawyers Mutual Ins. Co., 2017 IL App (5th) 160452 (Ill. App. Dec. 6, 2017). In so doing, the court first determined that the claim was properly interpreted as one for a breach of duty as an escrow agent, which was within the grant of coverage for “professional services.” The court then found a business enterprise exclusion inapplicable because it required that damages arise from certain conflicts of interest that were not present.

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Former Director Not Covered for Wrongful Acts Committed in Uninsured Capacity

Posted in “Claim”, Wrongful Act

The U.S. District Court for the Eastern District of Pennsylvania, applying Pennsylvania law, has held that a former board member of a company is not entitled to coverage when the company was dismissed with prejudice from the underlying action. Palmer v. Twin City Fire Ins. Co., 2017 WL 5571051 (E.D. Pa. Nov. 20, 2017).

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Insurer Potentially Liable for Failing to Initiate Settlement Discussions

Posted in Bad faith/duty to settle, Exclusions

The U.S. District Court for the District of Kansas, applying Kansas law, has held that fact questions regarding application of an investment advising exclusion in a professional liability policy preclude summary judgment. Bridgebuilder Tax + Legal Servs. v. Torus Specialty Ins. Co., 2017 WL 6342229 (D. Kan. Dec. 12, 2017). The court also indicated that if the insurer denied coverage improperly, it could also be liable for bad faith refusal to settle.

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Insured’s Late Notice of Original Discrimination Charges Bars Coverage for Related Lawsuits

Posted in Notice of Claim

In a win for Wiley Rein’s client, the United States District Court for the Eastern District of North Carolina, applying North Carolina law, has held that an insurer owed no coverage for two underlying lawsuits because the insured failed to provide notice of the EEOC charges of discrimination that arose from the same facts at issue in the underlying lawsuits.  John Hiester Chrysler Jeep, LLC v. Greenwich Ins. Co., 2017 WL 6210897 (E.D.N.C. Dec. 8, 2017).

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Prior Knowledge Condition Bars Coverage Where Insured was Warned of Negligence Claim Before Policy Incepted

Posted in Prior Knowledge/Warranty Exclusion

The California Court of Appeal has held that a prior knowledge condition barred coverage for a claim brought against an insured because the insured was warned prior to the policy’s inception that it would face a claim for professional negligence.  Admiral Ins. Co. v. Superior Court, 2017 WL 5590076 (Cal. Ct. App. Nov. 21, 2017).  Despite an ambiguity in the policy application, the court held that the prior warnings of the professional negligence claim were sufficient to trigger the exclusion.

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