Navigating the Insurance Claims Handling Process: A Practical View With a Focus on D&O Insurance

1. Navigating the Insurance Claims Handling Process: A Practical View With a Focus on D&O Insurance Presented by: Donald W. Kiel, K&L Gates Anthony P. La Rocco, K&L Gates

2. Commercial Insurance a Key Corporate Asset • Difference between potentially overwhelming liabilities or losses, and survival or material impact to corporate profitability • When a claim is asserted or a loss occurs, important for corporate counsel to be able to: • Navigate through the minefields of the claim process • Know when to negotiate and when to sue • Additional complications in the D&O context

3. Program Organization • A Short Primer on D&O Insurance • Evaluating the Claim for Coverage • The Claims Process • Claims Disputes

4. I. A Short Primer on D&O Insurance

5. A Short Primer on D&O Insurance • Typically written on claims first made and reported basis • Primary purpose to protect individual directors, officers, and certain other individuals for claims arising out of “wrongful acts” • Typical policy of public company insures company only for securities claims, and indemnification of Ds and Os • Typical policy of private company insures company for claims arising out of “wrongful acts,” with many exclusions, and for indemnification of Ds and Os

6. A Short Primer on D&O Insurance (cont’d) • Many of the very wrongful acts that trigger the policy may also trigger application of an exclusion • Intersection of broad definition of “Claim” and strict notice requirements often leads to coverage disputes • Some companies combine D&O with EPLI insurance

7. II. Evaluating the Claim for Coverage

8. Evaluating the Claim for Coverage • Need to promptly evaluate to identify proper policies to be noticed • Non-D&O claim • Multiple types of policies • e.g., employment claim, including personal injury allegations • Multiple years of policies • e.g., long-term exposure claims • Multiple layers of coverage • e.g., large claim that could exceed primary policy limits • Multiple coverage lines • e.g., policies that covered corporate predecessors

9. Evaluating the Claim for Coverage (cont’d) • D&O Claim • Multiple policies • e.g., side A only, independent directors only • Multiple layers • e.g., large claim that could exceed primary policy limit • Correct year • e.g., making sure you notify the correct policy in a timely manner

10. Evaluating the Claim for Coverage • Need to determine whether proceeding or other assertion of liability or potential liability is a “Claim” • “Claim” defined in Policy • Typically includes: • Civil and criminal lawsuits • Written assertions of liability • Certain administrative proceedings • Formal investigations • Target letters • Failure to give notice of minor “Claim” could prejudice coverage for serious “Claim” arising thereafter

11. Evaluating the Claim for Coverage (cont’d) • Failure to notice correct policies on timely basis could prejudice coverage • Better to err on the side of “over notice” • Consult your professionals • Broker • Risk manager • Counsel • Make sure you have thorough understanding of your company’s insurance program

12. III. The Claims Process

13. How is a Claim Presented • Through Agent or Broker, or Directly to Carrier? • Look to Notice Provision for Recipient • Some policies (and particularly D&O policies) provide specific address or agent for notice • If given orally, follow-up in writing • Policy may require certain information to be provided with notice • D&O policies usually only the Claim – copy of suit or claim papers

14. How is Claim Presented (cont’d) • Other policies (e.g., GL) require notice of both occurrence and claim • Occurrence – how, when and where; names of injured persons & witnesses; nature & location of injury or damage

15. Notice • Timely notice to the insurer (not the TPA) • Notice obligations differ depending on type of policy • Occurrence policy – notice of occurrence and notice of claim as soon as practicable • Claims made policy – notice of claim as soon as practicable and usually within same policy period when claim made • Extended reporting period provisions for claims made at end of policy period

16. Notice (cont’d) • Who within the company needs to know about the occurrence or claim to trigger the notice obligation? • Best Practice: endorsement specifying corporate officers or risk manager can offer special protection • Timing – “as soon as practicable” • For occurrence policies: • Prejudice standard in NJ/PA; no prejudice standard in NY

17. Notice (cont’d) • For claims made policies, including D&O, notice within the policy period is required to trigger the policy, and notice after the policy period is likely to be a valid defense to coverage, regardless of prejudice

18. Notice (cont’d) • Notice of Circumstances v. Notice of Claim (claims made policies only) • What constitutes a claim? • Usually defined in the policy to include lawsuits, written demands; arbitration demands; certain types of administrative proceedings; formal investigations • What constitutes a circumstance? • Usually a circumstance reasonably expected to give rise to a claim

19. Notice (cont’d) • Notice of circumstances during the policy period can protect you from a future claim that might be excluded under a later policy • If a claim is later made, handled under policy under which notice of circumstances given • Intersection with policy renewal application

20. Notice (cont’d) • Notice of circumstance information requirements • Wrongful act allegation anticipated • Reasons for anticipating claim • Details – dates, persons, entities involved

21. The Course of a Claim • Written notice to the insurer • Assigned to adjuster or claims handler • Insurers increasingly assigning D&O claims to counsel • Investigation • Initial coverage determination • Declination, Reservation of rights, Acknowledgment • Rarely a final coverage determination for D&O claims until underlying claim concluded

22. IV. Claims Disputes

23. Most Common D&O Claims Disputes • Was the Claim “first made” before or during the policy period? • Is the proceeding or assertion against the insured a “Claim” under the policy? • Does there need to be an allocation of defense and indemnity payments between covered and non-covered claims? • Does the insurer contend that the basis for the Claim also gives the insurer the right or ability to void the policy ab initio for fraud in the application?

24. Most Common D&O Claims Disputes • Does the Claim trigger application of fraud exclusion? • Does the Claim trigger application of improperly obtained remuneration exclusion? • If the Claim seeks disgorgement of profits or ill-gotten funds, does common law preclude recovery of insurance indemnity?

25. Statute of Limitations • At what point to pull the trigger and sue the carrier? • In the liability policy context, general contract statute applies (6 years in New Jersey) • At what point does the 6 years begin to run? • When carrier denies coverage? • When occurrence happens? • When claim is made? • In New Jersey, the rule is that it begins when the carrier denies coverage

26. Statute of Limitations • Some courts have ruled that the statute of limitations is “tolled” during the time between when the claim is made and the carrier responds • Best practice: negotiate a tolling agreement where the statute of limitations is tolled for a specified amount of time

27. Venue Considerations • Choice of law rules • Substantive coverage law • All else being equal, New Jersey tends to be a policyholder-friendly jurisdiction • Recovery of counsel fees in coverage litigation • New Jersey court rules specifically permit award of counsel fees to successful policyholder in coverage litigation on liability or indemnity policies

28. Venue Considerations (cont’d) Answers to these questions may impact the timing of your suit against the carrier