I blogged in August on the Chinese Drywall problems and the response of the insurance industry. According to a number of articles circulating today, one insurance company in Florida -- not surprisingly a public one backed by the state -- has said it will renew at least one couple's policy on its home. It apparently is partially backing off of its earlier argument that Chinese Drywall in a home is a "pre-existing condition" (remind you of the health care debate) and/or that the damages caused by it is excluded because of a pollution exclusion. See, for example, the article in today's Insurance Journal.
This may be a small victory for policyholders in the larger fight -- particularly because the insurer said that it won't pay to fix the problem but at least will renew, a requirement that most banks impose upon their borrowers to avoid default on their mortgages. And a lobbying group for the insurance industry took the position that policies were never meant to cover defective materials. His overzealous statement seems to overlook that homeowner's policies have always been purchased to cover property damage and that is what the Chinese Drywall is causing.
While I have not read them all, the Associated Press has run a series of articles on drywall claims and the tactics of insurance companies. I invite all of you who are interested to google the AP and chinese drywall to pursue what it had to say on this subject.
Friday, October 23, 2009
Monday, October 12, 2009
Breaking News: Kartrina Losses Covered If Caused By Wind Damage
In last week's decision in Corban vs. CSAA, the Mississippi Supreme Court rejected the anti-policy-holder view that the Fifth Circuit had earlier adopted. It ruled that, under Mississippi law, even though storm surge might be excluded by a flood exclusion, it was up to a jury to decide how much covered damage was caused by hurricane winds notwitstanding an anti-concurrent causation clause in the policyholders' homeowners policy.
The Mississippi Supreme Court's reasoning was that the causes of loss (wind and storm surge) did not occur simultaneously but sequentially and that even if the covered and uncovered causes lead to damages, it was for the jury to determine the quantum of damage caused by the hurricane. In so ruling 9-0, the Mississippi high court rejected the contrary and hostile interpretation that had been adopted by the Fifth Circuit.
Not surprisingly, even though the insurer has the burden of proving how much of the damage was caused by the excluded peril, CSAA has issued a press release praising the decision as confirming how well-taken its actions have been. However, the real story about this decision can be seen in one comment that sneaks through the praise for the decision from the insurance industry. As acknowledged in P&C National Underwriter,
The person being quoted by the P&C National Underwriter seemingly cannot accept that the inconsistency has in fact now been resolved, at least insofar as Mississippi law is concerned and the Fifth Circuit's narrow view has been rejected by a unanimous Supreme Court. His last comment is the key as to why the decision is so important. Whenever the insurance industry starts talking about "cost consequences", you know that they know two things: that they will need to be making payments that they were trying to avoid by claiming that they never intended to cover them, no matter what the policies they sold actually say; and that they have suffered a major loss.
The Mississippi Supreme Court's reasoning was that the causes of loss (wind and storm surge) did not occur simultaneously but sequentially and that even if the covered and uncovered causes lead to damages, it was for the jury to determine the quantum of damage caused by the hurricane. In so ruling 9-0, the Mississippi high court rejected the contrary and hostile interpretation that had been adopted by the Fifth Circuit.
Not surprisingly, even though the insurer has the burden of proving how much of the damage was caused by the excluded peril, CSAA has issued a press release praising the decision as confirming how well-taken its actions have been. However, the real story about this decision can be seen in one comment that sneaks through the praise for the decision from the insurance industry. As acknowledged in P&C National Underwriter,
Insurance Information President Robert P. Hartwig told National Underwriter in an e-mail that the decision “introduces uncertainty into an issue that virtually all had believed had been settled once and for all by the federal courts.” He added that “if insurers are now going to be held responsible for damage they believed--and the 5th Circuit believed--was excluded, there are obvious cost consequences. The inconsistency in the decisions between the state and federal courts will at some point need to be resolved.”
The person being quoted by the P&C National Underwriter seemingly cannot accept that the inconsistency has in fact now been resolved, at least insofar as Mississippi law is concerned and the Fifth Circuit's narrow view has been rejected by a unanimous Supreme Court. His last comment is the key as to why the decision is so important. Whenever the insurance industry starts talking about "cost consequences", you know that they know two things: that they will need to be making payments that they were trying to avoid by claiming that they never intended to cover them, no matter what the policies they sold actually say; and that they have suffered a major loss.
Wednesday, October 7, 2009
Can Your Mediator Be Your Enemy?
You had better believe it and take precautions to see that it does not happen to you.
Though unpublished, this decision from California's Third District Court of Appeal, Palmer v. State Farm, made me pause. (If you are really interested, you can print this decision by clicking on the print icon in the window below.)
Mediator Testifies
In this case, a mediator who helped broker -- or so he thought -- a settlement between a policyholder and his carrier drafted an informal agreement for the parties to sign at the mediation - perhaps an OK practice but perhaps not. More about that later.
When the carrier drafted the formal agreement and presented it to the insured, the insured refused to sign, claiming that the mediator's handwritten agreement referred to two policy limits while the formal post-mediation carrier-drafted agreement referred only to a single policy limit.
The carrier moved to enforce the settlement, filing a declaration executed by the mediator affirming that the formal contract did indeed reflect the handwritten one and that both memorialized the parties' alleged mutual understanding that there was only one policy limit that could be applied to the claim.
From the appellate opinion, it does not appear that either party objected to the mediator testifying or to the partiality the mediator showed to the carrier in siding with it against its insured. If that is true, the policyholder's counsel missed an important argument that should have ended the issue and prevented the adverse ruling. The trial court weighed the evidence and concluded that the formal contract was not a new agreement -- it was simply a formal memorialization of the handwritten agreement. The appeals court affirmed the judgment - but fortunately chose not to have it published, a rule in California that keeps decisions from being cited to other courts.
What is the take away for the policyholder and its counsel?
First, avoid the problem entirely by bringing a template of your favorite formal agreement to the mediation on a jump drive or on your own laptop if you can connect it to a printer at the mediator's office so that no skeletal term sheet subject to post-mediation "nibbling" can become the subject of further litigation. You can negotiate the formal agreement while in the mediation.
If it is 3 a.m. and no one has the form or the endurance to draft up the final agreement for signature, draft the term sheet yourself. Don't leave it to your opponent or the mediator to get it right. (And ask yourself whether the mediator might not have more of an interest in the enforcement of an agreement he or she drafted which he or she may swear is clear as a bell -- whether it is or is not -- than in one a party drafted).
If your opponent moves to compel the enforcement of an agreement that does not reflect the terms settled upon and supports it with a declaration from the mediator, immediately object, move to strike the Declaration, and call the mediator demanding that he withdraw his or her sworn testimony not only on confidentiality and incompetence grounds; but also on ethical grounds.
California, like many states, has specific rules that preclude the mediator from testifying or taking sides about what the parties "really" meant, an intuition that he or she likely gained during private caucuses with the parties. See California Code of Civil Procedure Section 1775.10 and Evidence Code Sections 703.5 (competence) and 1119 and 1121 (inadmissibility). Moreover, the model rules from virtually every professional organization require that a mediator remain neutral as part of his or her ethical responsibilities. See the Model Standards of Conduct for Mediators from the AAA, the ABA, and the Society of Professionals in Dispute Resolution. Bear in mind, however, that the procedural and evidentiary rules may or may not be the same from state to state or or between state and federal courts and may or may not be same if the proceeding is deemed to be a settlement conference versus a mediation. For example, Rule 408 of the Federal Rules of Evidence is not as strict as the California rules for a mediation, a complicating factor given that most parties do not agree in advance as to whether state or federal law will be applied should any dispute arise. In any event, the non-binding ethical rules of neutrality should be applicable across the board no matter what jurisdiction you may be in or what law will be applied.
In sum, the key is try to avoid this problem of the failed agreement in the first instance by being proactive and getting the settlement transaction completed in detail and the written agreement executed by all parties at the mediation. Some, and perhaps many, mediators seem not to know of the evidentiary and ethical rules except in the vaguest sense and have a strong desire to get their concepts of the outline of the settlement that they thought had been achieved before a court if it looks like the agreement will unravel over the details. Moreover, there is the concern that cannot be quantified, and likely does not apply in many instances, that meditors, like arbitrators, often get repeat business again and again from insurance companies and want to undertake the type of support for their repeat customer, the insurer, as did the mediator in the case being discussed here.
This is not a condemnation of mediators in general or of the mediation process. It is just a warning to the risk manager or the lawyer handling a mediation to think of these issues in advance to reduce the risk that the mediator may end up being your own worst enemy.
For another perspective on this decision but with not dissimilar conclusions, see Victoria Pynchon's Negotiation Law Blog that discusses this same case. Fair disclosure though, Vickie is my wife.
Though unpublished, this decision from California's Third District Court of Appeal, Palmer v. State Farm, made me pause. (If you are really interested, you can print this decision by clicking on the print icon in the window below.)
Mediator Testifies
In this case, a mediator who helped broker -- or so he thought -- a settlement between a policyholder and his carrier drafted an informal agreement for the parties to sign at the mediation - perhaps an OK practice but perhaps not. More about that later.
When the carrier drafted the formal agreement and presented it to the insured, the insured refused to sign, claiming that the mediator's handwritten agreement referred to two policy limits while the formal post-mediation carrier-drafted agreement referred only to a single policy limit.
The carrier moved to enforce the settlement, filing a declaration executed by the mediator affirming that the formal contract did indeed reflect the handwritten one and that both memorialized the parties' alleged mutual understanding that there was only one policy limit that could be applied to the claim.
From the appellate opinion, it does not appear that either party objected to the mediator testifying or to the partiality the mediator showed to the carrier in siding with it against its insured. If that is true, the policyholder's counsel missed an important argument that should have ended the issue and prevented the adverse ruling. The trial court weighed the evidence and concluded that the formal contract was not a new agreement -- it was simply a formal memorialization of the handwritten agreement. The appeals court affirmed the judgment - but fortunately chose not to have it published, a rule in California that keeps decisions from being cited to other courts.
What is the take away for the policyholder and its counsel?
First, avoid the problem entirely by bringing a template of your favorite formal agreement to the mediation on a jump drive or on your own laptop if you can connect it to a printer at the mediator's office so that no skeletal term sheet subject to post-mediation "nibbling" can become the subject of further litigation. You can negotiate the formal agreement while in the mediation.
If it is 3 a.m. and no one has the form or the endurance to draft up the final agreement for signature, draft the term sheet yourself. Don't leave it to your opponent or the mediator to get it right. (And ask yourself whether the mediator might not have more of an interest in the enforcement of an agreement he or she drafted which he or she may swear is clear as a bell -- whether it is or is not -- than in one a party drafted).
If your opponent moves to compel the enforcement of an agreement that does not reflect the terms settled upon and supports it with a declaration from the mediator, immediately object, move to strike the Declaration, and call the mediator demanding that he withdraw his or her sworn testimony not only on confidentiality and incompetence grounds; but also on ethical grounds.
California, like many states, has specific rules that preclude the mediator from testifying or taking sides about what the parties "really" meant, an intuition that he or she likely gained during private caucuses with the parties. See California Code of Civil Procedure Section 1775.10 and Evidence Code Sections 703.5 (competence) and 1119 and 1121 (inadmissibility). Moreover, the model rules from virtually every professional organization require that a mediator remain neutral as part of his or her ethical responsibilities. See the Model Standards of Conduct for Mediators from the AAA, the ABA, and the Society of Professionals in Dispute Resolution. Bear in mind, however, that the procedural and evidentiary rules may or may not be the same from state to state or or between state and federal courts and may or may not be same if the proceeding is deemed to be a settlement conference versus a mediation. For example, Rule 408 of the Federal Rules of Evidence is not as strict as the California rules for a mediation, a complicating factor given that most parties do not agree in advance as to whether state or federal law will be applied should any dispute arise. In any event, the non-binding ethical rules of neutrality should be applicable across the board no matter what jurisdiction you may be in or what law will be applied.
In sum, the key is try to avoid this problem of the failed agreement in the first instance by being proactive and getting the settlement transaction completed in detail and the written agreement executed by all parties at the mediation. Some, and perhaps many, mediators seem not to know of the evidentiary and ethical rules except in the vaguest sense and have a strong desire to get their concepts of the outline of the settlement that they thought had been achieved before a court if it looks like the agreement will unravel over the details. Moreover, there is the concern that cannot be quantified, and likely does not apply in many instances, that meditors, like arbitrators, often get repeat business again and again from insurance companies and want to undertake the type of support for their repeat customer, the insurer, as did the mediator in the case being discussed here.
This is not a condemnation of mediators in general or of the mediation process. It is just a warning to the risk manager or the lawyer handling a mediation to think of these issues in advance to reduce the risk that the mediator may end up being your own worst enemy.
For another perspective on this decision but with not dissimilar conclusions, see Victoria Pynchon's Negotiation Law Blog that discusses this same case. Fair disclosure though, Vickie is my wife.
Monday, October 5, 2009
Insurers Too Often Want to Weasel Out of the D&O Insurance They Sold.
Fortunately, they don't always succeed, as evidenced by the recent decision discussed below.
I have returned from vacation and a lot of work that has kept me away from posting. But I am hopefully back in the swing of things now.
One of the many ways that some insurance companies try to avoid honoring their obligations under D&O insurance policies is to claim that one of the many insureds included within the coverage of the policy took some action that assisted the plaintiffs in the lawsuit against the company and its directors and officers. In doing so, they rely upon the insured vs. insured exclusion. That exclusion is frequently called by way of shorthand the IVI exclusion.
It is a good thing that so many people are insureds under the policy because of the need for a company to protect as many officers and directors as possible. But it is a bad thing when one of the numerous insureds claims to have been hurt by the others or even cooperates with the plaintiffs, thus arguably triggering the IVI exclusion. I litigated one such suit several years ago when the only thing two former officers of an indirect subsidiary of the company being sued -- who were insureds under the breadth of the policy's coverage -- did was to talk by phone for about 15 minutes to the plaintiff's attorney. (More about that below). When one insured participates or assists the plaintiffs, many carriers will seek to deny coverage to the entire group of insureds (the company and its directors and officers) based upon the IVI exclusion.
Fortunately, not all courts are willing to buy into the insurer party line. In the recently issued decision of Chartrand v. Illinois Union Insurance Co. et al., No. 08-5805, 2009 WL 2776484 (N.D. Cal. Aug. 28, 2009), the federal district court in California ruled that the carrier, Illinois Union, was not entitled to summary judgment in its favor and instead granted summary judgment in favor of the insureds. In this case, one of the plaintiffs was a new investor in the insured company being sued who claimed that he (and the other investor poaintiffs) had paid too much for the company because of alleged wrongdoings and mis-statements by the former owners. The problem was that he had recently been appointed chairman of the company and thus was now an insured under the policy and was suing other insureds, the former officers. The other investor-plaintiffs were not directors or officers and thus were not insureds under the policy.
The court gave short shrift to Illinois Union's argument that its entire coverage obligation was voided because one of many plaintiffs was an insured. The court held that only the costs allocable to the defense of the claims by that single plaintiff insured were not covered under the policy and that the duty to defend and pay defense costs for the remainder existed. Given that most defense costs in these types of lawsuits go to the defense of the entire action and not to the claim of a single claimant, the practical reality is that the insured defendants will likely be entitled to virtually all of their defense costs.
The case that I litigated, mentioned above, was Harris v. Gulf Insurance Co., 297 F.Supp 2d 1220 (ND Cal) 2003). The facts upon which the carrier predicated its denial of coverage were even slimmer than those in the Illinois Union case. In Harris v. Gulf, two former officers of indirect subsidiaries of the insured, who were not parties to the litigation against other former directors, agreed to spoke with and did briefly speak with an investigator for the suing plaintiffs. That was all they did. Not much assistance but it was enough for Gulf to try to defeat all coverage for all of the defendant officers and directors who were sued. No evidence existed that the two former officers who spoke with the investigator intended to help or aid the prosecution of the litigation or were going to benefit in any way. The district court held that the critical fact that was missing that was required to sustain Illinois Union's denial of coverage was any intent by the two former officer-insureds to obtain any benefit whatever from their cooperation. The court accordingly granted summary judgment for the policyholders and ordered Gulf to pay the defense costs of the litigation against the directors and officers. The court also held that allowing the draconian interpretation asserted by Gulf was dangerously close to inviting a violation of public policy.
For reasons that were never clear, Gulf took this case to the Ninth Circuit, apparently assuming the pro-insured decison would be reversed and taken off of the books. Gulf erred in its assessment. The Ninth Circuit, rather, affirmed the district court in an unpublished slip opinion, the case settled shortly thereafter, and the decision by the district court remains good law today.
The moral of these two cases is simple: when the stakes are high, as they most always are in these types of D&O coverage disputes, an insured needs to be ever vigilant and perhaps aggressive when dealing with its carriers as the carriers will often themselves be quite aggressive in seeking to deny coverage.
I have returned from vacation and a lot of work that has kept me away from posting. But I am hopefully back in the swing of things now.
One of the many ways that some insurance companies try to avoid honoring their obligations under D&O insurance policies is to claim that one of the many insureds included within the coverage of the policy took some action that assisted the plaintiffs in the lawsuit against the company and its directors and officers. In doing so, they rely upon the insured vs. insured exclusion. That exclusion is frequently called by way of shorthand the IVI exclusion.
It is a good thing that so many people are insureds under the policy because of the need for a company to protect as many officers and directors as possible. But it is a bad thing when one of the numerous insureds claims to have been hurt by the others or even cooperates with the plaintiffs, thus arguably triggering the IVI exclusion. I litigated one such suit several years ago when the only thing two former officers of an indirect subsidiary of the company being sued -- who were insureds under the breadth of the policy's coverage -- did was to talk by phone for about 15 minutes to the plaintiff's attorney. (More about that below). When one insured participates or assists the plaintiffs, many carriers will seek to deny coverage to the entire group of insureds (the company and its directors and officers) based upon the IVI exclusion.
Fortunately, not all courts are willing to buy into the insurer party line. In the recently issued decision of Chartrand v. Illinois Union Insurance Co. et al., No. 08-5805, 2009 WL 2776484 (N.D. Cal. Aug. 28, 2009), the federal district court in California ruled that the carrier, Illinois Union, was not entitled to summary judgment in its favor and instead granted summary judgment in favor of the insureds. In this case, one of the plaintiffs was a new investor in the insured company being sued who claimed that he (and the other investor poaintiffs) had paid too much for the company because of alleged wrongdoings and mis-statements by the former owners. The problem was that he had recently been appointed chairman of the company and thus was now an insured under the policy and was suing other insureds, the former officers. The other investor-plaintiffs were not directors or officers and thus were not insureds under the policy.
The court gave short shrift to Illinois Union's argument that its entire coverage obligation was voided because one of many plaintiffs was an insured. The court held that only the costs allocable to the defense of the claims by that single plaintiff insured were not covered under the policy and that the duty to defend and pay defense costs for the remainder existed. Given that most defense costs in these types of lawsuits go to the defense of the entire action and not to the claim of a single claimant, the practical reality is that the insured defendants will likely be entitled to virtually all of their defense costs.
The case that I litigated, mentioned above, was Harris v. Gulf Insurance Co., 297 F.Supp 2d 1220 (ND Cal) 2003). The facts upon which the carrier predicated its denial of coverage were even slimmer than those in the Illinois Union case. In Harris v. Gulf, two former officers of indirect subsidiaries of the insured, who were not parties to the litigation against other former directors, agreed to spoke with and did briefly speak with an investigator for the suing plaintiffs. That was all they did. Not much assistance but it was enough for Gulf to try to defeat all coverage for all of the defendant officers and directors who were sued. No evidence existed that the two former officers who spoke with the investigator intended to help or aid the prosecution of the litigation or were going to benefit in any way. The district court held that the critical fact that was missing that was required to sustain Illinois Union's denial of coverage was any intent by the two former officer-insureds to obtain any benefit whatever from their cooperation. The court accordingly granted summary judgment for the policyholders and ordered Gulf to pay the defense costs of the litigation against the directors and officers. The court also held that allowing the draconian interpretation asserted by Gulf was dangerously close to inviting a violation of public policy.
For reasons that were never clear, Gulf took this case to the Ninth Circuit, apparently assuming the pro-insured decison would be reversed and taken off of the books. Gulf erred in its assessment. The Ninth Circuit, rather, affirmed the district court in an unpublished slip opinion, the case settled shortly thereafter, and the decision by the district court remains good law today.
The moral of these two cases is simple: when the stakes are high, as they most always are in these types of D&O coverage disputes, an insured needs to be ever vigilant and perhaps aggressive when dealing with its carriers as the carriers will often themselves be quite aggressive in seeking to deny coverage.
Monday, August 31, 2009
Los Angeles Program on Arbitration Advocacy in Commercial Litigation, Sept. 9.
So what if you view this as self-promotion? Nevertheless, the topic of this program in Beverly Hills is worth thinking about if you are in the area on September 9 and want to have a wonderful lunch at the world-famous Lawry's the Prime Rib at the same time.
The program is "Using Case Managemement Conference Orders to Streamline Arbitration and Save $$$" and is sponsored by the Beverly Hills Bar Association. Click here for a program description and registration form.
As the program teaser states so well:
The panelists are Justice Victoria Chaney, Associate Justice of the Second Appellate District of the California Court of Appeal, and formely a renowned trial judge who was able as much as anyone and more than most to streamline a proceeding while taking into account the needs of all parties; Deborah Rothman, a full time arbitrator and mediator; and yours truly. The program will be moderated by Jonathan Stein.
I hope that any of you out in this neck of the woods will think of joining for lunch at this program. There ought to be a lot of food for thought (in addition to the regular kind of food) -- and possibly some suggested answers -- discussed during the program. I hope to see you there.
The program is "Using Case Managemement Conference Orders to Streamline Arbitration and Save $$$" and is sponsored by the Beverly Hills Bar Association. Click here for a program description and registration form.
As the program teaser states so well:
As advocacy in commercial arbitration becomes increasingly sophisticated, costs can skyrocket and the process can drag on unless counsel and the arbitrator(s) utilize these cutting-edge tips in the case management process. Topics will include motion practice, limiting discovery (including electronic discovery), and the use of stipulations and time limits to manage the proceedings.
The panelists are Justice Victoria Chaney, Associate Justice of the Second Appellate District of the California Court of Appeal, and formely a renowned trial judge who was able as much as anyone and more than most to streamline a proceeding while taking into account the needs of all parties; Deborah Rothman, a full time arbitrator and mediator; and yours truly. The program will be moderated by Jonathan Stein.
I hope that any of you out in this neck of the woods will think of joining for lunch at this program. There ought to be a lot of food for thought (in addition to the regular kind of food) -- and possibly some suggested answers -- discussed during the program. I hope to see you there.
Friday, August 28, 2009
Take Care of Your Director's and Officer's Insurance Needs
I know I am on vacation. But in checking my email deliveries this morning, I saw yet another article that made me think about the need of corporate risk managers (or whoever is tasked with purchasing D & O insurance)to think of all possibilities and permutations of those seemingly never-ending lawsuits against Ds& Os.
I saw this morning that the Ds & Os of Lyondell Corporation, now in bankruptcy,are facing problems getting the coverage that the company purchased to protect them. The creditors committee, in large part one of the instigators of the suits against them, has asked the bankruptcy court for some protection against the use of the insurance on behalf of the directors because, the argument runs, that insurance is the asset of the estate. Of course, we know that the company, like almost all companies, primarily acquired the insurance to protect its Ds and Os, and not itself, except to the extent it was legally obligated to indemnify them. With bankruptcy,that is now impossible without much effort.
So along come the creditors and try to pressure the Ds & Os with the threat of limiting their coverage. This may be perfectly proper in love and war and I am not castigating them for pursuing whatever rights they may have under those policies. But this effort demonstrates that it is not only the insurers that can cause a company's directors and officers to forego the coverage they thought they had to protect themselves.
There is an important lesson here. When the company is acquiring its D&O coverage (or when a potential director is reviewing the coverage that has been obtained for her protection), it needs to evaluate exactly what happens in the event of bankruptcy. It needs to negotiate, if at all possible, for contractual clauses that provide coverage for the Ds and Os separately and independantly and that cannot be interfered with by the Company in the event of its bankruptcy, and thus not by the creditors who now control the fate of the company.
Remember, that D&O coverage, unlike general liability policies, are not very uniform and diffent companies offer different terms either by endorsement or even within the basic form itself.
There are many issues with D&O coverage that need to be thought about and negotiated. This is just one twist to keep in mind.
I saw this morning that the Ds & Os of Lyondell Corporation, now in bankruptcy,are facing problems getting the coverage that the company purchased to protect them. The creditors committee, in large part one of the instigators of the suits against them, has asked the bankruptcy court for some protection against the use of the insurance on behalf of the directors because, the argument runs, that insurance is the asset of the estate. Of course, we know that the company, like almost all companies, primarily acquired the insurance to protect its Ds and Os, and not itself, except to the extent it was legally obligated to indemnify them. With bankruptcy,that is now impossible without much effort.
So along come the creditors and try to pressure the Ds & Os with the threat of limiting their coverage. This may be perfectly proper in love and war and I am not castigating them for pursuing whatever rights they may have under those policies. But this effort demonstrates that it is not only the insurers that can cause a company's directors and officers to forego the coverage they thought they had to protect themselves.
There is an important lesson here. When the company is acquiring its D&O coverage (or when a potential director is reviewing the coverage that has been obtained for her protection), it needs to evaluate exactly what happens in the event of bankruptcy. It needs to negotiate, if at all possible, for contractual clauses that provide coverage for the Ds and Os separately and independantly and that cannot be interfered with by the Company in the event of its bankruptcy, and thus not by the creditors who now control the fate of the company.
Remember, that D&O coverage, unlike general liability policies, are not very uniform and diffent companies offer different terms either by endorsement or even within the basic form itself.
There are many issues with D&O coverage that need to be thought about and negotiated. This is just one twist to keep in mind.
Tuesday, August 25, 2009
On Vacation
I will be away all this week on vacation at the beach in San Diego with only funky internet access. Stay tuned for more posts starting in early September.
Have fun everyone! I sure plan on it.
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