C L A I M D E N I E D November 2002 A publication of the - - PDF document

C L A I M

D E N I E D

November 2002

A publication of the Lowenstein Sandler Insurance Law Practice Group

T

he word "January" comes from the two headed Roman god Janus, who looked backward and forward at the same time. After four years of publishing Claim Denied, we take the editorial privi- lege of stepping back to view where we have been and where we are going.

The Hard Market

The biggest insurance concern for most of our clients is the hard

• market. This market results from

what the insurance community sees as the perfect storm - the World Trade Center tragedy coupled with the rapid decline in the stock market. How much of the current rate increases result from these factors is unclear. Insurance companies seem gleeful as they raise rates to compensate for their own past underwriting failures; it appears that the insurance industry wants to compensate itself for ten years of a soft market all at once. As lawyers, we are seeing the hard market translate into a closed fist when it comes to claims handling. Across the board, insurance companies are first delaying, then denying, claims that are not even debatable. As discussed below, this is particu- larly true in areas such as asbestos and directors and officers claims, where the insurance industry fore- sees tremendous losses in the immediate future. However, we are witnessing this "no pay" atti- tude across the board. In the past, Lowenstein Sandler has always prided itself as not necessar- ily viewing the insurance industry as “the dark side,” and in trying to negotiate reasonably and in good faith. We now question the efficacy of these efforts, and find

• urselves advising clients more

quickly to file complaints and seek the earliest possible trial dates as the only way of obtaining settle- ments from insurers.

Bad Faith Claims Handling

The insurance industry’s “no pay” attitude will also result in more allegations of bad faith. Once again, Lowenstein Sandler has never loosely thrown around alle- gations of bad faith. However, we are increasingly witnessing sit- uations where insurers do not even try to justify their failure to pay claims. While New Jersey bad faith law is underdeveloped compared to the law in other states, we view bad faith as an increasingly viable component of many coverage litigations.

This document is published by Lowenstein Sandler PC to keep clients informed about current issues. It is intended to provide general information only.

A L D

The Current Insurance Picture: Hard Markets, Closed Fists

by Robert D. Chesler, Esq.

Asbestos

The insurers “no pay” stance comes at a time of rising lia- bilities for many policyholders. Chief among these is asbestos. As the initial wave of asbestos defen- dants has entered bankruptcy, com- panies that never before viewed themselves as asbestos targets are receiving multiple claims. Any company that distributed or sold a product that contained asbestos may now be a target. Further, there is a rise in ‘premises claims’, in which electricians and other contractors are suing the owners of any places of business where they worked in the past, claiming workplace exposure to asbestos. The best and most immedi- ate advice for any company that views itself as a potential asbestos defendant is to locate its old insur- ance policies. If a worker claims exposure to asbestos in 1950, all policies from 1950 to the present may provide coverage. In this regard, New Jersey has uniquely complicated rules on which poli- cies must respond, and for how much, when an asbestos claim trig- gers numerous consecutive policies. Because of this complexity, it is easy for an insurance company upon receiving notice of an asbestos com- plaint to admit liability, but then to assert that it should pay only a minimal share of defense fees and

• settlement. Policyholders can only
• btain the maximum share of

asbestos defense and indemnity costs from their insurers by know- ing their past insurance history and mastering the rules of allocation.

The D&O Marketplace

Asbestos and similar lia- bilities involve claims against insurance policies issued many years ago. Claims against directors and officers arise under current policies. Unfortunately, just as social and economic developments are resulting in a mushroom cloud of D&O claims, the D&O marketplace has become perhaps the hardest of any type of insur-

• ance. Companies cannot get the

limits they need, and favorable pol- icy provisions introduced during the last decade as insurers fought for market share have now largely disappeared. Moreover, existing D&O insurance policies

• ften

provide less protection than expected. For example, D&O policies contain an “insured v. insured” exclusion. This means that there may be no cover- age for a claim brought by a for- mer director or officer, precisely the type of claim many companies are now seeing. Many D&O policies have added the company itself as an insured under the policy. This progressive measure has now backfired, as bankruptcy trustees claim the insurance policies as corporate assets of the bankruptcy

• estate. Shareholders and creditors

also claim rights under these poli- cies, and in Enron’s case sought to prevent the D&O insurer from pay- ing the attorneys fees of the direc- tors and officers. As our society grapples with changes in corpo- rate governance, the insurance industry must also respond by offer- ing D&O policies that provide true protection.

Is the Umbrella Full of Holes?

The holes in D&O cover- age are symptomatic of coverage gaps across the insurance portfolio. The World Trade Center catastro- phe focused attention on business interruption policies. We have uniformly found that those policies provide much less coverage than anticipated. The insurance industry’s cutbacks on the coverage provided by the general liability policy have tremendously limited the useful- ness of those policies. Most poli- cyholders are aware that the gener- al liability policy does not cover employment torts, and that an employment practices liability

“. . . existing D&O insurance policies often provide less protection than expected.”

insurance policy is necessary. Most policyholders are also aware that their policies do not provide any pollution coverage, but only a minority know of the wide range of environmental insurance policies now available in the marketplace. As to intellectual property, com- puter and Internet liabilities, many companies are not even aware that they have at best extremely limited coverage, or that they may need new insurance products to counter that exposure. All of the above trends placed increased responsibility on brokers, consultants and risk man-

• agers. The standard coverage is no

longer the best coverage. The unifying theme of all

• f these trends is that policyholders

now more than ever, need an insur- ance advocate well versed in cover- age law and the practicalities of the insurance industry. Lowenstein Sandler remains prepared to serve the insurance litigation and coun- seling needs of its clients. For more information regarding this or any other insurance cover- age issue, please contact Robert D. Chesler, Chair of the Insurance Law Practice Group, at 973.597.2328

• r

at rchesler @lowenstein.com, or you can visit

• ur Insurance Outpost website at

www.insurance-lowenstein.com.

www.insurance-lowenstein.com

Robert D. Chesler, Chair of Lowenstein Sandler’s Insurance Law Practice Group, spearheaded the development of the Insurance Outpost. If you have any questions, please contact Robert D. Chesler at 973-597-2328 or rchesler@lowenstein.com.

L

65 Livingston Avenue Roseland, New Jersey 07068-1791 Telephone 973.597.2500 Fax 973.597.2400 www.lowenstein.com

G

...finally, an online insurance coverage resource for New Jersey businesses.

Visit www.insurance-lowenstein.com, the online resource dedicated to your insurance coverage needs.

• Read about developments that impact corporate policyholders
• Request articles on how to minimize your risks
• Receive practical tips for pursuing insurance coverage claims to

successful resolution

• Learn about controversial court decisions that change the way

insurance companies handle claims

• Access the site’s library of insurance coverage materials
• Submit questions to legal professionals
• Register to attend insurance-related events

J

Insurance Law Practice Group 65 Livingston Avenue Roseland, New Jersey 07068

FIRST CLASS MAIL US POSTAGE PAID ROSELAND, NJ PERMIT #17

THE NEW JERSEY INSURANCE COVERAGE INSTITUTE

Presents:

Handling D&O Insurance Claims in the Post-Enron Era

December 5, 2002 8:00 - 11:00 a.m. Park Avenue Club, Florham Park Topics Include: The D&O Scorecard: Enron, Worldcom, Global Crossing, et al Understanding the D&O Policy Your D&O Insurer: Ally or Enemy Whose Policy Is It? D&O Insurance and Bankruptcy Surviving the D&O Hard Market

To register, please contact Karen Cerreto at 973.422.6466,

• r by email to kcerreto@lowenstein.com.