Insured v. Insured Exclusion in Directors and Officers Policies

Ethnic Tug of WarA typical directors and officers liability insurance policy provides coverage for officers and directors of a corporation for all loss that is not indemnified by the corporation resulting from a covered claim for a wrongful act as defined by the policy.  Virtually all D&O policies also include an “Insured v. Insured Exclusion,” which precludes coverage for claims brought by or on behalf of or at the direction of any of the insureds (with some exceptions).  One of the reasons for this exclusion is to prevent collusion between the company and an officer or director.

In a recent case before the Second Circuit Court of Appeals, the court had occasion to address the application of the Insured v. Insured Exclusion.

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Property Damage Found Despite Growing Crack Originating Prior to Policy Period

Coal Fired PlantA recent case from a New York intermediate appeals court sheds some light on how the courts interpret property and business interruption coverage for power-generating equipment.  The case raised two interesting issues.  First, whether a pre-existing crack in a power-generating turbine precludes coverage.  The second, whether time-element coverage was available for a loss of future capacity revenues.  Insuring large power-generating equipment is a serious risk, especially when the equipment is not new.  Underwriters and claims examiners involved in property risks for utilities and other industrial equipment may find this case instructive.

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New York’s 3420(d)(2) Cannot Be Used Between Insurers

We have written a number of blog posts involving New York Insurance Law Section 3420(d)(2), which requires insurance companies to disclaim quickly or waive the right to disclaim.  Parties have tried to rely on 3420(d)(2) in a variety of ways.  In a recent case, the Second Circuit Court of Appeals was asked to address the application of 3420(d)(2) in an action brought by one insurance company against another.  The district court granted summary judgment in favor of the defendant carrier and declined to apply 3420(d)(2) to the case.  The Second Circuit affirmed.

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Privity and Additional Insured Coverage

When a worker is injured on a construction job and sues the relevant parties, a side battle often ensues over which carrier has the duty to defend and indemnify the owner, general contractor or subcontractor based on the language in the various construction contracts requiring some or all of those parties to be named as additional insureds.  When there are multiple subcontracts cascading down to the injured worker’s employer, determining whether the employer’s policy must defend and indemnify other parties as additional insureds can be confusing.  In a recent Summary Order, which does not have precedential effect, the Second Circuit Court of Appeals weighed in on this issue under New York law.

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Collateral Effect of US-EU Covered Agreement on Reinsurance Disputes

With the signing of the Bilateral Agreement on Prudential Insurance and Reinsurance Measures (the “Covered Agreement“), the EU and US have embarked on a five-year road towards cooperation on insurance and reinsurance competition, supervision and regulation.  While the main purpose of the Covered Agreement was leveling the playing field for international reinsurers and agreeing on cooperation and information exchanges in supervising insurers and reinsurers, especially those active in both the US and the EU, there are aspects of the Covered Agreement that have a potential effect on reinsurance disputes.

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US and European Union Sign Pending Bilateral Agreement on Prudential Insurance and Reinsurance Measures

The European Union and the United States have today signed their pending Bilateral Agreement on Prudential Insurance and Reinsurance Measures.  In the US, the Agreement is the Covered Agreement under the Dodd-Frank Act; in the EU, it is an Agreement under Article 218 of The Treaty on the Functioning of the European Union.  The language of the Agreement was finalized and submitted to the United States Congress in January 2017.

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The Interminable ‘Insured vs. Insured’ Battle

Insurance policy on a desk

Recently on our eSquire Global Crossings Blog we shared an article first published in the Bankruptcy Strategist, where Norman Kinel and Elliot Smith explore the practical impact of the Sixth Circuit Court of Appeal’s recent decision in Indian Harbor Insurance Company v. Zucker, et al., 2017 U.S. App. LEXIS 10821, which bankruptcy practitioners – particularly those representing creditors’ committees – need to consider, because having the wrong plaintiff or the wrong mechanism in place to pursue claims against a debtor’s officers and directors could result in losing the ability to recover value for creditors.

You can read the full article online here.

Other aspects of the Zucker case were previously examined by Christopher Meyer in his post ‘“Insured Versus Insured” – – Who is the Debtor-in-Possession, Anyway’.

Florida Office of Insurance Regulation Issues Emergency Order Post Hurricane Irma

On September 4, 2017, Florida’s Governor, Rick Scott, declared a state of emergency in every county in Florida in anticipation of Hurricane Irma, through Executive Order No. 17-235, triggering Insurance Commissioner David Altmaier’s related emergency authority. Fla. Stat. § 252.63(1). On September 13, 2017, Commissioner Altmaier issued the Office of Insurance Regulation’s (the “Office”) Emergency Order establishing and amending certain rules for insurance companies post Hurricane Irma.

The Emergency Order applies to insurers and other entities regulated under the Florida Insurance Code.  It institutes temporary rules regarding cancelling or nonrenewing residential and commercial residential policies; temporary rules regarding rate filings, the “file and use” rate filing processes, and the “use and file” rate filing processes; new rules on time periods for action by insureds;  and detailed notice and cancellation requirements for premium finance companies.

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Bellefonte’s Influence Continues to Wane

As we all (or at least some of us) wait breathlessly for the New York Court of Appeals to answer the Second Circuit’s certified question in Global Reinsurance Corp. of Am. v. Century Indemn. Co., 843 F.3d 120 (2d Cir. 2016), which is now scheduled for argument on Wednesday, November 15, 2017 at 2:00 p.m., a Pennsylvania intermediate appeals court has affirmed a lower court order denying summary judgment to a reinsurer seeking to cap its liabilities based on the limits of a facultative certificate and granting judgment to the ceding companies on their claim for recovery of expenses.  In a non-precedential decision, the court affirmed the lower court’s determination that the facultative certificate was ambiguous, allowed and credited the cedent’s extrinsic evidence, including expert testimony on custom and practice, and provided a detailed analysis of Bellefonte and its progeny, through Global Reinsurance.

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Will the Upsurge in Cat Bonds Weather the Storm(s)?

As yet another hurricane bears down on the US, the insurance press is reporting a surge in Cat Bonds and other alternative capital.  Cat Bonds and the amounts reinsured are apparently at a high.  Cat bonds, as we know, respond to catastrophic loss events.  Cat Bonds exist for various types of large property loss events, but windstorms make up the majority of the Cat Bonds.  When the wind doesn’t blow, the Cat Bond investors make a nice profit.  But when the wind blows, the Cat Bond investors often lose their investment because the bond has to pay based on the parametric trigger, often an industry wide loss figure.  The projected losses for Harvey are quite large and with Irma bearing down on Florida, the projections are going to skyrocket.  While you may think Cat Bonds simply either have to pay or don’t depending on the declared loss, in fact, there are some issues that have arisen that need to be considered as this string of hurricanes parades across the Southern US.

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