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Lessons Learned on Insuring Cyber Risk from P.F. Chang’s and State Bank of Bellingham: What to Look for in Placing Dedicated Network Security/Privacy Liability Insurance

With ever-increasing malware, spear phishing and ransomware attacks on corporate America and ever-contracting terms insuring “cyber” liability under traditional insurance, more and more risk managers are venturing into the market for dedicated network security and privacy liability or “cyber” insurance.  Others remain dubious—preferring “traditional” coverage to policies that are little understood and even less tested by claims.  Over the past several weeks, two judicial decisions have been issued addressing coverage for cyber risk under “traditional” and “cyber” policies.  The score for policyholders: cyber insurance: 0; traditional insurance: 1. In P.F. Chang’s China Bistro, Inc. v. Federal Insurance Company, a federal district court judge in Arizona denied P.F. Chang’s coverage under a specialized “CyberSecurity” policy for its liability for more than $1.9 million in credit card “assessments,” representing the cost of fraudulent charges paid by Visa and MasterCard after hackers obtained some 60,000 credit card numbers from restaurant customers in 2014. … Continue Reading

Securing Lender Access to Insurance Proceeds in Bankruptcy

In most financing transactions, particularly project finance transactions, lenders seek to obtain security over all of a borrower’s assets. One crucial asset that sometimes does not get sufficient attention is insurance proceeds. Lenders are accustomed to ensuring access to the borrower’s insurance coverage through “additional insured” or “loss payee” provisions.  In theory, if there is an “occurrence” or event resulting in physical loss or damage to the borrower’s property or even ensuing business interruption losses, the lender, as “additional insured” or “loss payee,” is independently entitled to recover the value of the damaged property or lost profits directly from the insurer as a party to the applicable policy—even if the insured is in bankruptcy.  In practice, this strategy usually works well.  After all, the overriding legal rule dictates that policies and their proceeds are only the property of the bankruptcy estate if the borrower is the beneficiary of such proceeds… Continue Reading

Fourth Circuit Finds “Publication” and a Duty to Defend Portal Healthcare Privacy Class Action under General Liability Insurance

The Fourth Circuit Court of Appeals has affirmed a lower court ruling finding that the placement of confidential patient medical records on the internet qualifies as “publication” for purposes of an insurer’s duty to defend under a commercial general liability policy.[1] According to an underlying class action complaint, Portal Healthcare Solutions (“Portal”) allowed private medical records to remain on an unsecured server and exposed to anyone with an internet connection for more than four months.  At issue in coverage litigation between Portal Healthcare Solutions and its general liability insurer, Travelers, was policy language requiring Travelers to pay sums Portal became legally obligated to pay as damages because of injury arising from the “electronic publication of material that … gives unreasonable publicity to a person’s private life” or “discloses information about a person’s private life.”  Rejecting attempts by Travelers to require evidence that the policyholder intended to communicate information to third… Continue Reading

Five Practical Tips for Insurance Due Diligence in Project Finance

The limited recourse or non-recourse nature of project finance transactions magnifies the importance of insurance in the lenders’ security package.  In particular, “delay in completion” (DIC) or “delay in startup” (DSU) coverage under a construction/contractor’s all-risk (CAR) or other builders’ risk policy is critical to securing the lenders’ interest in continued debt service in the event of a casualty-related delay.  Sophisticated lenders will invest in due diligence to ensure that appropriate insurance and contractual requirements are in place to protect revenues and minimize uninsured expenses.  These same lenders will be attuned to basic insurance issues, including securing “additional insured” status and waivers of subrogation for the lending parties.  In order to maximize the protection afforded by insurance, project finance lenders will want more than basics—they will want counsel familiar with the range of insurance issues that can make the difference between profit and loss.  While there are dozens of insurance… Continue Reading

Three Practical Tips for Insurance Due Diligence in M&A Transactions

Virtually every merger or acquisition includes representations or requirements regarding insurance.  Every corporate counsel knows that warranties regarding the adequacy of insurance coverage must be verified.  Every sophisticated director and officer will require ongoing insurance coverage and indemnification after the closing of a merger.  Many experienced counsel are savvy enough to watch out for basic insurance traps like anti-assignment provisions.[1]  But beyond the basics, really good insurance due diligence in transactions—the kind that will avoid forfeiture of coverage and fulfill the parties’ reasonable expectations—requires understanding of how a transaction may affect current insurance coverage and compliance with contractual insurance requirements.  To ensure that valuable insurance coverage is preserved, maximized and performs its intended purpose, here are three “best practices” for insurance due diligence in M&A transactions. No. 1 – Compliance with Additional Insured Requirements The insurance coverage protecting the predecessor/target in a merger or acquisition agreement may only be partially… Continue Reading

Practical Tips for Optimizing Insurance Recovery in Litigation Arising from the Oil-Price Slump (Part IV)

Earlier this month, the U.S. Energy Information Administration released its short-term energy outlook forecasting continued weakness in crude oil prices through 2016 and into 2017.[1]  Already, the combination of historically high domestic production and declining demand at home and overseas has caused financial distress for domestic E&P companies.[2]  In addition to lower than anticipated revenues and corporate downsizing, E&P companies can also expect increased litigation arising from the ongoing price distortions in energy markets.  Disputes between landowners and lessees, employment-related claims, and corporate litigation with contracting parties, shareholders and regulators are each likely to increase as financial pressures mount.  Fortunately, in the face of this surge in litigation, liability insurance may provide a much needed source of liquidity and protection for plaintiffs and defendants alike.  Here is the last in a series of four practical tips for risk managers and in-house counsel to maximize recovery from insurance for defense costs,… Continue Reading

Practical Tips for Optimizing Insurance Recovery in Litigation Arising from the Oil-Price Slump (Part III)

Earlier this month, the U.S. Energy Information Administration released its short-term energy outlook forecasting continued weakness in crude oil prices through 2016 and into 2017.[1]  Already, the combination of historically high domestic production and declining demand at home and overseas has caused financial distress for domestic E&P companies.[2]  In addition to lower than anticipated revenues and corporate downsizing, E&P companies can also expect increased litigation arising from the ongoing price distortions in energy markets.  Disputes between landowners and lessees, employment-related claims, and corporate litigation with contracting parties, shareholders and regulators are each likely to increase as financial pressures mount.  Fortunately, in the face of this surge in litigation, liability insurance may provide a much needed source of liquidity and protection for plaintiffs and defendants alike.  Here is the third in a series of four practical tips for risk managers and in-house counsel to maximize recovery from insurance for defense costs,… Continue Reading

Practical Tips for Optimizing Insurance Recovery in Litigation Arising from the Oil-Price Slump (Part II)

Earlier this month, the U.S. Energy Information Administration released its short-term energy outlook forecasting continued weakness in crude oil prices through 2016 and into 2017.[1]  Already, the combination of historically high domestic production and declining demand at home and overseas has caused financial distress for domestic E&P companies.[2]  In addition to lower than anticipated revenues and corporate downsizing, E&P companies can also expect increased litigation arising from the ongoing price distortions in energy markets.  Disputes between landowners and lessees, employment-related claims, and corporate litigation with contracting parties, shareholders and regulators are each likely to increase as financial pressures mount.  Fortunately, in the face of this surge in litigation, liability insurance may provide a much needed source of liquidity and protection for plaintiffs and defendants alike.  Here is the second in a series of four practical tips for risk managers and in-house counsel to maximize recovery from insurance for defense costs,… Continue Reading

Practical Tips for Optimizing Insurance Recovery in Litigation Arising from the Oil-Price Slump (Part I)

Earlier this month, the U.S. Energy Information Administration released its short-term energy outlook forecasting continued weakness in crude oil prices through 2016 and into 2017.[1]  Already, the combination of historically high domestic production and declining demand at home and overseas has caused financial distress for domestic E&P companies.[2]  In addition to lower than anticipated revenues and corporate downsizing, E&P companies can also expect increased litigation arising from the ongoing price distortions in energy markets.  Disputes between landowners and lessees, employment-related claims, and corporate litigation with contracting parties, shareholders and regulators are each likely to increase as financial pressures mount.  Fortunately, in the face of this surge in litigation, liability insurance may provide a much needed source of liquidity and protection for plaintiffs and defendants alike.  Here is the first in a series of four practical tips for risk managers and in-house counsel to maximize recovery from insurance for defense costs,… Continue Reading

Fifth Circuit Rules That Insured May Not Rely on Conclusory Expert Affidavit to Survive Summary Judgment

A recent Fifth Circuit decision has reaffirmed that an insured cannot withstand an insurer’s motion for summary judgment by presenting only an expert’s conclusory affidavit as evidence. In Stagliano v. Cincinnati Insurance Co., No. 15-10137 slip op. at 2 (5th Cir. Dec. 11, 2015), the insured plaintiffs owned 48 commercial properties around the Dallas area. The insurer defendants—The Cincinnati Insurance Company and The Cincinnati Casualty Company (together, “Cincinnati”)—issued an insurance policy covering the properties for the period from August 14, 2010 to August 14, 2011. The plaintiffs submitted a claim for hail damage to one of their properties due to a May 24, 2011 storm, and Cincinnati paid it. Over a year and a half later, the insureds submitted several other claims for property damage that they alleged came from the same storm. Cincinnati denied these claims. The insureds sued Cincinnati for breach of contract, among other causes of action.… Continue Reading

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