CORPORATE
POLICYHOLDER
Risk. Recover. Repeat.
THE GROWING CAPTIVE INSURANCE MARKET: IS IT RIGHT FOR YOUR BUSINESS NEEDS?
COVID-19 AND BUSINESS INTERRUPTION INSURANCE
ASSESSING THE VALUE OF REPRESENTATIONS AND WARRANTY INSURANCE
IN THIS ISSUE
TOP 7 OPPORTUNITIES AND OBSTACLES IN NEGOTIATING POLLUTION COVERAGE
GONE PHISHIN': HOW DOES INSURANCE APPLY TO BUSINESS EMAIL COMPROMISE LOSSES?
PRIVILEGE AND WORK PRODUCT IN INSURANCE COVERAGE DISPUTES
D&O RENEWALS IN THE AGE OF COVID-19
THE RIGHT TO INDEPENDENT COUNSEL: WHAT IT IS AND WHEN YOU SHOULD DEMAND IT
TRANSFERRING INSURANCE RIGHTS IN CORPORATE TRANSACTIONS
Case Summaries and Insights
Interview With Bill Deckelman, General Counsel of DXC
Letter from the Publisher
Volume 4
Dear Readers, It should come as no surprise that the widespread – and largely unanticipated – business losses amid COVID-19 have led to novel challenges for corporate insurance policyholders. Debates over business interruption coverage and virus exclusions in commercial policies have reached a fever pitch. The shift to remote work – and the consequent jump in cyberattacks – has raised the stakes on cybersecurity coverage terms. Meanwhile, the market for directors' and officers' liability insurance, which was hardening before the pandemic hit, has grown even more challenging for companies wanting protection against securities litigation as stock drop and other kinds of shareholder lawsuits increase. These are just a few of the topics covered in our newest issue of Corporate Policyholder magazine, a publication of the Barnes & Thornburg Insurance Recovery and Counseling Practice Group. Others include the increasing demand for captives and other alternatives to commercial insurance, the application of insurance policies to business email compromise losses, the value of reps and warranty insurance, and key obstacles in negotiating pollution coverage – to name a few. This issue of our magazine paints a picture of an increasingly complex post-COVID-19 insurance landscape – one marked by an economic recession, supply chain and service disruptions, significant technological advancements, and a heightened focus on environmental, social and governance considerations for public companies. Yet no matter how much the industry may be changing, some things – like the importance of strong relationships – remain the same. As Bill Deckelman, general counsel of DXC, says in this issue's O&A, "Building trust with your carriers really matters ... it's a two-way street. We want to be as transparent as we can in the underwriting process - but on the flip side, when something unexpected happens, we want transparency and partnership from the carriers, too."
LETTER FROM THE PUBLISHER
Thus, we hope that the following articles will not only help corporate leaders navigate the myriad insurance challenges they now face, but provide insights that can lay the groundwork for stronger, more fruitful partnerships in the difficult months to come. Insurance Recovery and Counseling Practice Group Barnes & Thornburg LLP Fall 2020
For up-to-the-minute insights about insurance recovery, follow our Policyholder Protection blog.
The Growing Captive Insurance Market:
On January 1, 2020, when millions of policyholders obtained renewals of their annual insurance policies, few would have anticipated that, within a few months, a pandemic would spread globally and lead to a catastrophic shutdown of much of the world economy, to say nothing of civil unrest on a scale not seen in generations. Small business losses in the U.S. from the pandemic have been estimated to range between $255 billion and $431 billion – per month. These unprecedented events only add further strain to an already difficult commercial market for policyholders. Property and casualty reinsurers reported net premiums written during the first quarter of 2020 increased 20.4 percent over the same period in 2019, according to Bloomberg Tax. Insurance markets have been tightening, leaving fewer opinions for policyholders. Unsurprisingly, the insurance industry has taken a hard-line approach to coverage of pandemic-related claims, leaving many financially strapped policyholders with nowhere to turn but coverage litigation against their insurers. Is there a better solution for policyholders than years of protracted and expensive coverage litigation?
Is It Right For Your Business Needs?
By James J. Leonard
Read the article
Pollution Legal Liability (PLL) policies are useful in many circumstances to mitigate environmental liabilities. They can be used to help protect a buyer of property with a lengthy history of use of hazardous substances from losses and liabilities not detected during due diligence, to backstop an environmental indemnity obligation as part of an asset purchase or settlement agreement, or to allay concerns about a company’s potential environmental liability at legacy sites. The type and scope of PLL coverage varies broadly from carrier to carrier and is often customized to adjust for the specific facts and circumstances of the sites for which coverage is sought. During the application and negotiation process, opportunities exist for knowledgeable policyholders to try to maximize – or at least clarify – the coverage available under PLL policies to meet needs unique to a particular property, or business operations with a high risk of environmental liability. This article identifies seven key issues to consider discussing with your coverage counsel and insurance broker during the underwriting process.
Top 7 Opportunities and Obstacles in Negotiating Pollution Coverage
By John P. Fischer
Suppose one of your business partners paid a multimillion dollar invoice to a fraudster, rather than to your business. Further suppose that the perpetrator had hacked your server, thereby enabling him to send out a fake invoice that appeared to have been sent by your business. Whose insurance policy covers the loss – the one issued to your business partner, or the one issued to your business? This is not a far-fetched scenario. It is common enough to have a name – a “business email compromise,” or “BEC.” On April 6, 2020, the FBI reported that, “between January 2014 and October 2019, the Internet Crime Complaint Center received complaints totaling more than $2.1 billion in actual losses from BEC scams using two popular cloud-based email services.” These scams continue to impact businesses, and are expected to worsen as cyber criminals take advantage of quarantines and thinned-out security teams resulting from COVID-19. Allocation of responsibility – and insurance coverage – for these losses is an important issue for companies that cannot afford more negative pressure on their cash flow.
GONE PHISHIN':
HOW DOES INSURANCE APPLY TO BUSINESS EMAIL COMPROMISE lOSSES?
By Carrie M. Raver and Scott N. Godes
Disputes over the attorney-client privilege, work product doctrine, and other privileges and protections can affect outcomes in insurance coverage disputes. Anticipating these disputes can help prevent disclosure of an insured’s protected information and also afford an opportunity to apply pressure against an insurer withholding relevant information without a valid basis.
Privilege and work product
in insurance coverage disputes
By Adam Gajadharsingh
Even in matters where there is no common interest between the insurer and the insured, a policyholder often can penetrate an insurer’s claim of attorney-client privilege and work product applicable to its investigation and analysis of a claim in bad faith litigation against the insurer challenging whether its investigation and analysis were reasonable.
As the coronavirus pandemic wreaks havoc on nearly every sector of the economy, businesses across the country look to their commercial property insurance policies for desperately needed coverage. To date, however, insurers have staked out a hardline position: Standard commercial property policies do not cover any losses related to the pandemic. In response, many policyholders hit hardest by the pandemic – e.g., restaurants, bars, hotels and casinos – are filing lawsuits against their insurers to secure coverage for their lost revenue. Though each policy is different, the coverage disputes arising from the coronavirus pandemic generally involve three hotly contested issues: the availability of coverage for “business interruption” losses; the availability of “civil authority” coverage; and the applicability of so-called pollution, contamination, and/or virus exclusions.
COVID-19 and Business Interruption Insurance
By Adam K. Hollander and Jonathan J. Boustani
Any insurance solution that is heavily reliant on federal spending may create implied assurances to the insurance industry that taxpayer-funded bailouts may become the norm for future large-scale crises.
At the start of 2020, the market for directors and officers (D&O) insurance in the public company sector was already hardening. A significant rise in IPOs over the past few years resulted in a sharp increase in securities litigation and steadily rising settlement values. The onset of the COVID-19 pandemic only increased public companies’ woes. The pandemic-fueled economic collapse has deeply eroded their market capitalization, and the resulting economic slowdown shows no end in sight. Litigation seeking to allocate blame for massive pandemic-related business losses only increases the risk faced by public companies. As the risk environment grows increasingly uncertain, D&O insurers have become increasingly cautious about renewing their existing policies on expiring terms and conditions. Risk managers at public companies need to be prepared to have difficult conversations with their insurers about how COVID-19-related claims will be handled under their D&O insurance programs. Here are six important issues that public companies may need to address when it comes time to renew those programs.
D&O Renewals in the age of COVID-19
Six issues to consider before renewing your D&O insurance during a pandemic
By Joshua B. Rosenberg
During the past decade, it has become increasingly common for merger and acquisition transactions to include the purchase of representation and warranties insurance (RWI). Mergers and acquisitions typically involve parties making certain representations and warranties to each other about past or existing facts. These often are key components of a deal and can be heavily negotiated by the parties, who then rely on these statements as part of the basis for their decision to close. It has been common for transactions to include an escrow or holdback account to fund the seller’s potential indemnity or other obligations, including obligations that might arise from a breach of a representation or warranty. RWI can be an attractive substitute or supplement for such escrow arrangements.
Assessing the Value of Representations and Warranty Insurance
By Christian P. Jones
Your company has been sued on alternative theories of negligence and fraud. You tender the lawsuit under your general liability policy, which contains a provision obligating the insurance company to defend the lawsuit. The insurance company takes control of the company’s defense, while reserving its rights to deny coverage on the basis of an exclusion for liability for fraudulent or intentional acts. As a policyholder, you want to feel confident that your insurer will keep your best interests front and center in hiring and overseeing the lawyer. But a judgment in the lawsuit is covered only if the company is found liable for negligence – and the lawyers hired by the insurance company have within their hands the ability to steer the case toward non-covered liability for fraud, which would save the carrier a bundle of money. Those lawyers will want repeat business from the insurance company, and you’ll never see them again after the lawsuit. This creates a “conflict of interest” for defense counsel that could affect their decisions in handling the case. When a conflict of interest exists, the policyholder may be entitled to independent counsel – that is, counsel paid for by the insurer out of its own pocket (and not policy limits), but who is answerable only to the policyholder.
The Right to independent counsel:
What it is and when you should demand it
By Kelsey Dilday
Insurance policies typically contain clauses prohibiting assignment of the policy, or policy rights, without the insurer’s consent. Transactions involving the sale of a business or some or all of its assets often include provisions governing the transfer of insurance rights for losses or liabilities that predate the transfer. Parties rarely seek insurer consent for such transfer, largely because it would be impractical, if not impossible, to obtain. Whether insurance rights transfer when a company or its assets are sold can be an important variable in measuring the value of the deal. This issue often turns on whether the court adjudicating coverage for a post-closing claim follows the majority rule and allows transfers without carrier consent or follows the minority rule that does not.
Transferring Insurance Rights in Corporate Transactions
By Charles P. Edwards
The fact that a jurisdiction follows the majority rule does not automatically mean that insurance rights at issue are assignable.
It’s not exactly a straight line from a small town in Arkansas to General Counsel of DXC, a global IT company in the Fortune 500. But Bill Deckelman made it happen. For over 40 years, he’s been practicing law in the IT world. And while he’s seen vast technological shifts take place firsthand, he’s also been around long enough to know that certain parts of the job – namely, the importance of human relationships – are still fundamental. Bill is the recipient of the Financial Times’ Most Innovative GC in North America award and has become a prominent thought leader regarding the transformation of the legal industry. In what follows, we discuss Bill’s upbringing, his role at DXC, how he navigates corporate insurance matters in the IT space, and more.
Read the interview
Interview with Bill Deckelman
General Counsel of DXC
"Over the years, you get to know who the key people are at those carriers, and you develop relationships with them over dinner or coffee. I’ve found that pays off in the sense that, when it comes time to file a claim, there’s a basis for having a candid conversation with someone you’ve know a long time – rather than an arm’s length negotiation between lawyers."
Staying up to date on insurance policy law is critical. Here are a few significant insurance cases decided recently.
By Abby A. Vineyard
California Supreme Court Hands Policyholders Big Win by Adopting Vertical Exhaustion Rule Ohio Supreme Court Rejects All Sums Approach When Damage, Though Spanning Multiple Years, Occurred at Discernible Times Ninth Circuit Distinguishes Between “Written Demand” and “Suit” and Holds “Claims First Made” Provision is Ambiguous
Policyholders should carefully review their policies with coverage counsel to better understand how they are structured, and to ensure that their risk managers implement claims-reporting procedures consistent with policy requirements.
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