C L A I M D E N I E D November 2002 A publication of the Lowenstein Sandler Insurance Law Practice Group The Current Insurance Picture: Hard Markets, Closed Fists by Robert D. Chesler, Esq. T that the insurance industry wants to good faith. We now question the he word "January" comes compensate itself for ten years of a efficacy of these efforts, and find from the two headed Roman soft market all at once. ourselves advising clients more god Janus, who looked backward quickly to file complaints and seek and forward at the same time. As lawyers, we are seeing the earliest possible trial dates as After four years of publishing Claim the hard market translate into a the only way of obtaining settle- Denied , we take the editorial privi- closed fist when it comes to ments from insurers. lege of stepping back to view where claims handling. Across the we have been and where we are Bad Faith Claims Handling board, insurance companies are going. first delaying, then denying, The insurance industry’s “no pay” The Hard Market claims that are not even debatable. attitude will also result in more As discussed below, this is particu- allegations of bad faith. Once The biggest insurance concern for larly true in areas such as asbestos again, Lowenstein Sandler has most of our clients is the hard and directors and officers claims, never loosely thrown around alle- market. This market results from where the insurance industry fore- gations of bad faith. However, what the insurance community sees sees tremendous losses in the we are increasingly witnessing sit- as the perfect storm - the World immediate future. However, we uations where insurers do not Trade Center tragedy are witnessing this "no pay" atti- even try to justify their failure to coupled with the rapid decline in tude across the board. In the pay claims. While New Jersey the stock market. How much of the past, Lowenstein Sandler has bad faith law is underdeveloped current rate increases result from always prided itself as not necessar- compared to the law in other these factors is unclear. Insurance ily viewing the insurance industry states, we view bad faith as an companies seem gleeful as they raise as “the dark side,” and in trying increasingly viable component of rates to compensate for their own to negotiate reasonably and in many coverage litigations. past underwriting failures; it appears This document is published by Lowenstein Sandler PC to keep clients informed about current issues. It is intended to provide general information only. A L D
Asbestos Because of this complexity, it is easy now seeing. Many D&O policies for an insurance company upon have added the company itself as The insurers “no pay” receiving notice of an asbestos com- an insured under the policy. This stance comes at a time of rising lia- plaint to admit liability, but then to progressive measure has now bilities for many policyholders. assert that it should pay only a backfired, as bankruptcy trustees Chief among these is asbestos. As minimal share of defense fees and claim the insurance policies as the initial wave of asbestos defen- settlement. Policyholders can only corporate assets of the bankruptcy dants has entered bankruptcy, com- obtain the maximum share of estate. Shareholders and creditors panies that never before viewed asbestos defense and indemnity also claim rights under these poli- themselves as asbestos targets are costs from their insurers by know- cies, and in Enron’s case sought to receiving multiple claims. Any ing their past insurance history and prevent the D&O insurer from pay- company that distributed or sold a mastering the rules of allocation. ing the attorneys fees of the direc- product that contained asbestos may tors and officers. As our society now be a target. Further, there is a The D&O Marketplace grapples with changes in corpo- Asbestos and similar lia- rate governance, the insurance “. . . existing D&O bilities involve claims against industry must also respond by offer- insurance policies often insurance policies issued many ing D&O policies that provide true provide less protection years ago. Claims against directors protection. than expected.” and officers arise under current policies. Unfortunately, just as Is the Umbrella Full of social and economic developments rise in ‘premises claims’, in which Holes? are resulting in a mushroom electricians and other contractors The holes in D&O cover- cloud of D&O claims, the D&O are suing the owners of any places of age are symptomatic of coverage marketplace has become perhaps business where they worked in the gaps across the insurance portfolio. the hardest of any type of insur- past, claiming workplace exposure The World Trade Center catastro- ance. Companies cannot get the to asbestos. phe focused attention on business limits they need, and favorable pol- interruption policies. We have icy provisions introduced during The best and most immedi- uniformly found that those policies the last decade as insurers fought ate advice for any company that provide much less coverage than for market share have now views itself as a potential asbestos anticipated. largely disappeared. Moreover, defendant is to locate its old insur- The insurance industry’s existing D&O insurance policies ance policies. If a worker claims cutbacks on the coverage provided often provide less protection exposure to asbestos in 1950, all by the general liability policy have than expected. For example, policies from 1950 to the present tremendously limited the useful- D&O policies contain an “insured may provide coverage. In this ness of those policies. Most poli- v. insured” exclusion. This regard, New Jersey has uniquely cyholders are aware that the gener- means that there may be no cover- complicated rules on which poli- al liability policy does not cover age for a claim brought by a for- cies must respond, and for how employment torts, and that an mer director or officer, precisely the much, when an asbestos claim trig- employment practices liability type of claim many companies are gers numerous consecutive policies.
insurance policy is necessary. Most policyholders are also aware www.insurance-lowenstein.com that their policies do not provide any pollution coverage, but only a minority know of the wide range of environmental insurance policies now available in the marketplace. As to intellectual property, com- puter and Internet liabilities, many companies are not even aware that ...finally, an online insurance they have at best extremely limited coverage, or that they may need coverage resource new insurance products to counter for New Jersey businesses. that exposure. All of the above trends placed increased responsibility on Visit www.insurance-lowenstein.com, the online brokers, consultants and risk man- resource dedicated to your insurance coverage needs. agers. The standard coverage is no longer the best coverage. The unifying theme of all • Read about developments that impact corporate policyholders of these trends is that policyholders • Request articles on how to minimize your risks now more than ever, need an insur- • Receive practical tips for pursuing insurance coverage claims to ance advocate well versed in cover- successful resolution age law and the practicalities of the insurance industry. Lowenstein • Learn about controversial court decisions that change the way Sandler remains prepared to serve insurance companies handle claims the insurance litigation and coun- • Access the site’s library of insurance coverage materials seling needs of its clients. • Submit questions to legal professionals For more information regarding this or any other insurance cover- • Register to attend insurance-related events age issue, please contact Robert D. Robert D. Chesler, Chair of Lowenstein Sandler’s Insurance Law Practice Chesler, Chair of the Insurance Group, spearheaded the development of the Insurance Outpost. If you have Law Practice Group, at any questions, please contact Robert D. Chesler at 973-597-2328 or 973.597.2328 or at rchesler rchesler@lowenstein.com. @lowenstein.com, or you can visit our Insurance Outpost website at G www.insurance-lowenstein.com. 65 Livingston Avenue L Telephone 973.597.2500 Roseland, New Jersey Fax 973.597.2400 07068-1791 www.lowenstein.com
T HE N EW J ERSEY I NSURANCE C OVERAGE I NSTITUTE Presents: Handling D&O Insurance Claims in the Post-Enron Era December 5, 2002 8:00 - 11:00 a.m. Park Avenue Club, Florham Park Topics Include: The D&O Scorecard: Enron, Worldcom, Global Crossing, et al Understanding the D&O Policy Your D&O Insurer: Ally or Enemy Whose Policy Is It? D&O Insurance and Bankruptcy Surviving the D&O Hard Market To register, please contact Karen Cerreto at 973.422.6466, or by email to kcerreto@lowenstein.com. J F IRST C LASS M AIL US P OSTAGE P AID Insurance Law Practice Group R OSELAND , NJ 65 Livingston Avenue P ERMIT #17 Roseland, New Jersey 07068
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