Insurance Coverage for Wage & Hour Claims Arising Out of Superstorm Sandy

By Barry I. Buchman, Kami E. Quinn, and Jason S. Rubinstein

Although the full scope of Superstorm Sandy’s financial impact will not be known for some time, there is little debate that Sandy will go down in history as one of the nation’s most costly natural disasters.  In fact, many experts already estimate total losses in excess of fifty billion dollars.

In the aftermath of Sandy, businesses undoubtedly will focus on restoring operations as soon as possible.  Indeed, their insurers will argue that businesses have a duty to do so, in order to mitigate business interruption losses.

It is likely that such efforts will necessitate asking employees to work overtime.  Among other things, the process could involve the reorganization of work schedules and/or increased telecommuting. 

During this process, businesses must ensure that they do not inadvertently violate state and/or federal wage and hour laws (note: state and federal wage and hour laws often differ — with states sometimes imposing stricter obligations on companies than those imposed by federal law).  See, e.g., Abigail Rubenstein, Employers Can’t Ignore Wage Laws In Hurricane Sandy’s Wake, Law360, Nov. 1, 2012.  Failure to adhere to applicable wage and hour laws could result in litigation and/or government investigation down the road.

The cost of paying this overtime could be a significant cost item for businesses already struggling to rebuild from the storm.

Fortunately, commercial property insurance can help companies mitigate the expense of complying with wage and hour law in difficult times.  Most first-party commercial property insurance policies provide coverage for the increased expense to a business in compensating employees in the days and weeks following covered property damage.  This coverage is usually called “extra expense” coverage.  The purpose of extra expense coverage is to compensate businesses for the reasonable and necessary expenses that they incur after a loss to help minimize the business interruption caused by the loss.  The costs include expenses that companies incur to continue operations or to resume operations more quickly than they would have otherwise.  In this way, it benefits both the company, by allowing it to resume operations more quickly, and the insurer that would otherwise be responsible for the business interruption loss. 

Overtime pay for employees that are required to work additional time due to a covered loss is exactly the type of extra expense that often is covered by these policies.  Therefore, companies should analyze their policies, potentially with the help of an insurance professional, and keep careful records of wage expenses incurred that are related to getting the business back on its feet.  These expenses should be submitted to the insurer for payment.

Sometimes, however, even with the best intentions and efforts, wage and hour violations still can occur.  Fortunately, in the event that wage and hour litigation and/or a government investigation nevertheless develops, companies may find coverage for such claims under their employment practices liability coverage, or under their directors and officers insurance policies that include an employment practices liability coverage component.  For a more detailed discussion of insurance coverage for wage and hour claims, please see our prior article on the topic, Rethinking Common Wisdom of ‘Wage And Hour’ Insurance, Law360, May 2012.

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Jonathan Cohen to Speak at GMA Litigation Webinar on December 5th

Developed by GMA experts, this webinar,  Current Issues and Trends in Social Media, Supply Chain Litigation and Foodborne
Illness Outbreaks, will address current litigation “hot topics” in the food, beverage, and CPG industry. Attendees will gain valuable insights on social media and how it relates to litigation, supply chain risks and litigation, and will receive an update on foodborne illness outbreaks. Jonathan Cohen will host a discussion on The Weakest Link: Supply Chain Resilience, Risk and Litigation.  He will dicuss how companies can address changing supply chain risks and the availability of insurance and other financial products to address those risks.  the webinar will take place on December 5, 2012.  For more information, or to register for this webinar, please click here.

Hurricane Sandy – How Insurance Can Help Cover Businesses’ Costs To Rebuild

By Jonathan M. Cohen and Barry I. Buchman

With Hurricane Sandy only days in the past, many businesses already are beginning to rebuild and start the process of recouping the losses they sustained.  Many of these businesses will find that insurance that they already own may pay for some or all of their losses.

Hurricane Sandy no doubt will go down in history as one of the Nation’s most costly natural disasters.  Some experts already have estimated that property damage alone could be measured in the tens of billions of dollars.  News reports show that companies across New York, New Jersey, and other affected states suffered severe property damage and lost profits from interruptions in their businesses.  The ripple effects could cost businesses billions of dollars more.  Companies all around the country and the world could be affected as their critical supply chains are cut off or disrupted.

Depending on the circumstances and the insurance those companies purchased, insurance may help businesses nationwide to recover hurricane-related losses.  For companies directly affected by the storm, first-party property policies might cover losses resulting from damaged buildings, vehicles equipment, inventory, records, and other property.  Typically, first-party property policies provide broad coverage for damaged or lost property so long as the cause of damage is a “covered cause of loss.”  And, typically, modern first-party property policies include all risks of loss as covered causes, absent express policy language to the contrary.  Although some businesses’ property policies may exclude or limit coverage for damage caused by floods, many policies contain broad flood coverage.  Moreover, even if policies exclude coverage for floods, losses resulting from wind damage or other storm-related harms (such as a resulting fire or power interruption) still may be covered.

Affected companies also may be covered for lost profits that result from damage to covered property.  For companies directly affected by the hurricane, business interruptions may result as the companies attempt to rebuild or reopen.  “Business interruption” coverage provides protection against these types of losses by paying for lost profits resulting from damage to a company’s own facilities.  Policies also may cover the extra expenses that a company sustains in addressing the impact of the Hurricane, such as the costs of shifting production away from a damaged plant to other facilities.  Many policies also cover interruptions caused by:  (a) government-ordered closures, (b) blockages that prevent ingress or egress to a company’s facilities, and (c) damage to other entities that supply critical services to a company, such as electricity, gas, or water.

Because Hurricane Sandy affected some of the country’s most significant economic and manufacturing centers, closed important sea ports and airports, and disrupted important highways and seaways over a broad swath of the Northeast, businesses well outside of the hurricane’s path could sustain losses.  For instance, thousands of companies rely on other companies in the directly affected area for supplies of parts, ingredients, or services.  Because the hurricane may disrupt those supplies, companies outside of the affected area could be unable to produce their own products or services or might incur extra expenses to find alternative suppliers or supply routes.

Some of these companies that sustain losses because of supply chain disruptions also may have coverage to help pay for these losses.  Many first-party property policies contain coverage for “contingent business interruptions” – that is, lost profits resulting from the inability to get materials from a supplier or to sell its products to a customer due to property damage sustained by that supplier or customer.  Many such policies also pay for extra expenses to defray the increase in costs sustained to replace an affected supplier or circumvent a blocked supply route.  Some of these contingent business interruption provisions may even provide coverage based on damage to indirect suppliers and customers.

Regardless of which type of loss and coverage a company may need to address, there are four simple steps that most companies can take to maximize their insurance recoveries.

  • First, businesses should collect, organize, and review their insurance policies.  This process should include an effort to identify and obtain policies issued to other businesses, such as current and former affiliates, that also may provide coverage.
  • Second, most property policies require policyholders to provide notice of potential claims and to submit “proofs of loss” quickly, and these policies also often have express deadlines for when any lawsuit against the insurer must be brought if there is a dispute.  These deadlines can be very tight, often requiring businesses to take significant actions within as little as 30 days or less.   It therefore is critical that businesses promptly give at least precautionary notice, absent contrary business reasons, to all of their insurers under all potentially triggered policies.  Then, businesses should consider approaching their insurers about postponing or tolling any other deadlines by agreement.  Insurers in these circumstances often are willing to agree to extensions of these types of deadlines.
  • Third, businesses should carefully document their damages and losses, including property damage, lost revenues, and additional expenses.  If they do not already have protocols in place for tracking this information, companies immediately should put them into place and follow their protocols carefully.  Because the way that a company characterizes these damages and losses can matter if an insurance dispute arises, companies should consider involving their legal departments and insurance counsel in preparing and implementing appropriate protocols.
  • Fourth, because of the complicated coverage questions and potential procedural traps in successfully making insurance claims, businesses should consider consulting with experienced professionals early in the process, including insurance brokers, accounting consultants, and coverage counsel.  By doing so, companies can avoid common pitfalls in preparing a potential coverage claim and can be prepared to respond to insurer inquiries or coverage denials.

The coverage provided by a business’s insurance policies can be an important and valuable tool in paying for the losses and costs resulting from Hurricane Sandy.  Companies can maximize the benefits of their insurance, and minimize the likelihood of protracted disputes later, by acting proactively now to assess and preserve their rights.

Food Companies May Have Insurance Coverage For Lost Profits Due To Hurricane Sandy, Even If They Are Well Outside Of The Directly Affected Area

By Jonathan M. Cohen

Hurricane Sandy was a major event that caused companies in all sectors to incur direct property damage and massive losses because of interrupted business operations.  The direct costs of the storm have been estimated at as much as $20 billion for property damage and $10-30 billion more for lost profits deriving from business interruptions.  What has been less widely discussed, though, is that companies well outside of the directly affected areas may lose millions of dollars in profits because they cannot deliver their products to customers in the affected area.  This problem is particularly acute for food companies, where products may have short shelf lives and regular delivery schedules.

For example, media articles have stated that supermarkets in affected areas now are reopening, but that deliveries of food supplies have been interrupted and many consumers have been unable to get to supermarkets that are open. Still, many other stores remain without power and thus remain closed.  While some supermarket chains have limited supplies of back-up generators, large supermarket chains have had to make choices about which of their many stores that remain without power should receive generators.  Meanwhile, food manufacturers have had to hold products that otherwise would have been delivered and sold.

Most food companies have insurance coverage that may protect against some of the lost profits or spoiled inventory due to property damage or business interruptions of their customers, or even to the ultimate consumers.  Many property policies, which most food companies maintain, cover “contingent business interruptions.”  This coverage pays for lost profits and extra expenses incurred due to property damage sustained by a company’s customers.  Many policies limit contingent business interruption coverage to situations where the customer’s property damage or business interruption would itself trigger the policy’s property damage or business interruption coverage.  This condition may not significantly limit coverage, though, because many business property policies provide coverage for disruptions caused by both floods and wind.  Many of these policies cover contingent business interruptions even where the contingent business interruption resulted from disruptions at an indirect customer, potentially including retailers and even consumers.

A related problem for food companies is that many ingredients are manufactured in affected areas.  If a food company cannot obtain ingredients, or must pay more to get alternative supplies of that ingredient, that too may be covered under contingent business interruption and related coverages.  Indeed, even if a food company incurs increased shipping costs because of the storm (such as needing to circumvent closed ports or snowed-under roads), there may be coverage under the property policy’s extra expenses provisions.

Food companies that do business in the directly affected area should pay careful attention to whether they incur lost profits due to storm damage to their customers.  If they have such losses, food companies should review their policies carefully and take all necessary steps to preserve and pursue their coverage.

For more information, click here for our alert on Sandy-related coverage issues, or contact Jonathan Cohen at cohenj@gotofirm.com or at (202) 772-2259.

What Gilbert LLP Wants You To Know About Insurance Coverage For Superstorm Sandy

Insurance coverage may be available for companies both within and outside of the directly-affected area.

Superstorm Sandy no doubt will go down in history as one of the Nation’s most costly natural disasters.  Some experts already have estimated that property damage alone could be measured in the tens of billions of dollars, and companies both inside and outside of the directly affected area may sustain costly business interruptions or may be unable to obtain the supplies they need to keep their businesses operating.  Many companies, both in the directly-affected area and those whose supply chains or customers have been disrupted, may be able to recover insurance to help them rebuild, even if those companies have not actually sustained any property damage.

If you have sustained direct property damage, Gilbert LLP wants you to know . . . click here for more.

Cyber-Security Issues Receiving Ever-Increasing Attention, Including From Congress and Governmental Agencies

By Barry Buchman and Adrian Azer

On the heels of a recent survey that found that cyber-security is becoming the primary concern of corporate general counsels and directors, see C. Dunn, Cybersecurity Becoming No. 1 Concern for GCs and Directors, Corporate Counsel, Aug. 15, 2012, the United States government is increasingly taking an active role in addressing cyber-security issues.

On September 19, 2012, Senator John D. Rockefeller IV – Chairman of the U.S. Senate Committee on Commerce, Science and Transportation – sent a letter to the chief executive officers of all Fortune 500 companies addressing the need for better cyber-security measures and requesting their active involvement in developing such measures.  Senator Rockefeller stated that “the cyber threats we face are real and immediate, and Congress’s failure to pass legislation this year leaves the country increasingly vulnerable to a catastrophic cyber attack.”  Moreover, Senator Rockefeller noted that most executives “recognize the gravity of this threat and that their companies would benefit from deeper collaboration with the government.”

Senator Rockefeller’s letter comes on the heels of litigation commenced by the Federal Trade Commission (“FTC”) against various companies based on their alleged failure to maintain appropriate cyber-security measures.  The letter also follows guidance by the U.S. Securities and Exchange Commission (“SEC”) regarding the disclosure requirements for public companies regarding cyber-security risks and breaches.

On June 12, 2012, the FTC commenced a declaratory judgment proceeding against, among others, Wyndham Worldwide Corporation (“Wyndham”), seeking injunctive relief against Wyndham for its failure to “maintain reasonable and appropriate data security for consumers’ sensitive personal information.”  In its complaint, the FTC alleged that Wyndham’s “failure to maintain reasonable security allowed intruders to obtain unauthorized access to the computer networks of Wyndham Hotels and Resorts, LLC, and several hotels franchised and managed by Defendants on three separate occasions in less than two years.”  This lack of adequate cyber-security measures led to “fraudulent charges on consumers’ accounts, more than $10.6 million in fraud loss, and the export of hundreds of thousands of consumers’ payment card account information to a domain registered in Russia.”

Moreover, the FTC commenced enforcement actions against two businesses – EPN, Inc. and Franklin’s Budget Car Sales, Inc. (“Franklin”) – alleging that the businesses illegally exposed “sensitive personal information of thousands of consumers by allowing peer to peer file-sharing software to be installed on their corporate computer systems.”  Specifically, the businesses’ failure to adopt adequate cyber-security measures subjected personal information, such as social-security numbers, to disclosure.  The FTC entered into settlements with both businesses, whereby “both companies must establish and maintain comprehensive information security programs.”  The settlements also bar “misrepresentations about the privacy, security, confidentiality, and integrity of personal information collected from consumers.”

Further, as previously addressed in our article on the availability of insurance coverage for cyber-security incidents, on October 13, 2011, the SEC issued guidance regarding the disclosure requirements for public companies arising from cyber-security risks and breaches.  See Importance Of Procuring Cybersecurity Insurance Coverage, Law360, June 29, 2012.[1]  The SEC noted that, in disclosing cyber-security risks, it would be prudent for companies to include a “[d]escription of relevant insurance coverage.”  See id. (citation omitted).

This increased involvement by the federal government further evidences the importance of cyber-security and protecting against cyber risk through, among other things, adequate insurance coverage.  As noted in our recent article, companies may have several avenues to coverage for losses associated with cyber-security incidents.  Indeed, since we published that article, the Sixth Circuit has issued a pro-policyholder decision regarding coverage for such losses, holding that losses resulting from the theft of customers’ banking information are covered under a commercial crime policy’s computer fraud endorsement.  See Retailer Ventures, Inc. v. Nat’l Union Fire Ins. Co., — F.3d –, 2012 WL 3608432 (6th Cir. Aug. 23, 2012).  This ruling further illustrates that the coverage provided by commercial insurance policies can be an extremely valuable corporate asset to companies dealing with cyber-security issues. Companies can maximize the benefits of this asset by acting proactively to analyze their insurance portfolio now and by being willing to question, and challenge where appropriate, coverage denials from their insurers.

Protecting Your Bottom Line from the Cost of National Association of Securities Dealers and FINRA Investigations

By Rachel Kronowitz and Adrian Azer

When self-regulatory organizations (“SRO”), such as the Financial Industry Regulatory Authority (“FINRA”), commence an investigation or proceeding, member firms are typically concerned with the financial impact that both the defense costs and any ultimate payment obligation will have on their bottom line.  With the United States Second Circuit Court of Appeal’s decision in Fiero v. Financial Industry Regulatory Authority, Inc., 660 F.3d 569 (2d Cir. 2011) that SRO fines are not judicially enforceable, member firms may be able to obtain balance sheet protection from these proceedings through insurance coverage. 

Historically, Errors & Omissions (“E&O”) or Director & Officer (“D&O”) insurance policies excluded coverage for “fines or penalties imposed by law.”  Since Fiero precludes SROs from judicially enforcing their fines, these fines can no longer be “imposed by law” and member firms have strong arguments that insurers must provide indemnity and reimburse them for any defense costs incurred.  

This access to insurance coverage is significant for multiple reasons:  it not only reduces the financial impact of SRO investigations and proceedings, but also negates a significant point of leverage that SROs have when negotiating settlements with member firms.

I.  Overview of Fiero and Its Progeny

In Fiero, the Second Circuit faced the question of whether SROs, such as FINRA, can judicially enforce the collection of fines against member firms.  SeeFiero, 660 F.3d at 574.  The Second Circuit ruled that SROs do not have the ability to judicially enforce their fines under the Securities Exchange Act of 1934 (the “Exchange Act”).  Id. In reaching this conclusion,the Second Circuit noted that Congress intentionally did not provide SROs access to the judicial system to enforce their fines:  Congress “was well aware of how to grant an agency access to the courts to seek judicial enforcement of specific sanctions, including monetary penalties.”  Id. at 575.[1]

Since Fiero, at least one other court has extended the holding in Fiero to preclude an SRO from judicially enforcing its disciplinary fines.  See generallyNasdaq OMX PHLX, Inc. v. Pennmont Securities, 2012 WL 2877607 (Pa. Sup. Ct. July 16, 2012) (“Pennmont”).  In Pennmont, Nasdaq OMX PHLX, Inc. (“Nasdaq”) sought to judicially enforce a fine imposed under Exchange Rule 651 that its member firm – Pennmont Securities – refused to pay.  Id. at 2-4.  In ruling that Nasdaq could not commence a private action to collect on its disciplinary fine, the Pennsylvania Superior Court performed an analysis similar to that of the Second Circuit.  Id. at *16. 

Notably, the court held that Congress “was aware it could authorize judicial enforcement of monetary penalties imposed via disciplinary rules and regulations, including Rule 651,” but Congress “opted to remain silent about whether courts could enforce such monetary penalties.”  Id.  Thus, the court concluded that “we will not imply a private right of action to other sections of the Exchange Act that are silent.”  Id.

II.  Impact of Fiero on Insurance Coverage for SRO Investigations

A significant number of articles have been written about Fiero, noting that the decision “will not have a significant impact on member firms because the prospect of expulsion from the industry provides sufficient incentive to pay monetary penalties imposed by FINRA.”  See Second Circuit Rules FINRA Has No Power to Enforce Disciplinary Fines in Court, Nader H. Salehi (Oct. 6, 2011); see also Second Circuit Court of Appeals Rules FINRA Lacks Authority to Sue to Collect Fines, Joseph D. Simone (Oct. 17, 2011).  Fiero does, however, provide member firms an opportunity to access insurance coverage to protect against the costs of SRO investigations and proceedings.

D&O and E&O policies typically provide coverage for a “claim” (a “written notice, including service of suit or demand for arbitration, received by one or more insureds asking for money or services”) arising out of a “wrongful act” (“any negligent act, error, or negligent omission to which this insurance applies”).  Further, D&O and E&O policies typically provide a duty to defend if the suit seeks damages for loss “to which this insurance applies”: 

We will pay those sums that the insured becomes legally obligated to pay as damages . . . because of negligent acts or omissions committed in the scope of duties as a director or officer . . . which [occur] during the policy period to which this insurance applies. We will have the . . . duty to defend any ‘suit’ seeking those damages.

D&O and E&O policies, however, typically carve out fines from coverage:  “‘Loss’ shall not include . . . Fines or penalties imposed by law.” 

Insurers have argued that they have no obligation to indemnify their insureds for SRO fines and defense costs because any “fines or penalties” would be “imposed by law.”  However, with the issuance of Fiero and Pennmont, member firms have strong arguments that such “fines or penalties” cannot be “imposed by law.”  SeeFiero, 660 F.3d at 574; Pennmont, 2012 WL 2877607, at *16-17.  Moreover, member firms are in a much better position to argue that insurers are obligated to reimburse the member firms for defense costs until such time as a court concludes that SRO fines may be “imposed by law.”  See Fed. Ins. Co. v.Kozlowski, 18 A.D.3d 33 (N.Y. App. Div. 2005); Am. Home Assur. Co. v. Port Auth. of N.Y. & N.J., 66 A.D.2d 269, 278 (N.Y. App. Div. 1979). 

 III.  Member Firms Should Be Proactive In Determining Whether Insurance Coverage is Available To Avoid Out-of-Pocket Expenses

Given Fiero and Pennmont, member firms (especially in-house counsel) should act proactively to determine whether their current E&O or D&O insurance policies provide indemnity for SRO fines and reimbursement of defense costs.  In the event they do not, consider obtaining such coverage when renewing insurance policies.

In addition, if an SRO commences an investigation or proceeding, member firms should promptly provide notice of a potential claim to their insurers.  Failure to provide prompt notice may jeopardize a member firm’s insurance recovery.  Additionally, member firms should notify the insurer regarding the identity of the lawyers who will represent them in the underlying SRO investigation or proceeding.  Member firms should also provide regular updates of the activity in the underlying claim. 

Member firms need to be aware that the wheels of insurance are often slow to turn, and if an insurer denies coverage, that is not the last word.  Member firms should be ready to retain insurance coverage counsel to help guide them through the insurance process.


[1]              For a more detailed discussion of Fiero, please refer to FINRA and the Role of SROs in Enforcing the Securities Laws, 26A Sec. Lit. Damages § 26A:2.

Recent Ethics Charges Against Attorneys Demonstrate Need for Full Understanding of “Do’s and Don’ts” of Using Social Media As Litigation Tool

By Barry Buchman and Emily Grim

As we discussed in an earlier post regarding the use of social media to research potential jurors, the information available through social media can be a potent litigation tool. 

Indeed, far from being limited to a juror-research device, practitioners in the insurance realm and beyond are now using social media sites as a potential source of impeachment material for use against opposing parties or witnesses.  For example, counsel for an insured might attack the credibility of the insurer’s expert witness with evidence from Facebook or LinkedIn of the witness’s past professional or personal affiliation with the insurer or a competitor of the insured. 

 But, as recent ethics charges filed against two attorneys demonstrate, using social media in this fashion presents serious ethical considerations, just as it does when used for juror research.  As a result, it is essential that attorneys learn the boundaries of social media use and stay within them.  See M. Gallagher, Hostile Use of ‘Friend’ Request Puts Lawyers in Ethics Trouble, N.J. Law Journal (Aug. 30, 2012).

As with social media research in the juror context, there is little precedent on the ethical aspects of this issue, but the authority that does exist is in general agreement that lawyers can access publicly-available online information of any party or witness, even if the party or witness is represented.  The rationale is that if the online information is publicly-available (such as a public Facebook profile), it is no different than if the party or witness had published an article in print or online media.  See, e.g., N.Y. State Bar Assoc., Comm. on Prof. Ethics Op. No. 843 (Sept. 10, 2010).

As with jurors, however, the authorities also generally agree that lawyers may not seek to access non-public portions of a represented person’s social media accounts.  Moreover, also as with jurors, a lawyer may need to cease viewing even the publicly-available portions of these social media accounts if the represented party or witness learns that the lawyer is monitoring their online activity, as continued monitoring could be viewed as an attempt to intimidate or harass the party or witness.  Practitioners should be particularly mindful of this issue when searching sites such as LinkedIn, which show users the names of other site members who have viewed their profile.  And, lawyers who delegate this type of online research to paralegals or other non-lawyers should understand and convey these boundaries, as pleading ignorance of precisely how the research could be and was being conducted is risky.

Although a lawyer cannot seek to communicate directly with represented parties or witnesses by, for example, attempting to “friend” them on Facebook, a lawyer may do so with unrepresented parties and witnesses, but only if the lawyer does not use deception to obtain the online connection.  Most of the ethics opinions to address this issue have stated that the attorney must disclose both her true identity and the reasons for her connection request; i.e., the lawyer must not suggest that she is disinterested.  See, e.g., San Diego County Bar Assoc., Legal Ethics Comm. Op. No. 2011-2 (May 24, 2011).

Practitioners also can avoid the ethical risks associated with using social media to obtain informal discovery of parties and witnesses by serving requests for formal discovery of those persons’ online information.  For example, lawyers can serve direct discovery requests on other parties to the case or serve subpoenas on third-party witnesses.  Lawyers also may be able to subpoena social media providers to obtain information about a particular individual’s online accounts.  Courts generally have been receptive to such discovery requests.  See, e.g., Loporcaro v. City of New York, 2012 WL 1231021 (N.Y. Sup. Ct. Apr. 9, 2012).

Social media research in litigation can offer significant tactical benefits, but it also presents ethical risks.  Thus, it is important for practitioners to stay abreast of the law in this area, particularly given its rapid and continuing evolution.  Among other things, lawyers should know all pertinent procedural and ethical rules, including the procedures of the particular court and judge presiding over their case.  We will continue to monitor this topic closely in the coming months.

Importance of Cybersecurity Insurance

By Barry Buchman and Mickey Martinez

After two years of increasing and higher-profile cyber-security incidents, a new study has found that the issue of cyber-security risk is now one of the top concerns of corporate legal departments and directors.  See M. Stride, Data Security Now a Top Worry for GCs, Directors: Report, Law360 (Aug. 15, 2012).  We recently published an article on the potential availability of insurance coverage for losses arising from cyber-security incidents.   You can read the article here:  http://tinyurl.com/cad4oph.   

Commercial Insurance Policies Could Provide Protection for Businesses Facing Suits Under the Telephone Consumer Protection Act

By Barry Buchman

In one of the latest decisions to address the continuing debate over whether there is coverage under commercial general liability (CGL) insurance policies for so-called “blast fax” and “blast texting” lawsuits brought under the Telephone Consumer Protection Act (TCPA), a Wisconsin appellate court has ruled in favor of coverage.  See  Sawyer v. West Bend Mut. Ins. Co.,  2012 WL 2742291 (Wis. App. July 10, 2012).  In doing so, the court rejected the recurring insurance industry argument that CGL policies cover only invasion of privacy lawsuits that involve the alleged publication of the plaintiffs’ secrets; the court held that CGL policies also cover invasion of privacy lawsuits that allege a violation of the right to seclusion, i.e., the right to be left alone, which is typically the issue in “blast fax” and “blast texting” claims.

Although some commentators have suggested that decisions like this one likely will have no effect on disputes arising under newer CGL policies, which typically have TCPA exclusions, that is not necessarily so.

“Blast fax” and “blast texting” lawsuits frequently allege both statutory, TCPA claims and common law claims.  For the purpose of getting coverage at least for the costs of defending such lawsuits, as long as there is at least one covered claim or theory of liability, insurance companies often will have to pay all defense costs unless and until the policyholder is adjudicated liable only on the uncovered claims.  At least one court has issued exactly such a ruling in a dispute over coverage for blast fax claims in which the policies had a TCPA exclusion.  And, if the policyholder settles the lawsuit, there is, of course, never an adjudication of liability based only on the uncovered claims.  Thus, policyholders may be able to get coverage for such settlements, because it often will be difficult to establish that the policyholder settled the case solely due to concern about the uncovered claims.

Further, if an insurance company did not give proper notice to its policyholder of the addition of the TCPA exclusion to the CGL policy, that might provide a way around the exclusion as well.  And, other policies that an insured company may have, such as errors and omissions policies and directors and officers policies, may have exclusions that are narrower, i.e., that exclude less coverage, than the exclusions in CGL policies.

Thus, CGL and other commercial insurance policies continue to be a potentially very valuable source of protection for businesses facing TCPA lawsuits.  Businesses, therefore, should be willing to challenge coverage denials from their insurers if appropriate after an analysis of all of the circumstances, including the particular policy language and the particular underlying lawsuits.