Insurance Coverage Insurance Coverage for Investigations and Demands of State Attorneys General

advertisement
SEPTEMBER 2005
Insurance Coverage
Insurance Coverage for Investigations and
Demands of State Attorneys General
The CEO forwards to the general counsel a document
just received from the state attorney general’s office.
Styled a “Civil Investigation Demand” (“CID”), the
document starts with an alarming assertion: the State
has determined that the company may have engaged
in illegal and anti-competitive conduct for many
years in the conduct of one of its core businesses.
The CID goes on to demand an astonishing array of
highly confidential, proprietary, and, in some cases,
privileged documents. The risks to the corporate
interest are substantial and are immediately evident:
■
the cost of responding to these demands;
■
the diversion of precious internal resources;
■
the risk of negative publicity as befell companies
and industries that have had the misfortune to be
subjected to other coercive actions initiated by
prominent state attorneys general; and
■
perhaps most ominously, the risk that the CID
could be but a precursor to an onslaught of claims
brought by the plaintiffs’ bar.
This “hypothetical” is based on a reality experienced,
unfortunately, by an increasing number of business
organizations, including companies in the utility,
petroleum, chemicals, retail, healthcare, housing,
technology and entertainment industries.
Virtually every day, through the issuance of CIDs,
state attorneys general are making highly intrusive
demands on corporations throughout the country. As
corporations develop their responses, a sometimes
overlooked component of the overall corporate
strategy is the corporate insurance asset.
A corporation’s insurance contracts may well afford
significant financial protection against the costs
flowing from a CID. But just as was the case with
other government efforts to fasten liability on
corporate America — for example, the Superfund
enforcement initiatives — these potentially valuable
insurance rights must be properly preserved and, if
necessary, aggressively pursued.
This Alert explains how common types of insurance,
general liability insurance and errors and omissions
insurance, may respond to CIDs.
INSURANCE COVERAGE THAT
MAY RESPOND TO CIDS
General Liability Insurance
The starting point in any insurance review should be
the company’s general liability policies in effect at
any time during the period potentially implicated by
the CID. While their terms vary, most general liability
insurance policies expressly cover, among other
things, “advertising injury” and “personal injury.”
And, a number of judicial decisions have interpreted
general liability policies broadly to cover defense
costs in connection with:
— anti-trust claims
— unfair trade practices and consumer fraud claims
— interference with business and contractual
relationships claims
Importantly, defenses costs—including the costs of
investigation associated with a CID—are covered
under standard-form CGL policies so long as there is a
potential of coverage under the policy. In most
jurisdictions, an insurer must provide a defense of an
entire claim, if any part of the claim is potentially
covered. Application of these rules may well support
an argument that the insurer must cover defense costs
incurred as a result of the issuance of a CID. Indeed,
one of the most frustrating aspects of many CIDs —
their breadth and sweeping assertions of potential
liability — may actually aid the corporate
policyholder seeking defense cost coverage under the
foregoing legal principles.
Corporations, however, should expect that some
insurers will dispute their defense obligation on the
purported basis that (i) under the terms of the
insurance policy, the defense duty is not triggered
until there is a formal lawsuit, and (ii) a CID is not a
“suit” within the meaning of the policy. To date, there
appears to be little, if any, reported law addressing this
issue in the context of a CID. However, policyholders
may draw substantial support through judicial
decisions addressing whether a policyholder’s receipt
of a “potentially responsible party” letter from a
governmental authority proceeding under the
Superfund Act and similar statutes constitutes a “suit,”
thereby triggering the insurer’s duty to defend under
CGL insurance policies.
Although the case law is split, the majority rule is that
a PRP letter does activate the insurer’s defense duty.
These majority decisions often explain that a PRP
letter is the functional equivalent of a lawsuit; i.e., it is
adversarial, coercive, triggers significant obligations
on the part of the policyholder and, if ignored, can and
will seriously impact the policyholder’s rights and
could open the policyholder to significant liability to
the governmental agency from which the demand was
issued. The same holds true for a policyholder
subjected to a CID, and accordingly, this reasoning
may support the position that a CID likewise triggers
an insurer’s defense duty.
Errors and Omissions Insurance
Errors and omissions or professional liability
insurance policies (collectively “E&O” policies),
typically cover claims arising out of acts, errors or
omissions in the provision of professional services, as
defined in the policies. Such policies often expressly
cover “investigations” and do not require
policyholders to satisfy the “personal injury” or
“advertising injury” definitions found in general
liability policies. While many companies do not
purchase E&O coverage, many business
organizations, e.g., financial institutions, health care
providers, pharmaceutical companies, do.
Accordingly, E&O coverage may also be a valuable
source of protection.
CONCLUSION
Coverage in a particular case will of course depend on
the actual facts of each case, the terms, conditions and
exclusions of each individual policy, and the
applicable law. Companies receiving a CID may find
it prudent to examine their insurance programs and
evaluate what coverage may be available, what can be
done to enhance the protection provided, and what
can be done to minimize efforts by insurers to reduce
the coverage. It is important to note that the insurance
policies may impose certain conditions that, if
breached, will result in a loss of coverage, according
to insurers.
Thomas M. Reiter
treiter@klng.com
412.355.8274
Roberta D. Anderson
randerson@klng.com
412.355.6222
2 SEPTEMBER 2005
KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP
If you have questions or would like more information about K&LNG’s Insurance Coverage Practice,
please contact one of our lawyers listed below:
International Contact
Boston
Dallas
Harrisburg
London
Los Angeles
Miami
Newark
New York
Pittsburgh
San Francisco
Washington
Peter J. Kalis
John M. Edwards
Robert Everett Wolin
Carleton O. Strouss
John Magnin
David P. Schack
Daniel A. Casey
Anthony P. La Rocco
Peter J. Kalis
Thomas M. Reiter
Edward P. Sangster
Matthew L. Jacobs
pkalis@klng.com
jedwards@klng.com
rwolin@klng.com
cstrouss@klng.com
jmagnin@klng.com
dschack@klng.com
dcasey@klng.com
alarocco@klng.com
pkalis@klng.com
treiter@klng.com
esangster@klng.com
mjacobs@klng.com
+1.412.355.6562
+1.617.261.3123
+1.214.939.4909
+1.717.231.4503
+44 (0) 20 7648 8168
+1.310.552.5061
+1.305.539.3324
+1.973.848.4014
+1.212.536.4828
+1.412.355.8274
+1.415.249.1028
+1.202.778.9393
Fax
Fax
Fax
Fax
Fax
Fax
Fax
Fax
Fax
Fax
Fax
Fax
+1.412.355.6501
+1.617.261.3175
+1.214.939.4949
+1.717.231.4501
+44 (0) 20 7648 9001
+1.310.552.5001
+1.305.358.7095
+1.973.848.4001
+1.212.536.3901
+1.412.355.6501
+1.415.249.1001
+1.202.778.9100
www
.klng.com
www.klng.com
BOSTON DALLAS HARRISBURG LONDON LOS ANGELES MIAMI NEWARK NEW YORK PALO ALTO PITTSBURGH SAN FRANCISCO WASHINGTON
■
■
■
■
■
■
■
■
■
■
■
Kirkpatrick & Lockhart Nicholson Graham LLP (K&LNG) has approximately 950 lawyers and represents entrepreneurs, growth and middle market
companies, capital markets participants, and leading FORTUNE 100 and FTSE 100 global corporations nationally and internationally.
K&LNG is a combination of two limited liability partnerships, each named Kirkpatrick & Lockhart Nicholson Graham LLP, one qualified in Delaware, U.S.A.
and practicing from offices in Boston, Dallas, Harrisburg, Los Angeles, Miami, Newark, New York, Palo Alto, Pittsburgh, San Francisco and Washington and
one incorporated in England practicing from the London office.
This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied
upon in regard to any particular facts or circumstances without first consulting a lawyer.
Data Protection Act 1988 - We may contact you from time to time with information on Kirkpatrick & Lockhart Nicholson Graham LLP seminars and with our
regular newsletters, which may be of interest to you. We will not provide your details to any third parties. Please e-mail cgregory@klng.com if you would
prefer not to receive this information.
© 2005 KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP. ALL RIGHTS RESERVED.
Download