Monthly Archives: March 2009

Should Outside Directors Request the Purchase of Independent Director Liability Policies?

Scott N. Godes [formerly] is counsel in Dickstein Shapiro’s Insurance Coverage Practice.

Should outside directors on corporate boards of directors request that the companies’ boards companies purchase Individual Director Liability (IDL) insurance for them?  Generally speaking, IDL insurance is just for outside or independent directors of a company and, depending on the form in which it is written, may offer independent directors additional insurance protection if the corporate policyholder’s insurers were to attempt to deny or rescind coverage under the policyholder’s directors and officers insurance policy.

Read the rest of the post here, at Securities Docket.

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Disclaimer:

This blog is for informational purposes only. This may be considered attorney advertising in some states. The opinions on this blog do not necessarily reflect those of the author’s law firm and/or the author’s past and/or present clients. By reading it, no attorney-client relationship is formed. If you want legal advice, please retain an attorney licensed in your jurisdiction. The opinions expressed here belong only the individual contributor(s). © All rights reserved. 2009.

New York Court Affirms D&O Coverage for Derivative Claims and Requires Advancement of Defense Costs

Scott N. Godes [formerly] is counsel in Dickstein Shapiro’s Insurance Coverage Practice.

Should a directors and officers (D&O) insurance policy cover derivative claims? And should a D&O insurance policy advance defense costs? A recent decision from New York’s Appellate Division, First Department, reaffirmed that the answer is “yes” to both questions, and rejected an insurance company’s arguments to the contrary. In Trustees of Princeton University v. National Union Fire Insurance Co. of Pittsburgh, Pa., 15 Misc. 3d 1118A (Table), 839 N.Y.S.2d 437 (Table), 2007 N.Y. Misc. LEXIS 2350, (Sup. Ct. Apr. 10, 2007), aff’d, 52 A.D.3d 247, 859 N.Y.S.2d 174 (1st Dep’t 2008) (“Trustees of Princeton”), an insurance coverage dispute, AIG, through its insurer National Union, tried to escape from providing D&O insurance coverage for direct and derivative claims under its D&O policy and had refused to advance defense costs.

Read the rest of the post here, at Securities Docket.

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Disclaimer:

This blog is for informational purposes only. This may be considered attorney advertising in some states. The opinions on this blog do not necessarily reflect those of the author’s law firm and/or the author’s past and/or present clients. By reading it, no attorney-client relationship is formed. If you want legal advice, please retain an attorney licensed in your jurisdiction. The opinions expressed here belong only the individual contributor(s). © All rights reserved. 2009.

Extra Insurance Coverage For Outside Directors In Times Of Financial Uncertainty: An Overview Of Independent Director Liability Policies

In these times of financial uncertainty, outside directors on corporate boards of directors may request that the companies’ boards companies purchase Individual Director Liability (IDL) insurance for them. Generally speaking, IDL insurance is just for outside or independent directors of a company and, depending on the form in which it is written, may offer independent directors additional insurance protection if the corporate policyholder’s insurers were to attempt to deny or rescind coverage under the policyholder’s directors and officers insurance policy.

In 2004, John Keogh, now the CEO of ACE Overseas General and formerly AIG’s Senior Vice President, Domestic General Insurance and President and CEO of AIG’s insurance subsidiary, National Union, gave a presentation regarding AIG’s IDL coverage at a Practising Law Institute seminar during which he expounded on AIG’s marketing points for its IDL coverage:
National Union recognizes that non-employee directors have unique and distinct needs, especially in the post-SOX environment. They deserve to have the option of a D&O policy that exists exclusively for their benefit. IDL Premier is the insurance product to satisfy this demand.
IDL Premier cannot, under any circumstance, be rescinded. It is structured as an A-side excess policy that will cover non-employee directors in the event that the traditional, underlying D&O program has been exhausted. It also responds during four specific circumstances where the personal assets of directors are put at risk because their traditional D&O policy does not cover them. These circumstances are:
1.         The traditional D&O program has been rescinded;
2.         The claim has been excluded due to a breach of a non-severable warranty in the traditional D&O policy’s application;
3.         The claim has been excluded due to a restatement exclusion; or
4.         Access to the proceeds of the traditional D&O program has been blocked because the D&O program is deemed a part of the bankrupt corporation’s estate.
If any of these four events occur, IDL Premier will pay on behalf of non-employee directors immediately for both indemnifiable and non-indemnifiable loss and with no retention. IDL Premier can be amended in three fundamental ways. Although it is defined to insure all non-executive directors, the definition of “insured” can be amended to include only a limited number of individuals (such as the audit committee) or even only one individual (such as the financial expert).
The policy can also be amended to provide cover for only the four triggers – as opposed to also being an A-side excess policy. Because National Union views the likelihood of one of the four events occurring as slim, National Union will be aggressive in pricing this option competitively. The third option will include a Difference in Conditions feature and will be the broadest form of cover available exclusively for non-employee directors.
John Keogh, D&O Insurance in 2003/2004, Briefing Paper, 1449 PLI/Corp 439, 456 (2004).
An article regarding an early Aetna Casualty & Surety IDL policy similarly explained that IDL coverage is designed “to provide supplementary coverage to a company’s basic D&O coverage.” Edward Yodowitz, Protecting Officers And Directors Through Effective Use Of Insurance, Indemnification, And Statutory Limitations On Liability, Securities Litigation 1988: Prosecution and Defense Strategies, 351 PLI/Lit 601, 632 (1988).
There is a dearth of case law on this issue, but commentary on Delaware corporate law, for example, suggests that it would be appropriate for a corporation to buy IDL policies for its outside directors; the intent of the drafters of Section 145(g) of the Delaware Corporation Law appears to recognize that Delaware corporations may purchase insurance for their executives’ benefits, allowing “corporation[s] to do directly what [they] had been doing indirectly for years: reimbursing directors for premiums they paid personally to maintain such insurance.” E. Norman Veasey, Jesse A. Finkelstein & C. Stephen Bigler, Delaware Supports Directors with a Three-Legged Stool of Limited Liability, Indemnification, and Insurance, 42 Bus. Law. 399, 419 (1987). Thus, if a policyholder chose to purchase IDL policies for its independent directors, a policyholder could argue that it was replicating what independent directors could have done previously under Delaware law (i.e., purchase their own individual policies).
A policyholder should consider whether the proposed policy forms, whether individual or group, provide natural person-specific or position-specific coverage. IDL insurance may be flexible on this issue, possibly tailored to the insured’s requests to provide coverage for all independent directors, board committee members, or even individual board members. For example, National Union (an AIG insurance company) stated in a 2004 article that when writing its “IDL Premier” policy, which usually “insure[d] all non-executive directors,” “the definition of ‘insured’ can be amended to include only a limited number of individuals (such as the audit committee) or even only one individual (such as the financial expert).” D&O Insurance in 2003/2004, Briefing Paper, 1449 PLI/Corp 439, 456 (2004).
Even if a policyholder purchases IDL policies for each individual outside director, the directors should be advised that such policies, generally speaking, often are limited to a director’s service for one company’s board. If a director serves on more than one board, that director might need a separate policy for each board.
When considering the purchase of additional insurance coverage for a policyholder’s independent directors, a policyholder should note the variety of policies potentially available and the additional features that they may offer when compared to D&O policies that include Side B or Side C coverages. For example, one notable feature included in certain IDL and similar types of policies is the insurers’ agreement to not rescind the coverage, whereas rescission is an often-raised tactic in D&O insurance coverage litigation. Thus, even if the insurers writing a policyholder’s other D&O policies attempted to rescind a policyholder’s policies that contain entity coverage, the insurers should not be able to attempt to rescind these IDL and similar policies.
In conclusion, IDL policies likely will be of interest to outside directors. In uncertain financial times, insurance policies are more of a valuable asset than ever, and policyholders should take all steps possible to request the best possible forms and coverage terms for the insureds under the policies.
This was posted originally at Lexis’ Insurance Law Center.

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Disclaimer:

This blog is for informational purposes only. This may be considered attorney advertising in some states. The opinions on this blog do not necessarily reflect those of the author’s law firm and/or the author’s past and/or present clients. By reading it, no attorney-client relationship is formed. If you want legal advice, please retain an attorney licensed in your jurisdiction. The opinions expressed here belong only the individual contributor(s). © All rights reserved. 2009.

Delaware Court Refuses to Apply Pro Rata Allocation to Directors and Officers Insurance Policy and Rejects Excess Insurers’ Attempts to Deny Coverage Because There Were Settlements of Lower Layers of Coverage

In HLTH Corp. v. Agricultural Excess & Surplus Insurance Co., No. 07C-09-102-RRC, 2008 Del. Super. LEXIS 280 (Del. Super. Ct. July 31, 2008), the insurance companies that sold HTLH Corp. multiple directors and officers insurance policies tried to limit their obligation to pay defense costs by asking the Delaware Superior Court to apply a pro rata allocation of defense costs. The excess insurers tried to avoid paying at all, asserting that because there were settlements of the lower layers of coverage for less than the full policy limits, the excess insurers did not have to pay at all. The court correctly rejected both arguments.

Access a full copy of the opinion on Lexis.com.

The court decided properly that the insurers could not rely on a pro rata allocation of defense costs.

The corporate entity insureds under the directors and officers insurance policies in question went through various corporate transactions, including name changes and acquisitions, and there were multiple towers of coverage at issue in HLTH Corp. See 2008 Del. Super. LEXIS 280, at *5-*9. The underlying actions at issue were indictments against certain former directors and officers, with allegations of improper inflation of the earnings of the corporate insured entities. See generally id. at *10-*12. The plaintiff corporate insured entity HLTH Corp. (HLTH) indemnified the former directors and officers for the defense costs that they incurred in defending the underlying actions. See id. At *9-*10 HTLH “assert[ed] claims for coverage only” under two out of the three triggered towers of coverage; the third tower contained a $10 million deductible, and HTLH did not seek coverage under that tower. Id. at *13. Of those two towers under which HTLH asserted claims for coverage, “[t]he limits of the policies” in one of the two towers “[we]re no longer available as a result of” multiple coverage settlements. Id.

As they have sought to do in other cases involving general liability policies, the insurers asked the court to invent a pro rata allocation scheme that was found nowhere in the policies. See id. at *21-*22; see also, e.g., Rich Scislowski, Allocating Losses under a 1973 CGL, Int’l Risk Mgmt. Inst., Inc., Sept. 2007, http://www.irmi.com/expert/Articles /2007/Scislowski09.aspx (“pro rata allocation is a theory that ‘was invented out of whole cloth by the federal courts as a mere judicial convenience.’”); cf. Consol. Edison Co. of N.Y., Inc. v. Allstate Ins. Co., 774 N.E.2d 687, 695 (N.Y. 2002) (admitting that courts have created various methods to implement the insurers’ pro rata theory). The insurers sought to allocate 77 percent of the defense costs to the towers that were unavailable because of settlement and had a large deductible, suggesting that they had reached the percentages by considering “the alleged dates of their occurrences as set forth in the indictment” and assigning them “to each tower’s coverage period and then dividing by the total.” HLTH Corp., 2008 Del. Super. LEXIS 280, at *31-*32.

The court explained that, although the insurers had conceded that each of the three towers of coverage was obligated to pay defense costs independently, the insurers nonetheless argued that each policy’s promise to pay should be limited because the insured had settled some coverage and had a high deductible for other coverage. See id. at *29-*34. The court rejected the insurers’ requests, looking to Delaware and New Jersey law. See id. at *32-*35. The court explained that the proposed pro rata allocation was not found in “any contract provision or case that would specifically require it.” Id. at *32. The court explained further that had the insurers wished to limit their obligations, they “could have explicitly included an allocation requirement in their contracts that would require the very allocation that they now ask this Court to order, but they did not.” It is a well-accepted concept in insurance coverage law that if an insurer could have included restrictive language in a policy, but did not, it cannot then enforce this restriction in litigation. Id. at *37-*38; see, e.g., Hercules, Inc. v. AIU Ins. Co., 784 A.2d 481, 491 n.28 (Del. 2001) (Refusing to grant insurers’ requests for pro rata limitation of CGL because “the policies could have contained proration provisions, but did not.”) In addition to the strict construction reason for rejecting the insurers’ arguments, the court noted that the insurers’ requests to limit artificially their coverage obligations would be “unfair to” the insureds. HLTH Corp., 2008 Del. Super. LEXIS 280, at *32.

The court decided properly that the lower layers of coverage were exhausted as a matter of law.

The insurers also raised a “supplementary argument” that, because the insureds could not demonstrate “exhaustion of the underlying policies,” due to their decisions to settle lower layers of coverage for less than the full policy limits, the remaining insurers would never be obligated to pay under their policies. Id. at *42-*43. The insurers relied on the following clause to support their argument:

Only in the event of exhaustion of the Underlying Limit by reason of the insurers of the Underlying Insurance, or the insureds in the event of financial impairment or insolvency of an insurer of the Underlying Insurance, paying in legal currency, loss which, except for the amount thereof, would have been covered hereunder, this policy shall continue in force as primary insurance, subject to its terms and conditions and any retention applicable to the Primary Policy, which retention shall be applied to any subsequent loss in the same manner as specified in the Primary Policy. The risk of uncollectability of any Underlying Insurance, whether because of financial impairment of insolvency of art [sic] underlying insurer [sic] other reason, is expressly retained by the Insureds and is not in any way insured or assumed by the Company.

Id. at *43.

The court held that under New Jersey and Delaware law, the excess layer policies are responsible for covered amounts in excess of the lower layer policy limits. See id. at *44. It was irrelevant whether the insured collected the full amount of the lower layers’ coverage limits; as long as the underlying liability reached the upper layers’ attachment point, the upper layers were obligated to respond. See id. at *45. The court explained it rejected the argument that the upper layers would not attach if the insured had settled the lower layers of coverage for less than their policy limits, because “the excess insurance company could not possibly claim to have a stake in whether the insured actually received all of the underlying insurance limits.” Id. In so ruling, the court rejected Qualcomm, Inc. v. Certain Underwriters at Lloyd’s, London, 161 Cal. App. 4th 184; 73 Cal. Rptr. 3d 770 (2008), review denied, 2008 Cal. LEXIS 6969 (Cal. June 11, 2008) and Comerica Inc. v. Zurich American Insurance Co., 498 F. Supp. 2d 1019 (E.D. Mich. 2007), two decisions on which the insurers relied on to support their argument that the lower layer settlements would vitiate the upper layers’ coverage obligations. See id. at *46. The court explained that those decisions are “contrary to the established case law of New Jersey and Delaware.” Id. The court concluded by holding that “to the extent that [the insureds’] defense costs exceed any loss they may have imposed on themselves by accepting settlements with underlying insurers for less than the policy limit, . . . those underlying policies have been exhausted as a matter of law.” Id. at *47.

Conclusion

The HLTH Corp. decision correctly rejected the insurers’ attempt to create a pro rata allocation of defense costs that is not supported by policy language, case law, or fairness, thereby ensuring that the insureds could recover their full defense costs. The decision also correctly rejected the insurers’ attempts to use the insureds’ decisions to settle its lower layer coverages as a sword against the insureds, and ruled that the lower layers of coverage were exhausted as a matter of law.

Scott Godes [formerly] is counsel in Dickstein Shapiro’s Insurance Coverage Practice. Mr. Godes focuses on representing corporate policyholders in insurance coverage disputes. He is an experienced litigator who has an extensive background trying complex insurance coverage disputes, including class actions, in state, federal, bankruptcy, and appellate courts, as well as in commercial arbitrations.

This was posted originally at Lexis’ Insurance Law Center.

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Disclaimer:

This blog is for informational purposes only. This may be considered attorney advertising in some states. The opinions on this blog do not necessarily reflect those of the author’s law firm and/or the author’s past and/or present clients. By reading it, no attorney-client relationship is formed. If you want legal advice, please retain an attorney licensed in your jurisdiction. The opinions expressed here belong only the individual contributor(s). © All rights reserved. 2009.

When is a lawyer not a lawyer? When the lawyer handles claims.

When is a lawyer not a lawyer? When the lawyer handles claims. Perhaps that is an overstatement regarding the title, but when a lawyer handles claims, or gives an insurance company advice in the ordinary course of claims handling business, the communications are not privileged and are not work product. That is true whether the lawyer is in-house counsel or outside counsel.

Not convinced? Case law is clear on this point, but, if you need additional convincing, look at what insurance companies have said about this. When insurance companies get involved with internecine disputes regarding allocation or reinsurance or any number of issues, they often make the same arguments that they dispute when the argument comes from policyholder’s counsel. A good example of this is the recent Southern District of New York decision in AIU Insurance v. TIG Insurance, No. 07 Civ. 7052, 2008 U.S. Dist. LEXIS 66370 (S.D.N.Y. Aug. 28, 2008) (“AIU”).

In typical insurance coverage litigation between a policyholder and its insurance company regarding an insurance company’s denial of coverage for a claim (in whole or in part), the policyholder seeks discovery of communications that relate to the claim and how the insurance company handled the claim. And, in such a typical dispute, the insurance company asserts that if any claims handling documents were copied to, written by, or allegedly created at the direction of counsel, the documents may be withheld on the basis of attorney-client privilege, the work product doctrine, or both.

AIU involved the same scenario, but used the opposite arguments. AIU sued its reinsurer for coverage of a settlement relating to asbestos claims that AIU entered into with its policyholder, Foster Wheeler Corporation. See 2008 U.S. Dist. LEXIS 66370, at *2-*4. After receiving the reinsurance claim, over the course of approximately five months, TIG requested numerous documents from and conducted an audit of AIU. See id. at *4-*7. AIU then sued TIG for failure to indemnify AIU. See id. at *7.

During the discovery process, “TIG withheld and redacted documents on the basis of attorney-client privilege and the work-product doctrine.” Id. AIU refused to accept TIG’s assertions of privilege and work product, and moved to compel: All the documents listed on TIG’s privilege log and the full text of certain documents on TIG’s redaction log[, including] . . . (1) documents relating to TIG’s handling of claims . . . and TIG’s July 2007 audit of AIU’s files and (2) documents relating to commutations between TIG and other insurance companies that purport to show the economic prejudice TIG suffered as a result of AIU’s late notice of Foster Wheeler’s claims. Id. at *8 (footnotes omitted).

From the perspective of policyholder’s counsel, that motion is quite surprising. After all, in insurance coverage actions between insurers and policyholders, insurers argue consistently that the exact information that AIU sought in AIU is privileged.

Indeed, AIU’s arguments, as the court’s opinion’s illustrates, could have been pulled from a policyholder’s brief:

“AIU contends that the documents withheld on the basis of the attorney-client privilege should be produced because they do not involve legal communications (Plf. Mem. at 12). Specifically, AIU argues that many of these documents were not drafted by TIG’s in-house or outside counsel, as reflected by the information provided on the privilege and redaction logs. AIU also claims that numerous documents drafted by Staley and Pascale and not distributed to TIG’s counsel were improperly withheld on the theory that they were prepared “at the direction of counsel.” Lastly, even where the privilege and redaction logs indicate that TIG’s counsel drafted or received a document, AIU contends that TIG’s counsel was acting solely in an investigatory function (Plf. Mem. at 12-13). Id. at *25-*26 (emphasis added).

AIU’s arguments, as summarized by the court, are absolutely correct. Insurance companies cannot rely on attorney-client privilege or the work-product doctrine to withhold communications that reflect claims handling in the ordinary course of business. It is well established that claims handling and analysis is business advice in the ordinary course of an insurer’s business, and communications regarding such advice is not privileged. See, e.g., Brooklyn Union Gas Co. v. Am. Home Assurance Co., 23 A.D.3d 190, 191, 803 N.Y.S.2d 532, 534 (2005) (“[d]ocuments prepared in the ordinary course of an insurance company’s investigation to determine whether to accept or reject coverage and to evaluate the extent of a claimant’s loss are not privileged [and] . . . do not become privileged merely because an investigation was conducted by an attorney”) (citation and internal quotation marks omitted). The AIU court agreed, ordering TIG to produce a number of documents, including claims handling documents created by in-house counsel who was acting in a business capacity for the purposes of evaluating the AIU claims. See AIU, 2008 U.S. Dist. LEXIS 66370, at *28-*32.

The AIU court also followed the principle that insurance companies cannot rely on the work-product doctrine to withhold such documents. “Application of the work-product doctrine to an insurance company’s claims files has been particularly troublesome because it is the routine business of insurance companies to investigate and evaluate claims.” AIU, 2008 U.S. Dist. LEXIS 66370, at *34-*35. Thus, attorney-created “documents in a claims file created by or for an insurance company as part of its ordinary course of business are not afforded work-product protection.” Id. at *35.

Overall, the court applied the same principles that policyholders usually cite when moving to compel claims handling documents. And on that basis, the court granted AIU discovery over a number of documents that TIG had withheld as privileged (and that other insurers attempt to withhold on a regular basis). So, if you are in an insurance coverage dispute, and the insurer asserts privilege or work product protections over claims handling documents created in the ordinary course of business, look to AIU’s successful arguments to support your argument that such documents should be produced.

This was posted originally at Lexis’ Insurance Law Blog.

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Disclaimer:

This blog is for informational purposes only. This may be considered attorney advertising in some states. The opinions on this blog do not necessarily reflect those of the author’s law firm and/or the author’s past and/or present clients. By reading it, no attorney-client relationship is formed. If you want legal advice, please retain an attorney licensed in your jurisdiction. The opinions expressed here belong only the individual contributor(s). © All rights reserved. 2009.

Come out, come out wherever you are: a primer on finding missing policies

If your company ever faces claims that go back a number of years or even decades, as often is the case with latent injury claims, your company may have old insurance policies that provide coverage for such claims. But those old policies probably are not sitting on the corner of the risk manager’s desk, in pristine airtight plastic envelopes, marked “open in case of emergency.” Instead, it will probably require some effort to locate the old policies.

What follows are some notes on how to proceed if your company has information suggesting that it had policies that could cover the claims at issue, but has been unable to locate the policies. Assuming that your insurance company has denied coverage on the basis that you have not located the policies, and there is coverage litigation pending, consider the following suggestions:

(1) Start out with document requests to your insurance company, including requests for:

(a) The insurance company’s standard form insuring agreements and policy jackets for policies of the type you believe the insurer sold and from the years in question;
(b) All other policies that the insurance company sold to your company;
– Keep in mind that other policies may reference the missing policies.
– Also review any policies excess to the missing insurance company policies, as they often list the policies to which they are excess.
(c) The insurance company’s claims files for all claims involving your company;
(d) The insurance company’s underwriting files for your company;
(e) Any audits that the insurance company performed for your company;
(f) Any certificates of insurance for your company that the insurance company has;
(g) The insurance company’s document retention or destruction policies or manuals in effect at any time from the date of the missing policies through the present;
(h) A search of all of the insurance company’s electronic evidence/data/computer systems for “[your company]” and production of any other records that mention policies that the insurance company sold to your company;
(i) The insurance company’s loss runs for your company;
(j) The insurance company’s bordereaux for your company;
(k) Documents that the insurance company exchanged with its reinsurers, including correspondence and facultative reinsurance policies for your company (because the insurance company may have put its reinsurers on notice of claims under the lost policies); and
(l) The insurance company’s reserves for your company’s account.
– As production of reserves is a hotly contested issue, you may consider hedging by limiting your reserves discovery requests to allow the insurance company to redact amounts of reserves, but requiring production of documents that reflect whether the insurance company set reserves for the missing policies.

(2) Also use interrogatories that ask:
(a) Where and what the insurance company searched to locate your company’s policies;
(b) The insurance company’s loss history for all policies for your company; and
(c) The policy numbers, policy periods, and limits that the insurance company admits that it has for your company.

(3) Notice a 30(b)(6) (or its state court equivalent) deposition that would include the topics above.

(4) Consider issuing requests for admission asking the insurance company to admit that it cannot refute what evidence you do have. For example, if you know of the policy prefix, ask the insurance company to admit that it used that policy prefix during the time period in question.

(5) Talk to and/or subpoena all of your company’s past brokers of whom you are aware. If possible, get witnesses to sign affidavits as soon as possible, with as much detail as the witnesses recall regarding the purchase of policies, the coverage, the limits, and any other salient details.

(6) Consider issuing third-party subpoenas to other entities. For example, if you find evidence of other insurance companies’ policies that reference the missing insurance company policies, consider subpoenaing those companies; they may have copies and/or additional evidence relating to the missing insurance company policies.

(7) Don’t forget to search your own company, even if you or others have looked before. Try:
(a) Sending out a companywide e-mail asking for evidence of the policies. Think about adding a small cash bonus for anyone who comes up with evidence of policies. Perhaps you have heard the story about a company that had missing policies, and after offering a cash reward, a longtime secretary found the policies that were worth millions;
(b) Contacting accountants to review historical financial records; accounting reports may identify the insurance that the policyholder had for a particular year or have analyzed sales to figure out how the premiums were set;
(c) Searching any of your company’s former locations. If your company has moved offices over time, policies may remain in the old locations. Consider the story of another company that found insurance policies in an old leather suitcase in the bottom drawer of a file cabinet, left behind in an old company warehouse.

(8) Consider contacting an insurance archaeologist; such firms specialize in locating lost policies.

(9) Consider hiring an expert to offer testimony as to how the market worked in the time period in question, and why the evidence you have supports a finding of coverage in your favor.

(10) Consider evidentiary issues relating to any documents that you do find. Trial lawyers know that it is not what documents you have, but which ones get admitted into evidence.

Overall, locating missing policies requires a bit of detective work. When considering the ultimate payoff that such policies may offer, it will be worth the effort.

This was posted originally at Lexis Insurance Law Center.

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Disclaimer:

This blog is for informational purposes only. This may be considered attorney advertising in some states. The opinions on this blog do not necessarily reflect those of the author’s law firm and/or the author’s past and/or present clients. By reading it, no attorney-client relationship is formed. If you want legal advice, please retain an attorney licensed in your jurisdiction. The opinions expressed here belong only the individual contributor(s). © All rights reserved. 2009.

Insurance companies’ public filings: chock full of information helpful to policyholder counsel

If you represent policyholders, you’ve heard it countless times from opposing counsel: reserves information is not relevant, and it won’t be produced. And if you represent insurance companies in coverage disputes, you’ve probably repeated it like it’s gospel. Similar arguments are made for other policyholder information: insurers refuse to produce such information, arguing that it’s too burdensome to produce or irrelevant. Case law on the issues is mixed, so it often helps to turn to the facts and the contentions of the parties when moving to compel this information on behalf of policyholders.

Contrary to what their coverage counsel assert in litigation, the insurance companies themselves have made public statements demonstrating that such information is relevant and easily collected. One outstanding resource for this information is the SEC filings made by publicly traded insurance companies. Particularly in the context of latent injury claims, these public statements often refute many, if not all, of insurer-side coverage counsel’s assertions that reserves are not relevant to the coverage dispute at hand, or that it’s too difficult to gather information on other policyholders.

Consider a typical asbestos coverage dispute. In such an action, both sides dispute the meaning of numerous terms, often in standard form insurance policies, or, even if manuscript policies, standard form terms and definitions that were not modified for the particular policyholder. Insurers analyze that exact information in the ordinary course of their business, and they do this a regular basis. They discuss the analyses in detail in their public filings. For example, consider AIG’s Form 10-Q  for the second quarter of 2008, dated August 6, 2008. On page 65 of that filing, AIG reveals that when it sets reserves* for asbestos claims, it engages in a “comprehensive ground-up analysis.” That phrase is telling – it means that AIG considers, in detail, its accounts (i.e., other policyholders) with asbestos liabilities, and studies them to determine the appropriate reserves. As the discussion in the Form 10-Q is a bit limited, AIG refers to its 2007 Form 10-K where additional detail is provided. The 2007 Form 10-K explains, at page 60, that AIG’s “[g]round-up analyses take into account policyholder-specific and claim-specific information that has been gathered over many years from a variety of sources.” In that same filing, at pages 59 and forward, AIG discusses its reserving process for asbestos and environmental claims. AIG explains that its management “continually review[s] and update[s]” its reserves for such claims, which is a tip-off to the types of AIG personnel who are involved with such decisions (helpful when considering depositions) and that the decisions are made in the ordinary course of business (helpful when refuting assertions that reserves are privileged).

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*A reserve is a “provision to satisfy obligations as of a specified date.” See, e.g., Actuarial Standards Board, Actuarial Standard of Practice No. 36, Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves (Mar. 2000), at 3.  Reserves must meet IRS standards and be reasonable in light of the insurance company’s obligations. See, e.g., Physicians Ins. Co. of Wisconsin, Inc. v. C.I.R., T.C. Memo. 2001-304, 82 T.C.M. (CCH) 918, T.C.M. (RIA) 2001-304, 2001 RIA TC Memo 2001-304 (U.S. Tax Ct. 200).

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More significantly, AIG explains that its personnel “evaluate . . . asbestos and environmental claims utilizing a claim-by-claim approach that involves a detailed review of individual policy terms and exposures.” AIG performs such a review of “[e]ach claim . . . at least semi-annually.” Indeed, “AIG staff produced the information required at policy and claim level detail for nearly 1,000 asbestos defendants. This represented over 95 percent of all accounts for which AIG had received any claim notice of any amount pertaining to asbestos exposure.”

Read that again: AIG staff gathered and analyzed information on over 1,000 policyholders! If AIG can review all its claims on a claim-by-claim approach in the ordinary course of business, for reporting purposes, can it really be unduly burdensome for AIG to produce even just a fraction of that information on other policyholders in the context of a multi-million dollar lawsuit? As AIG is not the only P&C insurer that engages in such reviews, insurers’ protests that requests for information relating to other policyholders – often limited to reasonable numbers, such as twenty other policyholders – is too burdensome, their public disclosures suggest otherwise.

Finally, consider the types of analyses that insurance companies perform when setting reserves for latent injury claims. Again, using AIG as the example, when setting those reserves, AIG “generally evaluates exposure on a policy-by-policy basis, considering a variety of factors such as known facts, current law, jurisdiction, policy language and other factors that are unique to each policy.” For “each significant account [,] . . . AIG’s claim staff [examined the analysis] for reasonableness, for consistency with policy coverage terms, and any claim settlement terms applicable.”

Isn’t that what is at issue in a coverage case: the meaning of “policy coverage terms?” When arguing about the propriety of discovery that is granted beyond the eight corners of the complaint and the policy, these disclosures should suggest that relevant information exists, is created in the ordinary course of business, and would not be too burdensome to produce.

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This was posted originally at Lexis’ Insurance Law Center.

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