Insurance coverage

Practical advice: always look for hidden treasure – a class action insurance coverage checklist

When a company learns that it is the subject of a class action lawsuit, insurance coverage may not be a priority, but reviewing the coverage available for the defense and resolution of the case should be a priority. Various insurance policies may provide coverage depending on the underlying claims, even if some of the claims or repairs sought have coverage issues. To ensure businesses are taking full advantage of available coverage and are meeting all notice obligations under insurance policies, it is wise to dust off applicable policies and consult with a coverage advisor.

  • Identify coverages that may apply.
    • Directors and Officers (D&O) Policies: Even for non-securities class action lawsuits, it is worth considering D&O coverage as a potential source of coverage, particularly if the company is private or if an individual director or officer has been named (or may be named) as a defendant.
    • Errors and omissions (E&O) policies: These policies, which provide coverage for claims of alleged negligence or other fault in the provision of services to customers, may be involved in a class action lawsuit alleging that a company failed to has not provided or has misrepresented its services.
    • Cyber ​​Policies: These policies cover class actions alleging, among other things, privacy violations resulting from a data breach or losses resulting from a network outage or service interruption. For some technology companies, this coverage may be provided in the policy containing the errors and omissions coverage mentioned above.
    • General Liability: Covering property damage and bodily injury to third parties, this coverage can be triggered by product liability claims.
  • Determine notification requirements.
    • Insurance policies include notice requirements indicating when the policyholder must notify the insurer of a claim (or potential claim). This notification provision is particularly important when dealing with “claims made” policies such as D&O, E&O and cyber policies where coverage is triggered based on the date of the underlying claim (as opposed to the date of the alleged injury) – to ensure that notice is provided during the current policy period. Insurers often refuse to cover defense costs incurred before notification of a claim, so it is useful to provide prompt notice.
  • Consider the implications of coverage for legal defense decisions and settlements.
    • One of the most valuable coverages provided by triggered policies may be the obligation to defend or the obligation to advance the defense costs of the insurer. But defense coverage often comes with provisions that the insurer may choose defense counsel or must consent to the insured’s choice of counsel, which can lead to early disagreements with the insurer. However, an insurer does not have an absolute right to choose a lawyer, particularly where the insurer has reserved the right to deny cover on certain matters, so it is important to consult a cover lawyer to find out how to react. .
    • Similarly, it is common for policies to require the policyholder to obtain the consent of the insurer before entering into a settlement or even offering a settlement. If the underlying putative class action lawsuit presents an opportunity for early settlement, it is crucial to notify the insurer and work with a cover attorney to position the settlement for coverage.

Businesses should also keep in mind that even if a class action may not immediately appear to be the type of claim covered by its insurance policy, or even if it appears to be excluded, it may still be covered for defense costs. Indeed, in most policies, the availability of defense cost coverage is determined by the allegations in the complaint and is triggered if any claim in the complaint is potentially covered. This means that even if the main subject matter of the action is a claim which may not be covered, if there is a potentially covered claim somewhere in the complaint, the policyholder may be able to recover the defense costs for the entire action.

In short, insurance coverage exists for the costs associated with class action lawsuits, even if it is not immediately apparent. Businesses invest in insurance coverage to protect against unexpected events, such as facing a class action lawsuit, and they shouldn’t be too quick to overlook the potential benefits that this investment can bring.