Giving and Receiving: Insuring Company-Sponsored Volunteerism
By Celia M. Jackson
This is the time of year when we are reminded of the importance of giving. Many companies not only donate generously to nonprofits and community programs, but also support the volunteer efforts of their employees through matching donations; sponsoring community activities, such as organizing and staffing a community clean-up day; hosting a major fundraising event for a local nonprofit; or allowing employees time off during work hours to volunteer at a sponsored school or local community center. Volunteerism has benefits to both employers and employees.
If sponsoring volunteerism has rewards, like any business activity, it also comes with its attendant risks. The last thing any well-meaning company wants to do is turn holiday cheer into a New Year liability hangover. A company that sponsors volunteer activities will want to assure that its employee-volunteers are protected from injuries that may occur while volunteering and that it is protected against claims that may arise from volunteer activities.
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The Insured v. Insured Exclusion Isn’t As Broad As D&O Insurers Try to Make It
By Darren Teshima and Silvia Babikian
Recent decisions demonstrate a growing consensus favorable to policyholders on a subject that has divided courts for decades: whether the insured v. insured exclusion in D&O policies prevents coverage for claims brought by a receiver of a failed bank against the bank’s directors and officers. In the wake of the financial crisis, the Federal Deposit Insurance Corporation (the “FDIC”) has brought numerous actions against former directors and officers alleging negligence and mismanagement. When directors and officers have tendered the claims to their D&O insurer, insurers often have denied coverage, citing the insured v. insured exclusion and arguing that the FDIC stepped into the shoes of the failed bank, another insured. Thankfully for policyholders, the majority of courts that have addressed this issue have rejected the insurers’ argument. The recent decision in St. Paul Mercury Ins. Co. v. Hahn highlights this growing trend.
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NEWS BRIEFS
New York State Jury Returns Verdict for Policyholder in Environmental Coverage Trial
In early November, a jury found in favor of the policyholder in KeySpan Gas East Corp. v. Munich Reinsurance America Inc. et al., resolving a 17-year-old coverage dispute over pollution cleanup costs for historic manufactured gas plant sites on Long Island. Long Island Lighting Co., which sued the insurers in 1997 for coverage of a state ordered environmental remediation effort, had operated the sites since the late nineteenth century. The policies were later assigned to KeySpan Gas East Corp. After a three and a half week trial, a New York state jury concluded that KeySpan’s predecessor provided timely notice to the insurer. In doing so, it rejected Century’s arguments that coverage was barred by late notice and that the environmental damage to the sites was intentional or expected. The court previously had held that clean-up costs would be allocated by using a pro rata formula because the parties were unable to determine what damage occurred during the various policy periods that applied. The insurer has filed a motion to set aside the verdict or order a new trial.
Texas Appeals Court Affirms Jury’s Damages and Attorney’s Fees Award for Broker Negligence
On November 19, 2014, a Texas appeals court affirmed the trial court and ruled that a policyholder could recover damages and attorney's fees from its insurance broker for negligently failing to procure a policy that contained the coverage the policyholder had requested. Insurance Alliance v. Lake Texoma Highport, LLC, No. 05-12-01313-CV (Tex. App. Nov. 19, 2014). The policyholder (“Highport”), the operator of a large marina, hired the broker (“Insurance Alliance”) to procure “blanket” insurance coverage that would have applied one limit of indemnity to all losses, with no sublimits or coinsurance penalties. After Highport’s marina and related businesses were damaged during a flood, Highport learned for the first time that the insurance policy its broker obtained included sublimits and coinsurance penalties, and was therefore insufficient to cover the loss. After a three-week trial, a jury found that Insurance Alliance had breached its agreement with Highport and had also made negligent misrepresentations and engaged in unfair or deceptive acts or practices. The jury awarded Highpoint the difference between the amount of coverage available under the policy Highport originally sought and the amount available under the policy it actually obtained. The jury also awarded Highport $2.7 million in attorney’s fees incurred in bringing suit against Insurance Alliance. The appellate court affirmed these judgments on appeal.
Michigan Federal Court: Excess Policy Does Not Require Consent to Settle Lower-Layer Claims
On October 30, 2014, a Michigan federal court held that an excess insurer was required to fund a settlement even though it did not consent to the insured’s settlement of claims that eroded, but did not exhaust, the primary layer of coverage. Stryker Corp. v. XL Ins. Co., Inc., No. 1:05-CV-51 (W.D. Mich. Oct. 30, 2014). The insured (“Stryker”), a manufacturer of medical supplies, settled product liability claims with plaintiffs arising out of an allegedly defective knee replacement implant. Stryker’s excess insurer (“TIG”) denied coverage, arguing that its coverage was not triggered because the TIG policy required Stryker to obtain TIG’s prior consent to settle even the claims that only implicated Stryker’s primary layer of coverage. The court, applying Michigan law, held that the excess policy’s consent provision was ambiguous as to whether it required consent for all settlements, or only settlements within TIG’s layer, and accordingly construed the provision against TIG and in favor of coverage. The court further noted that the settlements were not shown to be unreasonable, so TIG would not have had good reason to withhold its consent in any event. Finally, the court rejected TIG’s late notice defense, holding that TIG’s assertion of that defense nine years after the litigation commenced was too late.
