Makers and Users of Smart Devices Beware: You May Have a Critical and Costly Gap in Your Insurance Coverage
By Russell Cohen and Matthew Jeweler
The drumbeat of high-profile data breaches has led to rapid growth in the number of companies purchasing or considering specialized cyber insurance. According to a recent report by Marsh & McLennan, in the majority of industry sectors more than 20% of companies have already bought this coverage. But as technology evolves, so do the risks. And the explosion of the Internet of Things may present risks that even these new cyber policies do not cover.
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Orrick Gains Eighth Circuit Win in Landmark Insurable Interest Case
On March 13, 2015, the United States Court of Appeals for the Eighth Circuit handed down a game-changing ruling with major implications for the life settlements industry. The Eighth Circuit’s decision in PHL Variable Insurance Company v. Bank of Utah, No. 14-1210, endorses the validity and importance of the secondary market and significantly strengthens the hand of life settlement policy investors. Orrick’s Steve Foresta and Bob Loeb represented the successful appellants. The Court of Appeals held that under Minnesota law, the insurable interest requirement is met when a person purchases insurance on his own life, regardless of any intent to later transfer the policy, and an insurer may not challenge that policy outside the two-year contestability period on any grounds. Reversing a district court decision finding the policy void for lack of insurable interest, the Eighth Circuit remanded the case with instructions for the district court to dismiss PHL’s claim seeking a declaration of invalidity.
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Orrick at RIMS 2015
Orrick's Insurance team will be appearing at the RIMS Annual Conference in New Orleans at the end of the month. Our lawyers will be speaking on four panels at the conference:
On the exhibit floor, please stop by booth #1238 to meet our lawyers, learn more about Orrick's Insurance practice, and enter a drawing for a chance to win an Apple Watch.
Highlights from the Policyholder Insider Blog
Million Dollar Lawsuits in 140 Characters or Less
by Darren S. Teshima, Kristi Singleton and Richard Gallena
It seems like every business these days—from technology start-ups to hardware stores—is engaging its customers and clients through posts, tweets and hashtags (and blogs like this one). For example, last year, Duane Reade tweeted a photograph of actress Katherine Heigl carrying the drug store’s bag, and wrote: “Love a quick #DuaneReade run? Even @KatieHeigl can’t resist shopping #NYC’s favorite drugstore[.]” As a result of the tweet, Ms. Heigl sued Duane Reade for false advertising and misappropriation of her likeness, and sought $6 million in damages. While the parties ultimately settled for an undisclosed sum, Duane Reade’s misstep is a prime example of the risks companies face when using social media.
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Giving With One Hand and Taking With the Other: The Case Against Insurer Recoupment of Defense Costs
by Barry Levin, Andrew Ardinger and Jacquelyn Hehir
Insurers often provide their policyholders a defense pursuant to the duty to defend even though they disagree that the policy covers the underlying claims at issue. (This is not an act of unilateral generosity. Insurers have a duty to defend even claims that may be covered.) If a court later determines that there is no coverage for the claims, emboldened insurers often demand repayment of the defense costs the insurer paid prior to the coverage determination.
Over the last decade, several state high courts—including those in Illinois, Pennsylvania and Washington—have rejected insurers' efforts to recover their defense outlay in the absence of express contractual language requiring repayment. In a late January ruling that closely tracked these states' analysis, the U.S. District Court for the Eastern District of New York, while noting that New York state courts have not provided "clear guidance" on the issue, denied an insurer's attempt to recover prior defense costs. The federal court predicted that, if it were presented with the issue, New York's highest court, the Court of Appeals, would join this "recent trend toward courts rejecting claims for recoupment."
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Cyber Insurers On the Prowl for Liable Third Parties
by Steve Foresta and Benjamin Tievsky
While there have been a number of high-profile data breaches in recent years, there have been few coverage lawsuits arising out of these breaches, presumably because cyber insurers have been paying claims. A recent action, however, suggests how cyber insurers may be trying to fund this coverage position: by suing allegedly responsible third parties. In what appears to be a novel approach for insurers covering data breach claims, Travelers Casualty and Surety Co. of America has sued its insured’s website designer in the wake of a cyber-attack. Travelers’ complaint alleges that its insured, Alpine Bank, hired Ignition Studio, Inc. to design and service the bank’s website. Travelers alleges that Ignition negligently designed and maintained the website, allowing hackers to access the site through the server on which it was hosted. Alpine spent over $150,000 complying with its data breach notification obligations, for which it was reimbursed by Travelers. Travelers, as Alpine Bank’s assignee and subrogee, now seeks to recover that amount from Ignition.
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All That Glitters Is Not . . . Asbestos? Pennsylvania Federal Court Offers Glimmer of Hope to Policyholders with Asbestos Liabilities
by David Klein and Matthew Jeweler
If your company faces liabilities arising out of exposure to asbestos-containing products or materials, it may pay—a lot—to take a second look at your liability insurance policies containing asbestos exclusions. They may not exclude your loss after all. On March 3, 2015, a Pennsylvania federal district court ruled in General Refractories Co. v. First State Insurance Co. that an asbestos exclusion in two general liability policies is ambiguous, and does not bar coverage for a multitude of asbestos-related lawsuits against a manufacturer and supplier of asbestos-containing products.
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Moving On From the Uninsured Motorist to the Insured Un-Motorist: Insuring the Driverless Car, and Other Innovations
by Mark Plumer, Celia Jackson and Harry Moren
The time may be approaching when no distracted, intoxicated or fatigued driver ever causes an accident and automobile insurance as we know it becomes a thing of the past. If this seems like fantasy, only a few years ago, so did the reason: the “driverless” car—an idea that has fascinated the public for decades is quickly becoming a reality.
There has been a fair amount of discussion and commentary on insurance issues related to this new technology. An article last year in the Wall Street Journal posed the question, “How Do You Insure a Driverless Car?” The answer, it concluded, was not to be found any time soon, noting that insurance companies were unprepared for driverless, or autonomous, cars and were presently unable to evaluate or price the risk. But with the “Internet of Things” setting the pace for current technology trends, some commentators predict that autonomous cars will be common as soon as the year 2020, so it is not too early to think about the risk of driverless cars and the inevitable questions of insurance coverage related to this new risk and others like it.
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Texas Supreme Court: BP Cannot Tap Transocean Coverage
by David Klein, Celia Jackson and Harry Moren
Resolving one of the cases on our 2015 watch list, the Texas Supreme Court responded on Friday, February 13 to certified questions from the Court of Appeals for the Fifth Circuit that arose from an insurance dispute between BP and Transocean, the Deepwater Horizon oil rig owner and operator, over coverage for subsurface pollution liabilities arising from the explosion on the rig in 2010.
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