Insurance Coverage
APRIL 2004
Insurance Coverage For Inside Corporate Counsel:
A Topic Of Increasing Interest
Historically, inside counsel have been the subjects of
relatively few claims relating to services performed for
their corporate clients.
In a corporate environment dramatically changed by
shareholder litigation, governmental enforcement
actions and corporate scandal, however, inside counsel
increasingly may find themselves targets of significant
potential claims by shareholders, governmental
authorities and other third parties. Recent high profile
examples such as the Tyco and Enron proceedings —
both of which targeted inside legal counsel among
other individuals — underscore the risk. Adding to the
risk are recently promulgated laws and regulations,
including the Sarbanes-Oxley Act, which augment the
duties and responsibilities of inside counsel and may
leave counsel exposed to personal liability and
penalties.
Faced with increasing exposure, companies and their
inside counsel may wish to review their insurance
programs to obtain a better understanding of what
coverage is — and is not — provided and what can be
done to enhance the insurance protection available to
inside counsel.
Although inside counsel may be covered under their
company’s directors’ and officers’ (D&O) liability
insurance policies, coverage under D&O policies
should not be taken for granted. For example, inside
counsel may not qualify as an “insured” person under
the policy. The definition of “insured” varies from
policy to policy and potentially may cover inside
counsel only if they are “officers” of the company.
Assuming inside counsel are insured persons entitled
to the coverage afforded by a D&O policy, moreover,
coverage for liabilities arising out of legal work may
nonetheless be excluded under the so-called
“professional services” exclusion contained in some
D&O insurance policies. Such exclusions may exclude
coverage for losses in connection with claims arising
out of, based on, or attributable to an insured’s
performance of professional services, including the
rendering of legal advice.
In addressing these and other potential coverage issues,
it is important to remember that D&O insurance
policies vary substantially from insurer to insurer.
Each insurer has its own D&O forms, and many insurers
are willing to make modifications to those forms.
Companies may seek to expand the definition of
insured to expressly include inside corporate counsel,
for example, and to incorporate an appropriate
carveout to the professional services exclusion.1
Not surprisingly, while insurers generally are seeking
to restrict the coverage available to inside counsel
under D&O policies, insurers simultaneously have
begun to market specialized “supplemental” insurance
coverage for inside corporate counsel. This trend
1 In addition to the coverage potentially afforded under D&O policies, inside counsel may be covered under other
corporate policies, including but not limited to general liability policies and umbrella policies.
Kirkpatrick & Lockhart LLP
continues what has long been a common marketing
practice of insurers, i.e., cutting back on broad
insurance coverages and using such cut backs as a
basis for marketing specialized insurance products.
This trend is illustrated by the marketing of specialized
pollution insurance in the 1980s, specialized
employment practices insurance in the 1990’s and
specialized D&O insurance in recent years.
Nonetheless, to the extent D&O coverage is not
sufficient to cover exposures of inside counsel,
companies may wish to consider the potential benefits
of purchasing supplemental insurance, such as
employed lawyers professional (ELP) liability
coverage. ELP coverage is similar to D&O coverage,
but specifically covers inside corporate counsel,
including non-officers. Like D&O coverage, ELP
coverage generally is written on a “claims made” basis
and affords both “Side A” coverage for nonindemnified loss and “Side B” coverage for loss
indemnified by the company. Also similar to D&O
coverage, ELP policies may cover an insured’s “loss”
resulting from “claims” for “wrongful acts” as such
terms are defined in the policy. EPL coverage may be
written to cover claims brought by shareholders,
actions initiated by the SEC and other regulatory
authorities, employment practices liability, and other
exposures. Coverage may encompass, for example, the
following types of exposures:
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proceeding[s] for monetary, non-monetary or injunctive
relief” and “civil, administrative or regulatory
investigation[s] … by the SEC or a similar state or
foreign government authority.” “Wrongful acts” are
defined to include “negligent act, error, omission, breach
of duty, misstatement or misleading statement.”
Coverage in a particular case of course will depend on
the actual facts of each case and the terms, conditions
and exclusions of each individual policy.
At a minimum, companies and their inside counsel may
find it prudent to take a close look at the specific
language of their D&O policies to better understand the
available insurance coverage and what can be done to
minimize efforts by insurers to reduce the coverage
claims by non-client third parties
SEC and regulatory claims, including violations
of the Sarbanes-Oxley Act
employment-related claims—including
discrimination, harassment or wrongful termination
cases arising out of an inside counsel’s legal work
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claims arising out of pro bono representations
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legal licensing proceedings
By way of example, one ELP specimen form covers
“amounts … [corporate counsel] is legally obligated to
pay as damages arising from any claim made against
such [corporate counsel] for wrongful acts.” The form
defines “claim” to include, among other things,
securities claims (as defined in the policy), “civil
THOMAS M. REITER
treiter@kl.com
412.355.8274
ROBERTA D. ANDERSON
randerson@kl.com
412.355.6222
The Insurance Coverage practice group at Kirkpatrick & Lockhart LLP
is one of the nation’s largest policyholder-oriented practices. Its
attorneys have authored Policyholder’s Guide to the Law of Insurance
Coverage and edited the Journal of Insurance Coverage.
FOR ADDITIONAL INFORMATION about these issues,
please consult any of Kirkpatrick & Lockhart’s office
contacts listed below:
National
Boston
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Harrisburg
LosAngeles
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Newark
New York
Pittsburgh
San Francisco
Washington, D.C.
Peter J. Kalis
John M. Edwards
Robert Everett Wolin
Carleton O. Strouss
David P. Schack
DanielA. Casey
Anthony P. La Rocco
Peter J. Kalis
Thomas M. Reiter
Edward P. Sangster
Matthew L. Jacobs
412.355.6562
617.261.3123
214.939.4909
717.231.4503
310.552.5061
305.539.3324
973.848.4014
212.536.4828
412.355.8274
415.249.1028
202.778.9393
pkalis@kl.com
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rwolin@kl.com
cstrouss@kl.com
dschack@kl.com
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pkalis@kl.com
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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.
© 2004 KIRKPATRICK & LOCKHART LLP.
ALL RIGHTS RESERVED.