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Phishing is a criminal hacker’s favorite sport, and for good reason. It’s a tried and true way to land the big one, over and over again. Whether using a spoofed bank website and stolen email addresses to trick customers into divulging account information, sending email messages purporting to be from a senior company official to deceive employees into providing personal health records, or posing as a trusted vendor and transmitting wire transfer instructions to fraudulently divert funds, hackers are reeling in the catch and making it look easy.

Malware phishing data concept

But a well-managed company should have sophisticated safeguards in place. And if these fail, there is insurance coverage, right? The prudent policyholder buys all kinds of insurance: It has up-to-the minute “Cyber” coverage. It has Crime and Fidelity coverage with Computer Fraud riders. It has Professional Liability coverage. And of course it has regular old Commercial General Liability and Property coverage. Surely it’s covered for this type of fraud. Or is it?

While seeming to offer products that respond to the latest risks, insurers often provide limited coverage and seek to exclude the most obvious and inevitable losses. A series of recent cases highlight some of the biggest holes in the insurance safety net.

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While the fast-paced world of insurance evolves every day, some advice stays golden. Partners Peter Gillon and Alex Hardiman opined on the importance of maximizing the return on your D&O insurance for the Kevin LaCroix-run D&O Diary blog last summer, and the words in their post remain relevant. Click here to read “Maximizing the Return on Your D&O Insurance for Merger Objection Lawsuits.”

 

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Business Interruption insurance provides the policyholder with important peace of mind—it covers lost business arising from unexpected damage to the policyholder’s property. But what if the damage isn’t to the policyholder’s own property—what if the losses arise because of damage a supplier or customer suffers? When a link in your supply chain breaks, Contingent Business Interruption or “CBI” coverage can step in to replace it.Weak Link

CBI coverage, like Business Interruption coverage, is a property insurance extension that addresses lost income suffered due to an interruption of business. Instead of focusing on loss or damage suffered by the insured on its own property, however, CBI coverage addresses “contingent” losses, or losses that involve suppliers or customers. A CBI loss is a loss that results from damage to a supplier or customer that prevents the supplier from providing its goods or services to a policyholder or prevents a customer from receiving the policyholder’s goods or services. This coverage is crucial for policyholders whose business depends upon supply chains, customers or other “streams of commerce” for commercial success. Over the past few years, we’ve seen a spike in the number of CBI claims made by policyholders. During the same timeframe, however, we’ve also seen an increase in the number of coverage disputes related to CBI coverage. Although the concept is fairly straightforward, recovering for CBI losses often isn’t.

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In what resembles a kabuki dance of sorts, insurers often fire off reservation of rights letters as an automatic response to any and all claims-related correspondence. A policyholder sends notice of circumstances that could give rise to a claim? Reservation of rights. A policyholder requests defense coverage? Reservation of rights.Dance-steps A policyholder requests consent to settle with the underlying claimant? Reservation of rights.

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The era of the self-driving car has arrived, with the shiny promise of fewer auto collisions—and the inevitable potholes of a transformative technology. Despite the significant concerns raised by a recent accident involving a driver’s reliance on Driverless Cars Aheada partially autonomous automatic braking and steering system on the Tesla Model S—one of 70,000 such vehicles now on the roads—the auto industry is roaring ahead with autonomous vehicles (AVs). Google is testing its driverless cars extensively on U.S. roads; General Motors has teamed up with car-sharing company Lyft to develop a driverless taxi service; and most major automakers will be releasing fully or partially autonomous vehicles in the next five years.

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As we edge further into the summer months, many contractors see an increase in work volume with longer days and universally better weather. That said, Mother Nature is not always predictable, and an unexpected storm can quickly lead to a flash flood, or other natural disaster that might result in what insurers may classify as a pollution event. Even something seemingly as innocuous as water run-off from a job site following a summer shower has the potential to result in a third-party claim against a contractor for damage.Colorful macro of local automotive pollution Thus, it is imperative that contractors have the right pollution coverage in place to remain secure and profitable.

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When an insurer pays a claim by its insured, it acquires a legal right to pursue a so-called “subrogation” claim against another party who may be responsible for the damage. But public policy dictates that an insurer, claiming subrogation for amounts paid to an insured under one policy, is barred from suing another on the same construction project whom it has also insured, even if under a separate insurance policy. Although this antisubrogation doctrine was first recognized some 25 years ago, it’s not often invoked. But this implied waiver of subrogation both prevents the insurer from passing the incidence of loss to its own insured, and protects against the potential for conflict of interest that may compromise the insurer’s incentive to properly defend its insureds. In other words, Pickpocketit prevents the insurer from “pass[ing] the incidence of loss, at least in part, from itself to its own insured and thus avoid[ing] the coverage which the insured purchased.”

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Purchasers of D&O and professional liability insurance often are stunned when their carriers deny coverage on the theory that their policies do not cover liabilities characterized as “restitutionary,” i.e., where a judgment or settlement requires the insured to “disgorge” a sum of monies. Insurers contend such damages are “uninsurable.”  The surprise stems from the fact that some insurers attempt to stretch the argument that restitutionary payments are uninsurable to encompass claims for ordinary compensatory damages – such as breach of fiduciary duty claims or consumer class actions – arguing that these claims are asking the insureds to return “ill-gotten gains.”  While it is far too early to administer last rites to the “restitution/disgorgement defense,” recent rulings Beautiful swan reflection while yelling.suggest that the courts have recognized that denying claims based on vague concepts of “insurability” creates too much uncertainty for policyholders and have found several ways to curtail this overreaching practice.

 

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Matthew D. Stockwell recently published an article in the June 2016 edition of Claims magazine, a PropertyCasualty360 publication, titled “Is That Product Liability Claim Covered?” In the article, he discusses Commercial General Liability insurance policies and whether or not these policies cover claims of bodily injury and property damage.Insurance-300x168

 

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CalculatingWhen a jury awards punitive damages against an insurance company for bad faith, the maximum it may award is determined based on a multiple of its underlying award of compensatory damages and attorney fees (so-called “Brandt fees”). In a June 9 decision, the California Supreme Court unanimously held that when a judge, instead of a jury, awards the attorney fees, they should still be included when considering the maximum punitive damages the jury may award.

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