New York Appellate Court Holds Bankruptcy Exception to Insured vs. Insured Exclusion Restores Directors and Officers Insurance Coverage

Directors and Officers (“D&O”) liability policies, like many other liability policies, often have an exclusion that precludes coverage when one insured sues another insured.  Coverage, however, can be restored under certain exceptions.  One of those exceptions is the bankruptcy exception, which allows a bankruptcy trustee or comparable authority to sue on behalf of the estate against another insured like a director or officer.  How that exception works when there is a creditor’s trust formed to pursue legal actions on behalf of unsecured creditors was the subject of a recent decision by a New York appellate court.

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The Novel Coronavirus and Reinsurance

I have updated my musings on insurance losses arising from the novel coronavirus and the issues that may arise should those losses become cessions to reinsurance contracts in my latest quarterly Reinsurance Commentary.  I hope you find it useful and would welcome comments and feedback.  You can access the Reinsurance Commentary by clicking the link here.

New York Federal Court Compels Arbitration in Life Reinsurance Dispute Over Trust Assets

Arbitration in Dictionary

Where two or more agreements are involved in a transaction, a dispute over one of the agreements often raises arbitrability questions.  This is especially true where a reinsurance agreement with an arbitration clause is paired with a trust agreement with no arbitration clause.  In a recent life reinsurance case, a New York federal court addressed a dispute over trust assets and whether that dispute was arbitrable under the reinsurance agreement.

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What to Make of the Early COVID-19 Insurance Coverage Court Rulings

There are been at least two court rulings on the COVID-19 insurance coverage litigation.  In Pennsylvania, the Supreme Court denied the extraordinary request to consolidate COVID-19 cases under what is called Kings Bench Powers.  In New York, a federal court denied an emergency request for a preliminary injunction requiring an insurer to pay its policyholder immediately while the coverage case is pending.  What can we read into these two rulings?

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COVID-19 and the Exclusion for Virus and Bacteria

Insurance policies contain coverage grants and exclusions.  Generally, the burden is on the insured in the first instance to prove that the insured’s loss comes within the insurance policy’s coverage grants.  If the insured proves that the policy covers the insured’s loss, then the burden shifts to the insurer to prove that a policy exclusion precludes coverage.  In a March 2020 blog post, we discussed whether coverage for COVID-19 could be excluded from property insurance policies.

With disputes over coverage for losses arising from COVID-19 business interruption claims raging, two issues have emerged over the presence or absence of policy exclusions for losses arising from virus or bacteria. First, some insureds argue that because a virus exclusion exists, the absence of the exclusion from the policy means that there is coverage.  Second, other insureds argue that even if there is a virus exclusion present, it does not preclude coverage for the novel coronavirus pandemic where civil authority stay-at-home orders force businesses to close.  In this blog post, we explain why these arguments are mistaken.

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Second Circuit Rules Summons Enforceable Under Section 7 of the Federal Arbitration Act

Subpoena for Court Legal Documents Law

Because of the quasi-judicial nature of arbitration and the limited powers given to arbitrators under the Federal Arbitration Act (“FAA”) to control discovery, how a party to an arbitration goes about seeking evidence from a recalcitrant witness has caused some controversy.  Different courts have come up with different interpretations about whether arbitration subpoenas are enforceable against third-party witnesses.  The issue only arises where third-party evidence is sought and the third parties refuse to cooperate.  In a recent decision, the Second Circuit had to address the enforceability of an arbitration panel’s summons under Section 7 of the FAA in a reinsurance dispute.

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Anti-concurrent Clause and Faulty Workmanship Exclusion

Destroyed House

Anti-concurrent clauses preclude coverage even where the loss is partially caused by a covered cause of loss.  This clause received considerable attention in hurricane-related coverage litigation following Hurricane Katrina.  In a recent case, the Eighth Circuit Court of Appeals addressed the anti-concurrent clause in the context of damage allegedly caused in part by faulty workmanship.

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It Is All Relative When Determining Which Insurer Covers a Subsequent Lawsuit

Successive lawsuits with similar facts often give rise to fights between insurers over which insurance policy must defend the lawsuit.  Why?  Because many insurance policies have provisions that define losses to include those that relate to an earlier claim.  This may mean that if a claim was brought two years ago and noticed to that policy, a subsequent claim brought two years later would relate back to the original claim and would be the responsibility of the original carrier to defend.  Recently, the Third Circuit Court of Appeals addressed this issue.

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No Coverage for Breach of Contract Claim Under Commercial General Liability Insurance Policy

Businessman burning contract

One of the most difficult things to understand as a policyholder is that a commercial general liability insurance policy (“CGL”) does not provide coverage for everything that might happen to the insured business, including being sued.  While the CGL policy has often been described as providing “litigation insurance” in addition to coverage for occurrences and accidents, there is a limit to the duty to defend.  For example, if a business is sued for breach of contract, does the CGL policy have to provide a defense as part of the broader duty to defend?  The Eighth Circuit court of appeals addressed that issue recently.

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Is a COVID-19 Stay-Home Order Alone Enough to Trigger Business Interruption Coverage?

Back in March, when the novel coronavirus was spreading and local and state governments were issuing stay-home orders, we published a blog post on Civil Authority Orders and COVID-19 Coverage.  Since that time, there have been over 125 lawsuits filed by insured businesses, many of them arguing that the economic damages caused by these COVID-19 governmental orders, by themselves, trigger coverage under business interruption-type provisions of property policies.  The argument goes that because the civil orders restricted operations or forced businesses to close, the insurance policies should pay regardless of whether there is actual physical damage to property.

In this blog post, we take a further look into civil authority order provisions and whether the order alone is a sufficient trigger of coverage.  As has been said previously, the specific facts of the alleged loss and the actual words of the individual policy may affect whether coverage exists.

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