financial services industry session (ind 007)

Recording of this session via any media type is strictly prohibited.

Financial Services Industry Session (IND 007)

Wednesday, April 30, 2014, 9:00-11:00

David GoodwinAllan HarrisTracy JurusikBarbara Miller


Introduction

Meet the panelistsKey events in the past yearWhat we’re going to discuss• Lines of coverage• Key issues

Two case studies


What is a claim?

Ordinary meaning – demand for moneyCommon definitions of “claim”• Lawsuit• Written demand for money• Tolling agreement request?• Investigation?• Subpoena?


Number of claims/interrelatedness

More than one “Claim” treated as one “Claim”Spanning policy periodsDeemed one “Claim” = one retention, but one

limitNotice issuesWhen do two “Claims” involve “interrelated

wrongful acts”?


Providing notice of claim

Know your policy’s definition of “Claim”Claims made nature of policies – timely

reporting criticalPay attention to any reporting thresholdsShould you report everything?Reporting via a bordereau report


Professional services – what are they?

Traditional policies – limited to “professions”Financial services – broader scope“For or on behalf of a customer or client”• Who is a customer or client?• Third party beneficiaries• For a fee?

Must the claim be brought by the customer or client?


Defense obligation

Duty to defend vs. duty to indemnify defense costs

When is a defense owing?Choice of counselReasonable defense costsScope of defenseAllocation


Communication with Insurers

Frequency depends on program, size of the retention and quantum of projected Loss

Balance communication with insurers with burden of providing such information

Cooperation clauses, sharing information with awareness of privilege issues

Periodic conference calls on big claims with big towers


Covered damages

Tort damages• Consumer torts• Negligence vs. recklessness vs. willful misconduct• Fraud?

Contract damages• Benefits owing• Consequential damages

Non-monetary remediesFee award


Settlement/consent to settle

When do you need insurers’ consent?Request insurers to waive lack of consent as

coverage issueTimely and robust information provided to

insurers in real time = faster consent should settlement opportunity arise

Settlement without consent – is insurer prejudiced?


Choice of law/choice of forum

Choice of law clauses• Types• Enforceability

Choice of forum• Location• Litigation or arbitration• Enforceability• Preferences


Follow form policies

Insured’s goal of obtaining a seamless insurance program

Excess insurer’s goal of making sure that preferred limiting provisions are included

Binders and insurer formsPolicy issuance/policy reviewDangers if program is not congruent


Two Case Studies

Professional liability issues

Director and officer issues


Case Study #1 (See Handout)

Issues(1) Must Investment Advisor hold Bank harmless against the class actions? What duty does Investment Advisor have to pay Bank’s defense costs? (2) Would Investment Advisor’s professional liability insurer cover Investment Advisor for its obligations under the hold harmless?



Issues(3) What about Bank’s coverage as an “additional insured” on Investment Advisor’s professional liability policy? Assuming that the investors’ losses were caused by Bank’s negligence in underwriting the loans that went into the Super Portfolio; and assuming also that Investment Advisor was negligent in allowing the class members to invest, would Bank have coverage as an “additional insured”?



Issues(4) Assume that both Investment Advisor and Bank are insureds under the professional liability policy, and assume further that the cost of defending and settling the class actions exceeds the limits of liability of the insurance policy. Who gets the money first – Investment Advisor (the named insured) or Bank (the additional insured)?



Issues(5) What if the contract between Investment Advisor and Bank includes both the hold harmless and the agreement to name Bank as an “additional insured” in the same (lengthy) sentence? Does that matter? (6) Assume that both Investment Advisor and Bank are entitled to coverage and that defense costs are outside of limits. What class action costs would the Investment Advisor’s professional liability insurer owe?



Issues(7) Would a disgorgement remedy be covered by (a) the hold harmless; or (b) the professional liability insurance policy? (8) What about Bank’s own professional liability program? If defense costs are $35 million, when would Bank’s insurer start to pay? Would Investment Advisor’s insurer be entitled to seek contribution from Bank’s professional liability insurer?



Issues(1) When was a Claim made? Was it timely reported? What about the fact that the privacy class action had been filed prior to the policy period? (2) Was notice timely? What about the fact that the privacy class action had been filed prior to the policy period? If you were advising the client on insurance issues when the consumer class actions were filed, what would you have advised regarding notice to the D&O insurers?



Issues(3)How many claims have been made? Are the securities class actions part of the same “Claim” as the privacy class action?(4)Which defense counsel should ABC select? What happens if the insurer sends “billing guidelines” to defense counsel and ABC thinks that would hurt the quality of the defense? What happens if there is a conflict between the interests of ABC and that of the insurer?



Issues(5) The D&O policy has an exclusion for “personal profit gained by an insured to which the insured was not legally entitled.” Would the exclusion apply, since the data breach may have been the result of a cost-avoidance measure designed to maximize ABC’s profits? What if ABC’s Chief Technology Officer received a bonus for 2012 based upon the cost savings that the bank’s technology group achieved?



Issues(6) Assume that the personal profit exclusion only applies “if a judgment or other final adjudication adverse to such insured establishes such personal profit or advantage.” Assume further that the class actions settle. Could the exclusion still apply? What if the insurer then files a declaratory relief action against the insureds. Could the exclusion apply?



Issues(7) Assume the D&O policy had an exclusion for “liability arising out of or based upon any prior or pending litigation as of the inception date or alleging or derived from essentially the same facts as alleged in such prior or pending litigation.” Does that exclusion bar coverage for the derivative actions?


Questions, Final Comments and Contact Information

David GoodwinCovington & Burling LLP

[email protected]

Allan HarrisWells Fargo Risk & Insurance

[email protected]

Barbara MillerWells Fargo Corporate Finance Group

[email protected]

Tracy JurusikWillis Americas

[email protected]

financial services industry session (ind 007)

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