Cyber Insurance and CGL Packages: Part I

Introduction: The "Old Insurance World" and the "New"
Through the Lens of a Single Policy




My discussion of this policy will have to be divided into at least two parts  The first one will contain a Preface, a discussion of two crucial definitions, and a discussion of the Insuring Agreement. Part Two will be a discussion of a number of the Exclusions, of which there are many. Part Three will discuss a few of the Conditions and some miscellaneous clauses. Part Three will be quite brief.

Preface

Awhile back, I wrote that commercial insurance for the so-called "real world," as opposed to the "cyber world," do not and will not apply much to the new cyber part of the "New World." 
The Comprehensive General Liability Policy ("CGL") is a paradigm case. One part of these policies, Coverage A, covered "bodily injury" and "property damages." Another part, Coverage B, covered "personal injury," a phrase contrary to ordinary English usage. It covered some acts that did not cause injuries covered in Coverage A. For the purpose of this essay, the most important provisions recently involved have been copyright infringement and invasion of privacy. Many years ago, patent disputes may have also been included in Coverage B, although at at least some insurers asserted that they never intended that way.  It is gone now.  Invasion of privacy has also been covered in the past, but it have either been deleted, or it will be shortly either altogether or specifically for the cyber world.




Cases deciding the applicability of CGL provisions to the cyberworld are sparse.  In one of them the judge decided that networks may be tangible physical property, even though it cannot be touched.  After all said the concurring judge, it is made of  "atoms or molecules. . .and a meaningful sequence of of magnetic impulses cannot float in space."  Computer Corners, Inc. v. Fireman's Fund Insurance Co., 46 .3d 1264 (N.M. App. 2002) ("Impaired property," given policy language, need not be tangible physical property).  NMS Services, Inc., The Hartford, 347 Fed. Appx.  511 (4th Cir. 2003)(concurring opinion: Majority: computer damaged. Concurrence: coverage for erasure of information from records on physical object is itself a physical loss. Concurrence never cited and it based on a 1983 case,)

The internal language of the CGL standard policy has recently changed substantially. Here is the new language; it is to be found within the definition of "property damage":

"For the purposes of this insurance, electronic data is not tangible property. As used in this definition  electronic data means information, facts or programs stored as on or, created or used on, or transmitted to or from computer software, including systems and applications software, hard or floppy disks, CD-ROMS, tapes, drivers, cells, data processing devices or any other media which are used with electronically controlled equipment."

ISO Form CG 00 01 12 07.

Obviously, it no longer matters whether information, data, and so forth are tangible physical objects, they are excluded in any case.






I will be commenting on the policy as we go along.  I will try to put such substantive comments  in smaller type.  That protocol does not apply yet.

There will, of course, be mixed policy limits in both first and third party insurance, and both of these types will be so-called claims made policies. In this case, the first party coverage is found in the "duty o defend" and the third party coverage is to be found in the "duty to indemnify

I have already discussed policies which are "double claims-made policies."  What I mean by this is (1) that the claim against the insured must occur during the policy period and (2) that the insured's claims to or against the insurer must also occur during the same period of time. On top of this, the policy period is expandable in one or two directions for an additional premium, and that is helpful to insureds, so long as the price is not too high.This is one of those.

Nevertheless, there is something left over from CGL policies, and probably others, e.g., professional malpractice polices for professionals such as engineers, architects, cyber designers, Directors and Officers policies, and others--even lawyers, though probably not dentists. The leftovers are to be found among available endorsements. 

There are different kinds of endorsements. Some add substantive matters, like changing a substantive definition; some add or subtract one or more named insureds and/or items insured, e.g., cars, boats, building; some add or subtract policy limits or periods; and the list goes on. For our purposes the type of endorsement at question is one which adds what might be called a new policy. It turns a "standalone policy" into a "package policy."  Our concern here is the last of these.

Our story in this essay begins with a CGL policy. To that is added an endorsement and that is the policy under consideration here. The endorsement is entitles as follows:

"Technological Professional Liability Insurance Policy  (Claims Made),"

In this case, which was issued in 2012, the word "technological" is the key to understanding what the policy is about, and that policy is the topic of this blog-essay.*(*I have said the following previously.  As with (virtually) all cyberworld insurance there are no--or virtually no--published opinions of the court.  There are no reported opinions about this policy--none!  Consequently, everything I say is conjecture, to some degree.  I will not be setting forth and/or discussing the whole policy.  And I make mistakes, like everyone else.**)(**Notice that I have begun using small print for comments.)

This Contract of Insurance

Declaration Pages.  One of the places to start reading, reviewing, studying, and analysing insurance policies is with the "Declarations Page" aka "Dec Sheet(s)"  It contains a variety of bits of useful information, but often for an essay like this one, the author does not have it and cannot get it.  In this type of case, the endorsement-created-policy is often--at least in part--controlled by the dec sheet for the whole policy, and it looks like that what the dec sheet appears to say, but a lot of what's on that sheet has been blacked out, and the Tech-Pol lists its own policy limits.  Curiously both dec sheets, if that's the right way to talk about them, both refer to another identified document. This is not uncommon. 

Wrongful Act.  As is common in policies of this sort, and similar policies, one of the key definitions that is virtually the essence of the policy is the definition of the phrase "Wrongful Act."  So I will begin with it:

Two Key Definitions 

 "When used in this policy. . . . : the term 'wrongful act' means

                    (a) a negligent act, error or omission arising from [the] performance of 'Technological

                         Professional Services' rendered to others;

                    (b) a network injury."

Comments: Section(a) The phrase, "wrongful act," is commonly used in professional malpractice insurance policies and some others.  This is a professional malpractice policy, in part, but in some ways a more general policy designed for professionals. The use of the phrase, "errors and omissions," is also characteristic of some malpractice policies, e.g., accountants and lawyers. Here, the term "negligent" ranges over acts, errors, and omissions--all three. An intentional act that is intended to cause injury does not count as a "wrongful act." Traditionally, it was not used in the malpractice policies  of physicians.  It may strike one as unusual that the term "wrongful" would be applied exclusively to negligent performances.  Lots of other types of activities are called "wrongful" in ordinary English. But so it is. 

One feature of this definition distinguishes this policy from  purely professional malpractice policies. They usually restrict coverages to injury and damage that the insured causes its own clients. That is not what this definition says. Instead, it refers to "others." Usually, injuries directly caused by the insured others, that are not the clients, are not covered.  This difference is a big deal! (Of course,  if the damage or injury to the insured in turn cause damage or injury to another, the insurer may be liable for the damage or injury causes to the the person down the line of causation.  In addition, if an uninsured person causes injury or damage to the insured and that causes the insured to injure or damage another person as the result of the insureds own negligence, the insurer is liable. Remember: The insuring agreement cannot be understood without this key definition thoroughly in mind.)

Comments:   Section (b): There is another crucial feature of this definition, and that is section (b).  There are two different possible meanings for (b).  One goes more or less like this: "The term "wrongful act" means a negligent act, error or omission arising from the performance of Technological Professional Services rendered to a Network injury."  I cannot see how this could make any sense.  An alternative is this: "The term 'wrongful act' means a negligent act, error or omission arising from the performance of Technological Professional Services to others where a injury to a relevant network is involved."  The trouble with the second alternative is that, while it now makes grammatical sense, the policy does not really say that, and the phrase "Network Injury" is not defined in the policy or in any of the usual glossaries for terms widely and routinely used in the cyberworld.  In addition, which networks and which injuries is the policy talking about?  One possibility is that it means all injuries to any network in which the insured has an insurable interest, and that is a reasonable policy.  If that is what the policy intended to say, however, it could have said that; it did not.

In order to understand the key terms within the key definition, the definition of "wrongful act," it is necessary to understand another definition (or some parts of it "here" and other parts of it "there"), namely that of "Technological Professional Services":

Technological Professional Services.  [This phrase means]
                      (a) analysis, design, programming or integration of information, network or computer
                           systems;
                      (b) processing, enter, analysis or interpretation of data;
                      (c) development, design, integration or licensing of computer software;
                      (d) resale, recommendation, marketing, installing, maintenance and training in the use of
                           computers or network hardware and software systems;
                      (e) website, application or data hosting, support, maintenance or management;
                      (f ) outsourcing to outside vendors any of the services detailed in item (b), (c), (d), (e) and (f)
                            to be performed by individuals or businesses who are not employees or controlled or
                            owned by the Named Insured.
                       (g) the conduct of the Named Insured's designated operation subject to the following      
                            classification code number(s) as scheduled above and described on form AD-150 and as
                            applies to (a), (b), (c), (d), (e), and (f) of the "technology professional services" definition
                            above.

Comments: Obviously, this list--treated as a definition--is intended to be a thorough-going catalogue, of the range of actions cyber-designer, cyber-engineers, and/or  their "siblings" do for their customers.  It, then, sets forth the range over what the idea "wrongful act" ranges.  As part of the list there is a reference to "form AD-150."  References to documents like this are to be found in a good number of insurance policies for complex activities. They are almost never, in my experience,  part of the policies; they are not provided to the insurer in advance; and often the agent-broker has no more idea about them that the insured does.  They are usually documents to be found in the "Underwriting Department," and it is a good idea for Risk Managers of companies shopping for insurance to obtain these documents, read them, try to understand them,and if there are difficulties politely demand that they be explained.

Comments: This definition includes analogies of the kind of acts and omissions usually insured in professional malpractice policies.  There are additional features, however.  To some extent, at least, this is a result of the kind of professional services offered. For example, the following elements of the list are like that: (a), (b), (c), parts of (d)., parts of (e), and (f)?, and maybe there is more. The following elements on the list do not, at least as they appear to be, look like that: parts of  (d) (e.g., "resale," "marketing," "installing," etc.), part of (e), and (f)?  Of course, it may be that each of the apparently non-covered activities--non-covered simply because of the appearance of language or unclarity--are actually professional activities in the cyber world.  It must be kept in mind, however, that an insurer may contest any of these issues. At the same time, all actual ambiguities and all actual vagaries are resolved in favor of the insured.

We now turn to the agreements as to what is covered.  (Remember: The exclusions also, in the end, determine what is covered.)

Agreement as to What's Covered

II. Coverage - TECHNOLOGY PROFESSIONAL LIABILITY

There are two lengthy parts of the Insuring Agreement. One of them pertains to what is often called the insurer's obligation to indemnify the other pertains to the insurer's duty to defend the insured if accursed of a wrongful act, as defined in the policy. [The phrase "duty to indemnity can be a confusing.  The term "indemnity" means that I will pay for you eventually, but often it involves your paying and then I will pay you what you have already paid.  That is not how the duty works here.

A. INSURING AGREEMENT

The Company agrees to pay on behalf of the Insured those sums which the Insured shall become legally obligated to pay as damages arising from a Wrongful Act committed by or on behalf of the Insured subsequent to the retroactive date specified above and subject to the applicable limits specified above.

Comments:Very little needs to be said about II.A now.  The definitions have already been laid out, and the insuring agreement derives immediately from those definition.  Controversies will arise out of the definitions, not out of the insuring agreement.

Comments: From my stand point so far, the confusing point  is the idea that there is coverage not only for what the insured and its legal agents do, but also actions which are performed for the insured by someone who is not its legal agent. The injuries caused by the agents of a principal are attributable back to the principal.  This is what "vicarious liability" is all about.  There is another species of person who can act on behalf of another entity, namely independent ____________ ["somethings"].  What fills in the blank depends on the industrial context. Thus, in the area of insurance adjustment there are adjusters who are the legal agents of the insurer; adjusters who are the employees of the carrier; and independent adjusters who are not, but who are vendors and  of adjustment services.  The same is true in the sale of insurance.  There are some insurance agents who are the legal agents of the carrier and some who are independent insurance agents.  The word "behalf of" does not make make that distinction.  As a consequence, this policy insures the insured for all actions of an independent ____________, so long as there is any way the insured might be held responsible for those mistakes . This could happen.  Insured orders an independent X to do a.  X does b or ~a instead.  X's actions are outside the scope of the insured's instructions.  Nevertheless, it gave X orders.

B. CLAIMS MADE CLAUSE  This does not need to be discussed further.  This policy is a "double claims made policy."

III. Coverage - Defense, Settlement, Supplementary Payments

As respects such insurance as is afforded by the other terms of this policy, the Company [the insurer] shall:

A. defend in his name and behalf any suit against the Insured alleging damages from, or connected with Wrongful Acts, even if such suit is groundless, false or fraudulent, but the Company shall have the right to make such Investigation and negotiation of any claim or suit as may be deemed expedient by the Company;

(Comments: There are a whole range of problems in III.A, but with one exception they are familiar from "real world" insurance.  )

B. reimburse the Insured for all reasonable expenses, other than loss of earnings, incurred at the Company's request, except amounts paid in settlement of any legal liability insured under II. COVERAGE - TECHNOLOGY PROFESSIONAL LIABILITY, which liability shall be governed by the limit of liability stated in the Declarations.

(Comments: The wording implies that the insurer will pay legal expenses as the case develops and will be in charge of defending.  This means that it will price defense counsel.  The policy also implies that if the insured wants it, it must buy a separate policy for business income loss, aka business interruption loss.)

The Company shall not be obligated to pay any claim, judgement or expenses nor defend any suit, or claim on or after the applicable limits of liability have been exhausted by payment of judgments or settlements, expenses or any combination thereof.

(Comment: The cost of legal fees reduces policy limits.)


This concludes Part I of the essay on the Admiral policy.  Part II will mainly concern exclusions.

























 

Cyber Insurance Policy--Sample #2: A Liability Policy--Chubb

Michael Sean Quinn, Ph.D., J.D., c.p.c.u. . . .

The Law Firm of Michael Sean Quinn et

Quinn and Quinn

         1300 West Lynn Street, Suite 208

                     Austin, Texas 78703

                          (512) 296-2594

                         (512) 344-9466 - Fax

                     E-mail:  mquinn@msquinnlaw.com

Preface

This blog discusses the insurance policy listed below. There are more than several cyber insurance policies available these days, but there is no real literature about them.  There are one or two pieces in law reviews, but there is no real discussion of what the policies contain or  how they work.  This is an attempt to do just that.  This policy is narrower than others and it is not a paradigm of cyber liability insurance policies. 

There are not (or few and hard to find) judicial decisions on cyber insurance policies/contracts, e.g., treating coverage matters. There may be a few out there, but they are not reported, and I have found no real references. One of the propositions that the forgoing implies is that, I do not believe that I am giving a comprehensive account of this policy, or others I have discussed and will discuss. In addition, I do not so much as suggest that what I am saying can be taken as gospel. That sort of thing, if it comes at all, is far off in the future.  If you are inclined to think I am a prophet, I am flattered, and while you may be right, do not bet large sums on it, although you have my permission to cite me in coverage opinions, law review or magazine articles,  court briefs--or, for that matter, judicial opinions.

I will not be  giving a full explication of the policy; much of it is left out. The main concentration is on the insuring agreement, the definitions, and the exclusions. Not even all of them are discussed.  The main reason for this is that many of the components of not only of the exclusion section, but  the conditions and the miscellaneous sections, are not really very interesting in studying and thinking about cyber policies. One reason for this is that they are quite similar to what has been characteristic of insurance policies for many years.

My comments on the policy, immediately below, will be enclosed in brackets, "[   ]."

This insurance policy--or a predecessor--was issued for the first time in 2000. The following comes from a 2006 version.  It is a liability policy--a third party policy.

Chubb Group of Insurance Companies

SAFETY’NET INTERNET

LIABILITY POLICY

1. Insuring Clause [Insuring Agreement]

The Company shall pay on behalf of each Insured all Loss on account of any Claim first made during the Policy Period arising out of the Insured's Internet Activities which occurred on or after the Retroactive Date set forth in ITEM 7 of the Declarations.

[This insuring agreement cannot be understood without grasping the relevant definitions, at least to some extent.  One important thing about it is characteristic of many policies that have been in use for many years, e.g., Directors and Officers Liability Policies.  Policies like that have a certain period of coverage, and or more event must happen during that interval.  These include (1) events giving rise to a claim against the insured, (2) the claim against the insured, (3) claims by the insured "against" the insurer seeking coverage, or (3) up to all of them.   In this case, that which gives rise to the claim-again-the-insured must occur during the policy period, as must the claim against the insured itself, as well as the insured's claim against the insurer. Because of this ostensible fixed schedule, the insurer offers extension periods.  They can be retroactive or for the future.  Thus if a claim-against-the-insured is originally required to be submitted  the policy period, that time interval can be increased by an interval of time back into the past, or it can be stretched out into the future.  The insurer may or may not have a right to refuse these extensions.  In any case, extensions demand payment of an additional premium.]

[On items on a Declarations Page/Sheet, see the discussion of definition (f) and (g).]

2. Definitions

(b) Defense Costs means that part of Loss consisting of reasonable costs, charges, fees (including       but   not limited to attorneys' fees and experts' fees) and expenses (other than regular or overtime wages, salaries or fees of the directors, officers or employees of the Named Insured) incurred in defending Claims, and the premium for appeal, attachment or similar bonds.

[The language of this definition entails that the insurer's costs of defense will diminish the amount available to compensate the complainant against the insured.  This proposition is reinforced elsewhere in the policy.]

(f) Internet Activities means

          (i) display or use of other Matter on an Internet Site;

          (ii)  transmission of Matter via an Internet Site; or

          (iii) the disseminating of Matter by any other means of publication or communication shown

                 in Item 8 of the Declarations.

(g) Internet Site means an Internet site shown in Item 8 of the Declarations.

(h)  Loss means any amount which an Insured becomes legally obligated to pay on account of any Claim, including but not limited to damages (including punitive and exemplary damages, where insurable by law), judgments, settlements, costs and Defense Costs. . . .

[Remember: Defense costs are part of the loss, so that the expenditure of defense costs reduces the amount that is available to pay the indemnity part of the claim.]

(i) Matter means printed, verbal, numerical, audio or visual expression, or an other expression, regardless of the medium upon which such expression is fixed.

3. Exclusions

The Company shall not be liable for Loss on account of any Claim made against any Insured:

Anti-Trust:  (d) arising out of allegations of price fixing, restraint of trade, monopolization, unfair trade practices, or any actual or alleged violation. . . .

Patent Infringement  (h) arising out of any actual or alleged infringement, contribution to infringement, or inducement of infringement of any patent[.]

Governmental Actions:  (i) brought by any federal, state or local regulatory agency or other administrative body alleging the violation of any federal, state or local laws or regulations.

[So far as I can tell, the rest of the 14 or so exclusions, depending on how they are counted, are not very interesting either because they are part of common sense, because they are not uniquely related to cyber insurance situations, or because they or some close variation of them, are well known from other types of currently existing commercial liability policies.

Reporting and Notice 5.  Insureds must give Chubb written notice of a claim against it "as soon as practicable" but within 60 days and no longer. This demand is described as a, "condition precedent to their exercising their rights hereunder. . . ."  In addition, it is also a "condition precedent" of an insured exercising any of its rights that it provide the insurer (Chubb) with such information and cooperation as it may reasonably require.

[This clause is common all over the industry. The first part is commonly called the "Late Notice Requirement" or the "Late Notice Condition," while the second half is often called the "Duty to Cooperate Clause."  Insurers usually describe these requirements as conditions, but a number of courses have ruled against this understanding of the clauses. The reason is that the clauses, as set forth in the policies, are held not actually  to be conditions for various reasons; instead those courts treat them as covenants, meaning simple promises in the contract. This distinction can make a lot of difference in litigation, but it is easiest for the insured to act in accordance with the language of the insurance contract, and avoid that dispute even if the law is "on his side."]

Defense and Settlement 6.  The Company shall have the right and duty to defend any Claim covered by this Policy...The Company may make any investigation it deems necessary and may, with the consent of the Named Insured, make any settlement of any Claim it deems expedient... Defense Costs are part of and not in addition to the Limits of Liability set forth in the Declarations, and the payment by the Company of Defense Costs reduces and may exhaust such Limits of Liability. 

[The "duty to defend clause" is often among the most important clauses in the insurance policy. This matter is commonly known, so nothing more needs to be said about it here and now. It must be remembered that the amount that is paid for a defense, shrinks the amount of money available to pay the plaintiff, if that is necessary. This feature is not common in ordinary commercial or personal liability policies, but it is common in malpractice policies, aka "E & O Policies," aka "Errors and Omissions policies."  Usually, these policies are for "professional" malpractice, e.g., doctors, lawyers, accountants, engineers, architects, and so on. Duty to defend clauses usually contain investigation clauses, cooperation clauses, and  clauses regarding settlement. Settlement clauses can be particularly important. They usually authorize the insurer to settle a case with the consent of the insured. However, if the insured refuses to consent, the insurer's obligation to pay damages may be restricted to the amount for which the case could have been settled.  (Sometimes, the insured also ends up being liable for attorney's fees accumulated after the case could have been settled.  That is not the case in this policy.)]

There are a number of other clauses, most of them routine, so they will not need be discussed here.  Here are their titles:

• Allocation [as between covered and uncovered events]
• Extended Reporting Periods
• Spousal Liability Coverage
• Other Insurance [sometimes other insurance policies pay first]
• Representations and Severability [Assertions in the application must be true and are part of the policy.
• Territory [where there is coverage]
• Notice
• Subrogation
• Action Against the Company, i.e., the insure [Insured's full compliance with the terms of the contract is a condition precedent upon the insured suing the insurer.  Seldom enforced these days.]
• Bankruptcy
• Authorization
• Alteration and Assignment [The insured may not do either one.  Strictly enforced.]
• Cancellation and Non-renewal.

[Sometimes these "conditions" or "conditional clauses" or "alleged conditions," can contain what might be called "tricks."  Consider the "Late Notice Clause,"  it requires that the insured give notice no later than the 60th day.  Does this mean provide or receive? If request for coverage is sent my mail, several days may pass. So might a late night notice emailed to an insurer.  This sort of thing does not come up often and generally the reasonable insurer doesn't seek to enforce this clause over these kinds of situations, except--maybe--where fraud is plausibly thought to exist.]

______________________________________________________________________________

Essay on Coverage



This discussion will concern one aspect of coverage: that which is obviously included in or involved with the Insuring Agreement, Definition (f), and the Definitions contained therein.  

Definition (f) begins with the Definition of Matter. Generally speaking,  the defined term "Matter" refers to a concatenation of instruments of communications, and the communication they can be used for can be of any sort. The human voice, however, is not mentioned though it seems to me that it is implied.

An Internet site is a "something" by means of which communication can occur over the Internet. (n: Internet Site is any Internet site listed on the declaration page of the policy. Notice that cyber communication systems are not within the definition and therefore not insured.

[1] (f)(i)So an Internet Activity is, among other things, the display of Matter on an Internet site listed in the policy--that is an Internet Site;
[2] (f)(i)An Internet Activity, is also, among other things, other use of Matter on an Internet site listed in the policy--that is Internet Site  (I take the phrase "other use" to include a variety of other uses, and note that the term is not defined in the policy.  I think it's reasonably clear that the word "use" really means other "uses.")
[3] (f)(ii) transmission of Matter via an Internet Site; (It is unclear whether "transmission" means out, in, or both. I see no difficulty in taking that word to mean both outgoing and incoming.   

[4]  (f)(iii) dissemination of Matter by any other means of publication or communication shown in the specified place in the policy. I find (f)(iii) puzzling:

• First, the difference between transporting and disseminating is not obvious. Either of them could be be intentional or unintentional. One can transport one thing, but the idea of dissemination seems to imply "moving" more than one thing. 
• Second, (f)(iii) a dissemination pass through an Internet Site before can be something insured.  Of course the communications device that falls within (f)(iii) has to be listed in the specified place in the policy. Does that makes it discretionary for the underwriter for the insurer to decide how to deal with a particular disseminatrion device, say, the Wall Street Journal.  Or does is make it discretionary for the underwriter of the insurer to decide what categories of dissemination outside of Internet will trigger coverage through (f)(iii), say, newspapers, but not TV. 
• It would not surprise me for the insurer to opt for the former, say, there must be a particular magazine listed if it is to trigger insurance through (f)(iii), e.g., The New York Review of books
• It would not surprise me for the insured to opt for the latter, e.g., magazines or magazines containing book reviews and so forth
• I am inclined to think that the near sentence in (f)(iii) means extra-Internet category.
• This reasoning does not need an argument from ambiguity.  An ambiguity argument may be needed to distinguish general categories from categories that are not general and are nothing but semantic games designed to make the particular look general
• Third, why might (f)(iii) be included in this kind of policy when (f)(iii) falls within CGL coverage, when liable, etc.from Coverage B is involved? Maybe its to deal with the insuring the insured's  passing along incoming messages  libelous information.

In any case, the fact that this is a liability policy is quite clear. We shall be examining some first party policies and other liability policies as blog-chapters go along

Dewey Law Firm's Executive E & O Insurance Policy

On December 28, 2012, a blog that was entirely hypothesis, conjecture, and guess work about what the specialized executive business liability policy for Dewey-LaBoeuf, would "look like,"  indicated that I would try to be a bit more detailed sometime in the further.  This is it.

The actual title of the policy was LAW FIRM MANAGEMENT LIABILITY AND COMPANY REIMBURSEMENT INSURANCE POLICY.  The copy obtained for me off Pacer by the perfect paralegal here was 59 pages; many of them replacing temporally previous endorsements.  The main body of the policy, as well as some of the endorsements,  provide an odd list of nearly named insureds.

I finally obtained a copy of the policy several weeks ago.  It can be found on Pacer, if one wants to look for it.  What follows will be a brief summary of some parts of the text.  I am not trying to describe it completely.  I may also not summary the correctly; there are no cases, and, although there is resemblance between this policy and some D & O policies, interpreting this policy might be an indirect way to correct the D & O policies. In any case, you'll get an idea about the text of the policy.  

 My summary will contain comments from me.  (For good or for ill, I don't even try to stop myself. Yesterday, I even made up a "gap story" for what I'm sure would have been in the Gospel of Matthew if that "essay" didn't have to have been  so short.)

Lest one think this survey and analysis it too late since the judge has approved the liquidation plan, one might keep mind that (apparently anyway) the court's approval did not completely determine the disposition of the aggregate proceeds ($25M) available from this policy.  After it covered part of the management of the firm and not the firm itself.

In any case, so far as partial sketch and pioneering analysis are concerned, this is it.

Declarations Pages (or "Sheet)."  This part of the contract can be and almost always is extremely important.  The forms for entries on many of these is the same or similar across a whole panoply of different policies, at least those in the same category, e.g., homeowners, liability, business interruption, and so forth.  Here are some examples

• Type of Policy (Here it's a "claims made" policy meaning that the claim has to be filed during the life of the policy or an agreed and purchased an extension period or periods.)
• Policyholder (Here called "Parent Company.)
• Limits of Liability ($25M)
• Deductibles (They are here called "retentions")
• Optional Extension Period (an extra time period the insured has to report a loss)
• Proceedings: Pending and Prior  (previous lawsuits, etc., that are still alive)
• Where Notices required by the Insurer are to be delivered.
• Premium ($541,500.00 for regular period and "1,083,00.00)[*]
• Designated Insured Person(s) (Here there were some individually people designated by "office"held,  and a number of insureds being whoever sat on certain named committees.These insureds are almost always called "Additional Named Insureds,"  but not here.  The reason ma be that no one is the policyholder or the "[Principal] Name Insured."  The key phrase here is "Insured Person." 
• List of endorsement.  (In this policy is done by a special list.  In some policies, there is a standard list an some boxes are checked off.)  The use of that category in an insurance contact like this  one is not a helpful way to think.  There a lot of changes of endorsements over time.

[*Why so much?  Variety of reasons, one or more at a time: (1) Length additional to "file" claim.  (2) Dangerous period of time for the filling of claims.  (3) Method of discouraging purchase. (4) High profit addition.

Various Sheets.  Terrorism, Offices of Foreign Assets Control, Privacy Policy, Fraud Notice  Information About Various Jurisdictions (States).  [MSQ:  These can appear in a  variety of places, and they need not all be placed together.]

LAW FIRM MANAGEMENT LIABILITY AND COMPANY REIMBURSEMENT INSURANCE COVERAGE FORM  This portion begins with standard clauses making sure that the actual reader (or sophisticated observer) knows that this is a contract.  Like many other types of policies, the application is made part of the policy.

I. Insuring Agreement.  This part of the contract is supposed to say what's covered.  [Sometimes exclusions are "snuck" into the insuring agreement, but almost nobody admits that.]

There are three separate insuring agreements.  The following are attempts at summarizing and explication, not quotes:

(A) Coverage for insured losses.  XL, the insurer, will pay for losses on behalf of an insured  resulting from a "wrongful act," unless the  "Parent Company" has an internal that XL executes its obligation by means of indemnity.  [In insurance contexts like this one, "indemnity" means that the covered person pays for the loss first, or someone else pays it for him, and then the insurer reimburses the person or entity that has paid.  The phrase "Wrongful Act" is crucial to (A).  It will be discussed presently.

(B)  "The insurer shall pay on behalf of the Company[,] loss which the Company is required to or permitted to pay as indemnification [to any insured person]. . . ."  [It looks like the language of (B)means, in his context, that if Dewey must or may indemnify an additional named insured, (likely to be a lawyer in the firm or a senior manager), then XL will step in and pay for and not to Dewey what reimbursement it is obligated to pay.  In other words, XL will Dewey when it becomes liable, not after it pays.[*]  The phrase "Wrongful Act" is again crucial.

[In this situation, an insurer may simply pay the person or entity that has made a claim about Dewey and where Dewey has become liable or certainly will, instead of paying the insured. Doing something like that would not be an obligation of the insurer.] .

(C) In this insuring agreement, XL agrees to pay on behalf of Dewey insured losses resulting solely from any claim first made against Dewey during the policy period or the extension period.  The term "Wrongful Act" is again crucial.

[*This part of the policy expressly requires both that (1) a claim by the insured company, Dewey, notifying XL of a potential claim against it, Dewey, and seeking coverage, together with (2) any claim made against Dewey must occur during the insured period of time, usually a year plus an extended period of time.  Obviously, it is prudent for a claimant against a law firm to be made comfortably before the expiration of the policy period.  The law firm may not want to send a writing to the potential claimant informant him/her/it of the last day of the policy.  The insurer might assert a lack of cooperation.  In any case, shortly before the end of the insured period, it behooves the prudent law firm to get an inventory of  probable (and somewhat probable) claims and then have personnel watching for methods of communication into the law firm (hand delivery, email, fax, and so forth).  The danger is an email being sent to an individual; not everything can be watched over.  It is imprudent for a claimant to pull a idiot move like this.  The only reason I can think of is to torture the firm, knowing that it has plenty of money.]

II. Definitions.  There are  number of definitions in this set forth in this section.  At least at the beginning of studies by far the most important of them, at least for genera purpose and initial understanding,  are that of "Wrongful Act"  and "Loss."  They will be now be set forth and discussed to some degree. They are so important that they must be set forth in quote:

Here is the definition of "Wrongful Act":

Any wrongful act based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any of the same or related facts, series of related facts, circumstances, situations, transactions, or events.

"Wrongful Act"--Two major sections (1) & (2) plus three subsections under (1).

(1)  act, error, omission, misstatement, misleading statement, neglect, or breach of duty by any Insured Person while acting in his or her capacity as an:

(a)  Insured Person of the Company or a person serving in a functionally equivalent role for the Parent      Company or any Subsidiary;

(b)  Insured Person of the Company who at the specific written request of the Company is serving as a director, officer, trustee, regent or governor of a Non-Profit Entity;

(c)  Insured Person of the Company, who at the specific written request of the Company is serving in an elected or appointed position having fiduciary, supervisory or managerial duties and responsibilities comparable to those of an Insured Person of the Company, regardless of the name or title by which such position is designated, of a Joint Venture, or

(2)  act, error or omission by the Company. [End of definition.]

The phrase "wrongful act" is used in many contracts pertaining to these types of policies and those like them. 

There are many semantically-based and/or implied-problems with this definition.

• When is someone acting in his capacity as an "Insured Person," e.g., an employee or a partner in Dewey?  [This is a problem that comes up in many types of insurance, e.g., Workers Compensation Insurance, Commercial General Liability, and so on and on.
• When is someone acting as a "functional equivalent" of an "Insured Person?"
• What all, as they say, fiduciaries (e.g., to whom or what) will help create a context for a "wrongful act?"
• To a very ill partner?
• To a disabled partner?
• To some clients?
• Any person from outside the firm but to whom a fiduciary duty is owed?
• The requirement of a written request is involved here several times. What counts as a "written request?"  There are three requirements built into the insurance policy: a writing (including delivery), a request, and specificity.  Here I will list abstract possibility and not write anything about them.
• A"Writing?"  What counts as a valid writing and/or delivery method, aside from letters and/or emails. Here are a few eccentric, dramatic possibilities which may bring attention to less striking, potentially difficult and  continual problems:
• Prose in code?
• Poetry somehow encrypted, in a way the insurer does not understand.
• Sent on twitter.
• Writing sent to a wife (for delivery) of designated recipient?
• Sent to husband of an 
• Sent to lover of?
• To the "friend" of the claims officer who accidentally dies before he/she can act? 
• The writing is 10 words written in pencil on the back of envelop handed to the stoned butler of a high level official of the insurer?
• and so forth
• (It should be pointed out that Stephanie Rodriguez,  person of eminent common sense in my office, thinks anything but certified mail is utter madness.
• It should be pointed out that insurer seldom enforce requirements--or conditions--like these.  Phone calls pursuant to which a claim number is assigned are usually OK.  Similar messages to agents are also enough, as a rule.
• A "Request"?  What counts as a "request:?
• command"  "Fix it. You have until Friday"
• threat  "By Friday, or else."
• either-or "Do it.  Do it this way, or do it that. Just do it."
• to spouse to be conveyed  "Please tell you wife to attend to the claim straight away."
• "I wonder if you might. . . ?"
• What counts as specificity?
• Obviously, its not vague, like saying, "Its east of the river."
• Its not incoherent.
• It must be detailed enough to orient the adjuster.
• But specific descriptions can be confusing."Divide the area into quadrants.  Then cut each quadrant in half."  Do the area between 12 and 2:46."

• And what is the purposes of these three components?
• Create a clear history for all those adjusting the claim to understand and get oriented.
• Another is to actually get the insurer rolling relatively quickly, that there is evidence that it was or wasn't asked, and the demand for action was action oriented.
• Obviously another function here is to  help make it as surely as one can, that the whole claim is not based on a falsehoods.
• Help defeat fraud by insureds.

The last part of the definition of "wrongful act" pertains to an act performed by an insured company, like Dewey?  Perhaps performed by an uninsured?


There is a related phrase, "Interrelated Wrongful Acts."  That need not be attended here.

Now we turn to the definition of "Loss," beginning with a quote:

"Loss" means damages, judgments, settlements or other amounts (including punitive or exemplary damages, where insurable by law) and Defense Expenses in excess of the Retention that the Insured is legally obligated to pay. Loss will not include:

     (1)     the multiplied portion of any damage awarded by statute;
     (2)     fines, penalties or taxes imposed by law; or
     (3)     matters which are uninsurable under the law pursuant to which this policy is construed.

Note: It is agreed that the law of the jurisdiction most favorable to the insurability of punitive or exemplary damages shall control for the purposes of resolving any issue or dispute regarding whether these damages are insurable under the Policy  If based on the written opinion of counsel for the Insured, punitive damages are insurable under applicable law the Insurer will not dispute the written opinion of counsel for the Insured." [Quote quits here.]

It is important to note that there is a significant exceptions or exclusion built into the definition.  Insureds bear the burden of proof with respect to exceptions, if they are exclusions in disguise, so it will be important for the insurer to avoid the phrase "will not include" as part of what counts of damages and is not an exclusion. The interests of the insured are the opposite.

As with "Wrongful Act," there a number of semantic-based an/or implied-problems in the definition of "Loss":

• What kinds of punitive or exemplary damages are insurable under the law of a given state?
• Are punitive damages and exemplary damages always the same?
• What constitutes "reasonable legal fees"?  [There are disputes as to this; indeed; these disputes  are quite often in policies like this one.]
• What constitutes "legal expenses"?  And how are the reasonable ones decided?  [The last two problems are especially "designed" for dealing with issues when the insured is handling the defense (though often being  "supervising" by insurer retained counsel) but must have the insurer's consent, which must not be unreasonably withheld.  Must the insurer's consent come before or after the job is undertaken and/or the expenses have been incurred and/or made?]
• What constitutes "Legal Expenses"? [Remember:  Legal fees and legal expenses are both included within the definition of "Legal Expenses."

Turning now to legal fees, other matters regarding and allocation:

• The definition of "Legal Expenses" excludes "overhead." [There will be arguments about what that term means.] 
• What if the insurer asserts that some parts of a loss are covered and some are not but asserts that they are all covered, or that a greater fraction are covered? [This is to be handled when the policy required that the two of them "will use their best efforts to determine a fair and appropriate allocation of [the] loss. . . .]
• What does "best effort" mean here?
• Is there a possibility of insurer bad faith here? Is there a possibility of contract dispute over whether there has been good faith on both sides?
• "Upon the written request of an Insured, the Insurer will advance Defense Expenses. . . " [subject to various qualifications].  How is all this figured?
• Any written request?
• Include reasonable arguments?
• Arguments = justifications?
• At what stage are they paid?  How long?
• What is "advance"?
• Including legal fees?  [Keep in mind that legal fees can be correctly perceived as excessive.  What if counsel announces its withdraw, if the fee is not paid up and the threat will actually happen?]
• How quickly must the insurer act?
• And so forth.

Section III entitled "Exclusions," contains a myriad of them. They will only be referenced here"

• Some "actually or alleged bodily injury, sickness, mental anguish, emotional distress, libel, slander. . . [plus some exceptions.]"  [These are not included in many E & O policies.]
• Pollution [plus some exclusions. One wonders about discussions, etc. up to the pollution events.]
• ERISA violations
• Previously existing lawsuits
• Previous "Wrongful Acts."
• Some timing, types of notice and insurance for previous claims 
• Claims against any Insured Person "brought about or contributed in fact by any (1) intentionally dishonest, fraudulent or criminal act or omission or any willful violation of any statute, rule or law; of (2) profit or remuneration gained by any Insured to which such Insured is not legally entitled; as determined by final adjudication in the underlying case or proceeding."  This is an extremely important exclusion. It explicitly invokes the virtually universal characteristic, to wit: fortuity. 
• The great advantage to those who are insured is that the carrier will pay defense costs until final adjudication.
• The Insured included both an Insured Person and the Company.  [Conjunctions usually mean "both." Would that rules of grammar apply here?]

And there are a whole raft of other exclusions, characteristic of insurance contracts like this one. What I've set forth is enough to give the reader an idea of what the whole list is going to look like.

VI. General Conditions.  Virtually all--or Absolutely All--have a section entitled this, or something like it.  (And if they don't have a section with such a title, many or most of its usual contents will be found somewhere in the policy.)  My review of the exclusions will involve merely phrase and subsection designations, since the contents of this section are so well known.  There will be a tiny amount of brief explanation below.  Here are their names:

• A. Notice: Timely v. Late--Starting from when.
• B. Interrelated Claims
• C. Other insurance: implications in  come categorize of cases
• D. Merger and Acquisitions:  What happens if. . . .
• E. Cancellation and Renewal
• F. Optional Extension Period
• G.  Assistance, Cooperation, and Subrogation
• H. Exhaustion [of Coverage]
• I. Representation Clause
• J. Action Against the Insurer, Assignments, and Changes to the Policy
• K. Authorizations and Notices
• L. Entire Agreement

Perhaps a little bit needs to be said about some of these.

• B. How one wrongful act and another related wrongful act are to be treated.
• G. This is frequently the most important condition (if that's what it is as opposed to a covenant, i.e., "mere" promise in the contract. "Assistance" means help upon reasonable request, e.g., by providing documents. "Cooperation" means roughly the same thing, so far as I know, and I have never seen a case turn on a suggestion that there was a distinction. Subrogation roughly means that an insurer that pays for a loss, can obtain a judgment in its favor from whoever or whatever non-insured was actionably involved in causing the loss for which the insurer has paid. The insured has a duty to cooperate in this lawsuit even if the insurer has paid it. 
• H. What happens when the insurer has spent its limits.
• I. Statements in the application, etc., are true, comprehensive, and nothing relevant is kept secret.
• J. The insurer's consent is required. This is usually not enforced as to suits by the insured itself.  It is enforced as to an insured assigning the policy. Policy terms do not change unless the insurer itself consents