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Hurricane Harvey and Insurance Coverage: Protecting Your Statutory Rights Before September 1st

As Hurricane Harvey continues to sweep the Texas coastline and destroy property in its path, insureds should take action before September 1st to protect their statutory rights and avoid the changes made under House Bill 1774, also referred to as the “Hail Bill,” which take effect September 1, 2017. The Hail Bill adds “Chapter 542A – Certain Consumer Actions Related to Claims for Property Damage” to the Texas Insurance Code. This Chapter applies to actions on first-party claims for damage or loss of covered real property caused “wholly or partially” by “forces of nature”—including damage caused by floods, hurricanes, and rainstorms. In relevant part, Chapter 542A does two important things. First, Chapter 542A limits the interest policyholders may recover from a late-paying insurer under Section 542.060 of the Insurance Code for so-called “forces of nature” claims from 18 percent to approximately 10 percent under current market rates. Second, Chapter 542A… Continue Reading

Texas Supreme Court Provides Guidance On The Recoverability Of Judgments Entered Against An Insured By Third-Party Plaintiffs

In a much anticipated decision, the Texas Supreme Court has given direction to policyholders and third-party plaintiffs on the circumstances under which a judgment entered against the policyholder will be recoverable from the judgment debtor’s insurer.  The case is important to insureds defending against third-party claims because it offers instruction on how to transfer liability appropriately to an insurer for an adverse judgment.  The decision is equally important to plaintiffs seeking to maximize recovery of judgments against parties, whose greatest asset may be a liability policy. In Great American Insurance Company v. Hamel, 2017 WL 2623067 (Tex. June 16, 2017), homeowners obtained a judgment against a builder for defective workmanship in a bench trial held after the homeowners agreed with the builder not to pursue the builder’s owner or the owner’s personal assets in satisfaction of a judgment entered against the builder.  After trial, the builder assigned all claims against… Continue Reading

Texas’ New Hailstorm Law: Five Things That Every Corporate Policyholder Should Know About Chapter 542A of The Texas Insurance Code

On Saturday, May 27th, Governor Greg Abbott signed into law what has become known as the Texas “Hailstorm Bill.” Since a variant of this legislation was first introduced in 2015, reforming Texas’ “Prompt Payment of Claims” statute (Chapter 542 of the Texas Insurance Code) and its “Bad Faith” insurance law (Chapter 541 of the Texas Insurance Code) have been the focus of heated debate and intense lobbying by insurers and consumer and business interests alike. Proponents of the bill argued, under the banner of “tort reform,” that reducing statutory penalties against insurers was necessary to curb abusive “hailstorm” claims, which, by some reports, insurers have spent $340 million fighting since 2012. Haynes and Boone, LLP insurance partner, Ernest Martin, organized opposition from Texas businesses and provided testimony to legislative committee members warning that weakening statutory penalties will remove crucial incentives for insurers to pay first-party claims for property damage, business interruption and… Continue Reading

Texas Supreme Court Clarifies Damages Recoverable For Violations Of The Texas Insurance Code

The Texas Supreme Court has clarified years of confusion over the damages recoverable for statutory “bad-faith” by holding that policy benefits can constitute actual damages resulting from violations of the Texas Insurance Code. The Problem Since at least 1998, Texas policyholders and insurers have labored under some uncertainty regarding the damages recoverable when an insurer engages in “unfair or deceptive acts or practices” denominated as such under Chapter 541 of the Texas Insurance Code. Section 541.060, for example, prohibits insurers from, among other things, (1) misrepresenting to a claimant a material fact or policy provision relating to coverage at issue; (2) failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer’s liability has become reasonably clear; (3) failing to promptly provide to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts… Continue Reading

Pursuing Political Risk Insurance Coverage In 2017

If 2016 is memorable as a year of immense political upheaval, 2017 may offer more of the same.  Already, in the first months of 2017, significant domestic political events have transpired, with the promise of more to come.  These are events of significant consequence to specific companies, discrete industries and America’s global trading partners.  Domestically, for example, we can anticipate changes in regulations governing private health insurance and uncertainty regarding bi- and multi-lateral trade agreements.  Overseas, continued anxiety exists in Europe over the ongoing Syrian refugee crisis and “Brexit.”  France, Germany, the Netherlands and Italy will all hold general elections in 2017, with important implications for the Euro and the economic outlook for the EU and the global economy.[1] There are ways to manage even the extreme financial risk created by the political turmoil of late. Well-established tools like lobbying, contractual risk transfer and insurance may to one degree or another… Continue Reading

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

December 2017
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