Notice of Claims in Claims-Made Insurance Policies Identifying - PowerPoint PPT Presentation

Presenting a live 90-minute webinar with interactive Q&A Notice of Claims in Claims-Made Insurance Policies Identifying Claims; Evaluating Whether and When to Report WEDNES DAY, FEBRUARY 22, 2012 1pm East ern | 12pm Cent ral | 11am Mount ain | 10am Pacific Today’s faculty features: Eric G. Barber, Atty, Perkins Coie , Madison, Wis. Mark D. Villanueva, Atty., McCarter & English , Philadelphia Nancy R. Kornegay, Partner, Brown & Kornegay , Houston The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .

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Defining “Claim” in Claims-Made Policies Eric G. Barber Perkins Coie LLP (608) 663-7498 EBarber@perkinscoie.com

Definition of "Claim"  Usually quite broad;  Often includes:  Civil or criminal proceedings;  Written demands;  Administrative or regulatory proceedings;  May include investigations of insureds  As distinguished from a “Circumstance” 5

Sample "Claim" Language (1) a written demand for monetary, non-monetary or injunctive relief, including, but not limited to, any demand for mediation, arbitration or any other alternative dispute resolution process; (2) a civil, criminal, administrative, regulatory or arbitration proceeding for monetary, non- monetary or injunctive relief which is commenced by: (i) service of a complaint or similar pleading; (ii) return of an indictment, information or similar document (in the case of a criminal proceeding); or (iii) receipt or filing of a notice of charges; (3) an Insured Person Investigation; (4) a Derivative Demand; (5) an official request for Extradition of any Insured Person, or the execution of a warrant for the arrest of an Insured Person where such execution is an element of Extradition. "Claim" shall include any Securities Claim and any Employment Practices Claim. Source : Chartis Executive Edge Broad Form Management Liability Insurance Policy (Form 104122 (4/10)), Section 13. Definitions, "Claim." 6

Demand for Damages Cases  Fed. Ins. Co. v. Ill. Funeral Director's Ass'n , 2010 U.S. Dist. LEXIS 129747 (N.D. Ill. Dec. 8, 2010) (letter from agency identifying excess fees was a written demand for non-monetary relief);  City of Santa Rosa v. Twin City Fire Ins. Co ., 140 N.M. 434 (2006) (employment discrimination charge not a claim without damages demand);  Westrec Marina Management, Inc. v. Arrowood Indem. Co. , 163 Cal. App. 4 th 1387 (2008) (former employee's letter alleging wrongful termination was written demand). 7

Coverage for Securities Claims  Directors’ and officers’ insurance policies often cover “Securities Claims” – claims arising out of wrongful acts related to purchase or sale, or offer to purchase/sell securities issued by the insured;  SEC investigations and enforcement actions excluded in many cases, but they may be covered. 8

Securities Claims Cases  Nat'l Stock Exch. V. Fed. Ins. Co. , 2007 U.S. Dist. LEXIS 23876 (N.D. Ill. Mar. 30, 2007) (SEC investigation not a claim before formal order issued);  Minuteman Int'l, Inc. v. Great Am. Ins. Co. , 2004 U.S. Dist. LEXIS 4660 (N.D. Ill. Mar. 18, 2004) (SEC investigation was a claim where policy required demand for non-monetary relief);  Highwoods Props. v. Exec. Risk. Indem., Inc. , 407 F.3d 917 (8th Cir. 2005) (breach of fiduciary duty involving stock was a claim). 9

Are Subpoenas Claims?  No definite answer – recent cases go both ways and often turn on the policy’s specific language;  Courts look at link between subpoenas and related government investigations; 10

Recent Cases Involving Subpoenas as Claims  Ace Am. Ins. Co. v. Ascend One Corp. , 570 F. Supp. 2d 789 (D. Md. 2008) (subpoena and investigative demands were claims);  Jemmco Partners v. Exec. Risk. Indem., Inc. , No. L-486- 07 (N.J. Super. Ct., filed Mar. 22, 2007) (subpoena seeking documents was a claim).  But see, Diamond Glass Cos. v. Twin City Fire Ins. Co. , 2008 WL 4613170 (S.D.N.Y. Aug. 18, 2008) (grand jury subpoena for documents/testimony was not a claim); 11

Related/Interrelated Claims  Losses stemming from same/related acts generally considered a single claim;  Policy language consolidates multiple claims that have a "common nexus," or are "causally or logically connected";  Very contentious issue without a clear resolution across courts. 12

Related/Interrelated Claims Cases  Quanta Lines Ins. Co. v. Investors Capital Corp. , 2009 U.S. Dist. LEXIS 117689 (S.D.N.Y. Dec. 17, 2009) (claims must have sufficient factual nexus to be interrelated);  Axis Surplus Ins. Co. v. Johnson , 2008 U.S. Dist. LEXIS 77614 (N.D. Okla. Oct. 3, 2008) (factual analysis, not just legal theory, is essential to determine relatedness);  G-I Holdings v. Hartford Fire Ins. Co. , 2007 U.S. Dist. LEXIS 19069 (D.N.J. Mar. 16, 2007) (construing "interrelated wrongful acts" as unambiguous). 13

Late Notice of Claims in Claims-Made Insurance Policies Mark D. Villanueva, Esq. McCarter & English 215.979.3854 mvillanueva@mccarter.com

What are Claims-Made Policies? Professional liability policies such as Directors  and Officers, Errors and Omissions, and Employment Practices Liability policies are typically written on a claims-made basis Provide coverage for claims asserted against  the insured during the policy period 15

Benefits to the Insurer of Claims- Made Policies  Limited tail exposure  Predictability of potential obligations at close of policy period  Smaller gap of time between when insurer prices policy and the time when the insurer may incur an obligation to pay

Notice Provision in Pure Claims Made Policies  Typically requires notice “as soon as practicable” 17

Notice Provision in Claims-Made and Reported Policies )  Insurers place the reportingrequirement in the Insuring Agreement, Conditions, or both  Failure to trigger the Insuring Agreement bars all coverage, while breach of a reporting Condition may not bar all coverage for late notice 18

Notice Provision in Claims-Made and Reported Policies (cont.)  Insuring Agreement: “…affords coverage for claims first made against you and reported to us in writing during the period this Policy is in effect or within ninety (90) days following its termination.” 19

Notice Provision in Claims-Made and Reported Policies (cont.)  Conditions: “It is a condition precedent to this insurance that you … [provide notice] of any claim as soon as practicable during the Policy Period . . . but in no event later than ninety (90) days after the expiration of the Policy Period.” 20

Notice Provision in Claims-Made and Reported Policies (cont.)  Some policies may also include the following language in the definition of “Claim”:  “A claim shall be considered ‘made’: (1) when it is first reported to the Company” 21

The Notice Prejudice Rule  Many jurisdictions have considered the “notice prejudice rule” in the context of occurrence based policies.  Notice provision in occurrence based CGL policy may provide:  “In the event of an occurrence, written notice containing particulars sufficient to identify the insured and all reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable .” 22

The Notice Prejudice Rule (cont.)  “As soon as practicable” has been construed to mean “within a reasonable time” and is a fact specific inquiry.  See, e.g. , Bass v. Allstate Ins. Co. , 77 N.J. Super. 491, 495 (App. Div. 1962); Country Mutual Insurance Company v. Livorsi Marine, Inc. , 856 N.E.2d 338, 343 (Ill. 2006); Mount Vernon Fire Ins. Co. v. King Gen. Constr. , 1998 U.S. App. LEXIS 20574 (2d Cir. 1998). 23

The Notice Prejudice Rule (cont.)  Some jurisdictions place burden on policyholder to prove that late notice did not prejudice the carrier  See, e.g., Grinnell Mut. Reinsurance Co. v. Jungling, 654 N.W.2d 530, 541-42 (Iowa 2002) ; Ferrando v. Auto-Owners Mut. Ins. Co., 781 N.E.2d 927 (Ohio 2002) 24