Transcript INSURANCE COVERAGE FOR MULTI

Insurance Coverage For MultiState Investigations:
Can You Get Your Insurer to Pay
for the Legal Costs and Payments
Arising from the Investigation ?
Presented by
David P. Schack, Partner
June 29, 2006
www.klng.com
What Kinds of Policies Might
Provide Coverage ?
• Commercial General Liability Insurance (CGL)
• Directors and Officers Liability Insurance (D&O)
• Errors and Omission Liability Insurance (E&O)
2
CGL Coverage
• Bodily Injury
• Property Damage
• Advertising Injury
• Personal Injury
3
Section I – Coverages
Coverage B. Personal and Advertising Injury Liability
1. Insuring Agreement
a.
We will pay those sums that the insured
becomes legally obligated to pay as damages
because of personal and advertising injury to
which this insurance applies. We will have the
right and duty to defend the insured against any
suit seeking damages.
4
Section V – Definitions
14. Personal and advertising injury means injury,
including consequential bodily injury, arising
out of one or more of the following offenses:
a. False arrest, detention or imprisonment;
b. Malicious prosecution;
c. The wrongful eviction from, wrongful
entry into, or invasion of the right of
private occupancy of a room, dwelling or
premises that a person occupies,
committed by or on behalf of its owner,
landlord or lessor;
5
Section V – Definitions (cont.)
d. Oral or written publication, in any manner, of
material that slanders or libels a person or
organization or disparages a person’s or
organization’s goods, products or services;
e. Oral or written publication, in any manner
that violates a person’s right of privacy;
f. The use of another’s advertising idea in your
advertisement; or
g. Infringing upon another’s copyright, trade
dress or slogan in your advertisement.
6
Key Issues Under CGL Coverage
• Broad duty to defend
• Defense Costs Outside of Limits
• Occurrence vs. Claims made — Expands the
potentially triggered policies
• “Damage” requirement — Does the
examination seek damages?
• “Suit” requirement — Is the investigation a
“suit”?
7
D&O Coverage
PART A:
The Company shall pay, on behalf of the Insured
Persons, Loss for which the Insured Person is
not indemnified by the Organization and which
the Insured Person becomes legally obligated to
pay on account of any Claim first made against
the Insured Person during the Policy Period for
a Wrongful Act.
8
D&O Coverage (cont.)
PART B:
The Company shall pay, on behalf of the
Organization, Loss for which the Organization
grants indemnification to an Insured Person, as
permitted or required by law, and which the
Insured Person becomes legally obligated to pay
on account of any Claim first made against the
Insured Person during the Policy Period for a
Wrongful Act.
9
D&O Coverage (cont.)
PART C:
The Company shall pay, on behalf of the
Organization, Loss which the Organization
becomes legally obligated to pay on account of
any Securities Claim first made against the
Organization during the Policy Period for a
Wrongful Act.
10
Definition of “Wrongful Act”
Wrongful Act means:
(a) Any error, misstatement, misleading
statement, act, omission, neglect, or
breach of duty committed, attempted, or
allegedly committed or attempted by an
Insured Person in his or her Insured
Capacity, or for purposes of coverage
under Part C, by the Organization; or
(b) Any other matter claimed against an
Insured Person solely by reason of his or
her serving in an Insured Capacity.
11
Definition of Claim:
Claim means:
(a) A written demand for monetary damages or
non-monetary relief;
(b) A civil proceeding commenced by the service
of a complaint or similar pleading;
(c) A formal civil administrative proceeding
commenced by the filing of a notice of
charges or similar document or by entry of a
formal order of investigation or similar
document; or
(d) A criminal proceeding commenced by the
return of an indictment
against an Insured Person or the Organization under
Part C for a Wrongful Act.
12
Key Issues Under Definition of Claim
• “Formal” vs. “informal” investigation
• Expand to include “subpoenas” and “target”
letters
• Expand to include “investigations” without
limitations
13
Definition of Loss
Loss means the amount the Insured Person (for
purposes of Part A and B) or the Organization (for
purposes of Part C) becomes legally obligated to pay
on account of any covered Claim, including but no
limited to damages, judgments, settlements, prejudgment and post-judgment interest and Defense
Costs.
Typically “Loss” will not include punitive damages,
taxes, fines, penalty and the multiplied portions of
damage awards. To the extent these items are
insurable, they may be included by negotiation.
Restitution is typically not insurable.
14
Definition of Defense Costs
Defense Costs means that part of Loss
consisting of reasonable costs, charges, fees
(including but not limited to attorneys’ fees and
experts’ fees) and expenses incurred in
defending any Claim and the premium for
appeal, attachment and similar bonds.
Defense costs in a D&O policy typically reduce
the available policy limits.
15
Potentially Applicable
D&O Exclusions
• Fraudulent/dishonest conduct
• Personal profit
• Known claims
16
E&O Coverage
• E&O policies typically cover claims arising
out of acts, errors or omissions in the
provision of professional services.
• E&O coverage is not as widely purchased as
D&O coverage.
• E&O coverage may expressly cover
“investigations.”
• Many issues under E&O policies are similar
to those for D&O policies.
17
What Do You Need to Do, Upon
Learning of an Investigation, to
Preserve and Maximize Coverage?
Rule No. 1: Give notice to the insurer as soon as possible.
Why?
• Typically liability policies contain a “consent” or “no
voluntary payment” clause.
• Insurer will take the position that pre-tender or prenotice fees and costs are not payable.
• D&O and E&O policies are typically claims
made/claims reported policies. Delay in reporting a
“claim” beyond the policy period could bar coverage.
18
Issues Relating to Selection of
Counsel
• CGL: Has the insurer accepted defense with
or without a reservation of rights?
• D&O/E&O: Does the policy require use of
listed counsel for “securities claims” or
otherwise?
• “Litigation Guidelines” promulgated by
insurers
19
What Types of Costs and Payments
Are Covered?
20
Questions?
21