Archive for the ‘Directors & Officers’ Category

Eye on Insurance: A Look Back at 2013 and Forward to 2014

Monday, February 3rd, 2014

2013 was a year characterized by continued pressure on the financial sector, a new regulatory landscape and further challenges for the insurance industry branching into emerging risks and economies. The lawyers in our London office authored this update which reviews the key developments and trends for various classes of business during 2013, together with commentary on what we can expect from 2014.

To view and download a PDF copy, click here.

Washington Insurance Law: 2013 Year in Review

Tuesday, January 21st, 2014

2013 was a particularly eventful year in Washington insurance law. This paper, authored by Sedgwick Seattle’s Robert Meyers, summarizes the holdings of several notable Washington insurance decisions that were filed in 2013.  Download a copy of the paper here. 

In June 2013, Bob gave a webinar on The State of Bad Faith in Washington.   The WA program, and the others in our bad faith series, are are available for on demand viewing.  Please click here to request a link.

Here We Go Again? Financial Institutions Face Heightened Regulatory Scrutiny Over Forex and Other Unregulated Rates

Thursday, January 16th, 2014

In May 2012, Sedgwick Chicago’s Eric Scheiner and Jennifer Quinn Broda wrote an article for the PLUS Journal on the investigations into the manipulation of the London InterBank Offered Rate (Libor) and the civil actions that followed.   As a follow-up to their article on Libor manipulation, Eric and Jennifer have published a second article focusing on alleged manipulation in the Forex market.  Specifically, they look at how the Forex market works, the conduct at issue and the special role “chat rooms” may be playing with regard to the investigations. They also discuss the ongoing investigations and litigation, as well as the potential coverage implications these investigations and civil suits may have on insurers.  Their latest article can also be found in the current issue of the PLUS Journal and in the D&O Diary.

Download a PDF of the article here.

Failure to Provide Timely Notice Proves Costly For Insured

Wednesday, June 5th, 2013

By John S. Na, Sedgwick Los Angeles

A federal district court in Missouri granted insurer Philadelphia Indemnity Insurance Company’s Motion for Summary Judgment in a coverage dispute finding that the insured, Secure Energy, Inc., did not provide timely notice of a claim as required under the D &O Policy.  In Secure Energy, Inc. v. Philadelphia Indemnity Insurance Company, case number 4:11-cv-01636 (E.D. Mo. May 16, 2013), the court found that not only did Secure Energy wait too long before reporting the claim, but also that the insurer did not have to demonstrate it was prejudiced by the late notice.

Secure Energy was insured under several D&O policies issued by Philadelphia between October 11, 2007 and October 11, 2012, which provided coverage on a “claims made” basis.  The policies required that Secure Energy provide notice to Philadelphia of all claims as soon as practicable but no later than 60 days after the expiration of the policy.  On December 20, 2007, Secure Energy received a memorandum from a former employee seeking payment of unpaid commissions totaling $1,800,000.  On May 16, 2008, the former employee filed suit against Secure Energy seeking his commission plus $2,000,000 in punitive damages.  Secure Energy’s first notice to Philadelphia was on May 4, 2011.  Philadelphia denied Secure Energy’s tender on the ground that the notice was untimely.  Secure Energy filed suit seeking a declaratory judgment that Philadelphia was obligated to provide coverage for the defense and indemnity costs incurred in the former employee’s lawsuit.

Secure Energy argued that, although it did not strictly comply with the notice requirement under the D&O policies, Philadelphia could not deny coverage unless it first established that it was prejudiced by the late notice.  In support of its position, Secure Energy cited to a number of decisions in Missouri which held that under an “occurrence” policy the insurer must first demonstrate that it was prejudiced by the insured’s late notice.  The federal district court rejected Secure Energy’s argument, finding that the Missouri Supreme Court distinctly held that an insurer is not required to show prejudice resulting from an untimely notice under a “claims made” policy.  In reaching its decision, the court noted that, unlike an “occurrence” policy where the occurrence of an act or omission during the coverage period triggers coverage, a “claims made” policy provides coverage when the act or omission is discovered and brought to the attention of the insurer, regardless of the occurrence date.  Because there was no question that Secure Energy failed to provide timely notice, the court held that, under Missouri law, Philadelphia was not required to demonstrate that it was prejudiced by the late notice.

New York Court Rules that Professional Services Exclusion Bars Coverage for Underlying Actions Brought By FINRA and Private Investors

Thursday, April 11th, 2013

By Eryk Gettell, Sedgwick San Francisco

In David Lerner Associates, Inc. v. Philadelphia Indemnity Insurance Company, 2013 WL 1277882 (E.D.N.Y. Mar. 29, 2013), the United States District Court for the Eastern District of New York affirmed the plain meaning of the words “professional services”. 

Philadelphia Indemnity Insurance Company (“Philadelphia”) – represented by Sedgwick LLP in the coverage action – issued a D&O liability policy to the brokerage firm David Lerner Associates, Inc. (“DLA”).  The policy contained a “professional services” exclusion, however it did not define the words “professional services”.

The Financial Industry Regulatory Authority (“FINRA”) brought a disciplinary proceeding against DLA, alleging that it misrepresented the value of certain real estate investment trust (“REIT”) shares sold to investors, and failed to perform adequate due diligence in marketing those shares.  Shortly thereafter, three related class action lawsuits were brought against DLA.  DLA tendered the FINRA proceeding and the related class actions to Philadelphia for coverage.

Philadelphia denied coverage based on the “professional services” exclusion.  DLA sued for declaratory relief and breach of contract.

The court was asked to consider whether the due diligence carried out by DLA in the course of providing investment advice constituted a “professional service” for purposes of the exclusion, and concluded it did.  In rejecting DLA’s argument that the exclusion was ambiguous merely because the words “professional services” were not defined, the court reasoned that undefined terms “should be read in light of common speech and the reasonable expectations of a business person”.  

The court was not persuaded by DLA’s argument that financial advisors do not perform “professional services” because they are not considered professionals in the malpractice sense, explaining that in the context of liability insurance “professional services” encompassed a broader range of activities. 

The court also rejected the theoretical argument that DLA’s actions were only “ministerial” in nature because “performing a due diligence analysis and marketing financial products requires specialized knowledge and training, and is not a rote activity performed by a professional”. 

Discovery was unnecessary to determine whether the exclusion applied because DLA’s alleged failings fell within the scope of the exclusion on their face. 


Welcome to Our New Partners

Monday, December 3rd, 2012

We are pleased to announce that three of the editors of the Insurance Law Blog have been elected to the firm’s partnership, effective January 1, 2013.  Alex Potente, David Dolendi and Maria Cousineau are longstanding members of Sedgwick’s editorial team and helped transition our insurance and property coverage newsletters to a blog format.  A few other of our insurance attorneys were promoted, including Valerie Rojas (LA – Fidelity/Bond and D&O) and John Seybert (NY – Healthcare).  Congratulations to all!

Please click here for more information.


Can D&O Insurance Cover Banks Anymore?

Tuesday, June 12th, 2012

By Ryan Chapoteau

In early June, Representative Barney Frank of Massachusetts introduced H.R. 5860.  This new bill, entitled the “Executive Compensation Clawback Full Enforcement Act,” seeks to prohibit insurance coverage for regulatory clawbacks of an employee’s compensation from a failed financial institution as well as civil penalties imposed by governmental authorities on corporate executives of financial institutions.  The legislation complements the Dodd Frank Act, the principal financial reform law currently being implemented, which allows the FDIC to act as the receiver of failed “systemically important” financial institutions and recover clawback damages from individuals responsible for such failure.

If H.R. 5860 passes, insurance companies may not provide such coverage to directors and officers, as well as employees.  Rep. Frank is trying to bolster the sanctions within the Dodd Frank Act receivership provisions and make individuals accountable for their risky financial transactions rather than permitting risk-shifting to their insurance providers.  Besides bankruptcy clawbacks, this bill also forbids coverage for monetary penalties issued by the FDIC.

So can D&O policies even cover banks anymore?  Of course.  While these new Dodd-Frank regulations seem to hinder coverage, standard D&O policies should not be affected.  For example, a clawback may arise in connection with a significant accounting restatement under Dodd Frank Act §954; 15 U.S.C. § 78j-4.  If this type of clawback is considered a penalty or fine imposed by a regulatory agency, then such a loss is usually not covered already, either due to an exclusion within the policy or as a matter of public policy under disgorgement principles.  While it would be prudent for financial institutions to seek coverage for these matters, if H.R. 5860 passes, it will only reinforce that these specific losses are not covered losses.  It will be interesting to watch how this encompassing financial reform bill will define and regulate other coverage matters for the financial industry.


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