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Page 1: BUSINESS LIABILITY INSURANCE - legacy.pli.edu...BUSINESS . LIABILITY INSURANCE . ANSWER BOOK. 2018 E. dition. Betsy P. Collins. In-House General Counsel, Aaron Oil Company, Inc. Practising

BUSINESS LIABILITY

INSURANCE ANSWER BOOK

2018 Edition

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PLI’S COMPLETE LIBRARY OF TREATISE TITLES

ART LAWArt Law: The Guide for Collectors, Investors, Dealers & Artists

BANKING & COMMERCIAL LAWAsset-Based Lending: A Practical Guide to Secured FinancingDocumenting Secured Transactions: Effective Drafting and LitigationEquipment Leasing–Leveraged LeasingHillman on Commercial Loan DocumentationMaritime Law Answer Book

BANKRUPTCY LAWBankruptcy DeskbookPersonal Bankruptcy Answer Book

BUSINESS, CORPORATE & SECURITIES LAWAccountants’ LiabilityAnti-Money Laundering: A Practical Guide to Law and ComplianceAntitrust Law Answer BookBroker-Dealer RegulationConducting Due Diligence in a Securities OfferingConsumer Financial Services Answer BookCorporate Compliance Answer BookCorporate Legal Departments: Practicing Law in a CorporationCorporate Political Activities DeskbookCorporate Whistleblowing in the Sarbanes-Oxley/Dodd-Frank EraCovered Bonds HandbookCybersecurity: A Practical Guide to the Law of Cyber RiskDerivatives Deskbook: Close-Out Netting, Risk Mitigation, LitigationDeskbook on Internal Investigations, Corporate Compliance, and White Collar IssuesDirectors’ and Officers’ Liability: Current Law, Recent Developments, Emerging IssuesDoing Business Under the Foreign Corrupt Practices ActEPA Compliance and Enforcement Answer BookExempt and Hybrid Securities OfferingsFashion Law and Business: Brands & RetailersFinancial Institutions Answer Book: Law, Governance, ComplianceFinancial Product Fundamentals: Law, Business, ComplianceFinancial Services Regulation DeskbookFinancially Distressed Companies Answer BookGlobal Business Fraud and the Law: Preventing and Remedying Fraud and CorruptionHedge Fund RegulationInitial Public Offerings: A Practical Guide to Going PublicInsider Trading Law and Compliance Answer BookInsurance and Investment Management M&A DeskbookInternational Corporate Practice: A Practitioner’s Guide to Global SuccessInvestment Adviser Regulation: A Step-by-Step Guide to Compliance and the LawLife at the Center: Reflections on Fifty Years of Securities RegulationMergers, Acquisitions and Tender Offers: Law and StrategiesMutual Funds and Exchange Traded Funds RegulationOutsourcing: A Practical Guide to Law and BusinessPrivacy Law Answer BookPrivate Equity Funds: Formation and OperationProskauer on Privacy: A Guide to Privacy and Data Security Law in the Information AgePublic Company Deskbook: Complying with Federal Governance & Disclosure

RequirementsSEC Compliance and Enforcement Answer BookSecurities Investigations: Internal, Civil and Criminal

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Securities Law and Practice HandbookThe Securities Law of Public FinanceSecurities Litigation: A Practitioner’s GuideSocial Media and the LawSoderquist on Corporate Law and PracticeSovereign Wealth Funds: A Legal, Tax and Economic PerspectiveA Starter Guide to Doing Business in the United StatesTechnology Transactions: A Practical Guide to Drafting and Negotiating Commercial

AgreementsVariable Annuities and Variable Life Insurance Regulation

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EMPLOYMENT LAWEmployment Law YearbookERISA Benefits Litigation Answer BookLabor Management Law Answer Book

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IMMIGRATION LAWFragomen on Immigration Fundamentals: A Guide to Law and Practice

INSURANCE LAWBusiness Liability Insurance Answer BookInsurance Regulation Answer BookReinsurance Law

INTELLECTUAL PROPERTY LAWCopyright Law: A Practitioner’s GuideFaber on Mechanics of Patent Claim DraftingFederal Circuit Yearbook: Patent Law Developments in the Federal CircuitHow to Write a Patent ApplicationIntellectual Property Law Answer BookKane on Trademark Law: A Practitioner’s GuideLikelihood of Confusion in Trademark LawPatent Claim Construction and Markman HearingsPatent Law: A Practitioner’s GuidePatent Licensing and Selling: Strategy, Negotiation, FormsPatent LitigationPharmaceutical and Biotech Patent LawPost-Grant Proceedings Before the Patent Trial and Appeal BoardSubstantial Similarity in Copyright LawTrade Secrets: A Practitioner’s Guide

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LITIGATIONAmerican Arbitration: Principles and PracticeClass Actions and Mass Torts Answer BookElectronic Discovery DeskbookEssential Trial Evidence: Brought to Life by Famous Trials, Films, and FictionExpert Witness Answer BookEvidence in Negligence CasesFederal Bail and Detention HandbookHow to Handle an AppealMedical Malpractice: Discovery and TrialProduct Liability Litigation: Current Law, Strategies and Best PracticesSinclair on Federal Civil PracticeTrial Handbook

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TAX LAWThe Circular 230 Deskbook: Related Penalties, Reportable Transactions, Working FormsThe Corporate Tax Practice Series: Strategies for Acquisitions, Dispositions, Spin-Offs,

Joint Ventures, Financings, Reorganizations & RestructuringsForeign Account Tax Compliance Act Answer BookInternal Revenue Service Practice and Procedure DeskbookInternational Tax & Estate Planning: A Practical Guide for Multinational InvestorsInternational Tax Controversies: A Practical GuideInternational Trade Law Answer Book: U.S. Customs Laws and RegulationsLanger on Practical International Tax PlanningThe Partnership Tax Practice Series: Planning for Domestic and Foreign Partnerships,

LLCs, Joint Ventures & Other Strategic Alliances Private Clients Legal & Tax Planning Answer BookTransfer Pricing Answer Book

GENERAL PRACTICE PAPERBACKSAnatomy of a Mediation: A Dealmaker’s Distinctive Approach to Resolving Dollar

Disputes and Other Commercial ConflictsAttorney-Client Privilege Answer BookDrafting for Corporate Finance: Concepts, Deals, and DocumentsPro Bono Service by In-House Counsel: Strategies and PerspectivesSmart Negotiating: How to Make Good Deals in the Real WorldThinking Like a Writer: A Lawyer’s Guide to Effective Writing & EditingWorking with Contracts: What Law School Doesn’t Teach You

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BUSINESS LIABILITY

INSURANCE ANSWER BOOK

2018 Edition

Betsy P. CollinsIn-House General Counsel,Aaron Oil Company, Inc.

Practising Law Institute New York City

#208970

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This work is designed to provide practical and useful information on the subject matter covered. However, it is sold with the understand-ing that neither the publisher nor the author is engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

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Legal Editor: Kelliann Kavanagh

Copyright © 2016, 2017 by Practising Law Institute. All rights reserved. Printed in the United States of America. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Practising Law Institute.

LCCN: 2011928318ISBN: 978-1-4024-2983-5

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The author would like to dedicate this book to her colleagues, Devin C. Dolive, Taylor Barr Johnson, Atoyia Scott Harris, and

Jodi Dixon Taylor who contributed greatly to the earlier editions of this book and without whom, this book might never have happened.

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ix

Acknowledgments

I would like to thank Devin C. Dolive and Taylor Barr Johnson of Burr & Forman, LLP, Atoyia Scott Harris of Ogletree Deakins, and Jodi D. Taylor of Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, who served as co-authors of earlier editions of this book, for their tremendous contributions and support to this book.

Also, over the time that we were working on this book, several law students assisted us in research projects for the book. Daniel Burkard, Emanuel Dollar, Gillian Egan, Bryan Green, Danielle Mashburn, JJ Gotlieb, Daniel Stanton, Travis Ramey and Tyler Stephens devoted substantial research assistance to this project. We would like to thank those legal assistants at Burr & Forman LLP, who helped us with the manuscript: Diana Atkinson, Vickie Brown, Sandy Edelman, Judy Haygood, Michele Lee, Karen Murphy and Kathy Saint. We would also like to thank the law firm, Burr & Forman LLP, for supporting us during the lengthy undertaking of writing this book. Also, a special thank you goes to our friend John Tanner with McGriff, Seibels and Williams, Inc. for lending his assistance and insights to us in this endeavor. Finally, we would like to thank Lou Rolla for his perseverance with us with the first edition of this book and Kelliann Kavanagh for her patience with the later editions.

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xi

About the Author

Betsy P. Collins is currently In-House General Counsel of Aaron Oil Company, Inc. and formerly a partner with Burr & Forman LLP where she practiced in the firm’s commercial litigation group. Over the course of her thirty-two-year career, Ms. Collins’ practice has included class action litigation, complex commercial and business litigation as well as securities litigation with an emphasis on responsibilities of direc-tors and officers including related insurance coverage issues. Ms. Collins has represented companies, officers and directors in shareholder liti-gation and derivative litigation matters arising from financial report-ing irregularities, stock option backdating, and M&A. In addition, Ms. Collins had a wide-ranging insurance litigation practice that has included cases involving securities products of life insurance com-panies and other insurance-related securities, unfair competition and non-compete agreements, as well as all manner of consumer class actions. Ms. Collins has been named in Best Lawyers in America, Alabama Super Lawyers and Georgia Super Lawyers in the area of Com-mercial Litigation and Ms. Collins was named in Guide to the World’s Leading Insurance & Reinsurance Lawyers, 7th and later Editions and Who’s Who Legal (Insurance): Georgia 2007. Ms. Collins received her J.D. from the University of Alabama School of Law in 1985, where she served as associate editor of the Alabama Law Review, and her B.A. degree, magna cum laude, from Judson College.

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xiii

Table of Chapters

Chapter 1 Emerging Areas of Claims LitigationChapter 2 Insurance Concepts and DefinitionsChapter 3 Practical Liability Insurance SolutionsChapter 4 Commercial General Liability CoverageChapter 5 Professional Liability InsuranceChapter 6 Directors’ and Officers’ Liability InsuranceChapter 7 Fiduciary Liability InsuranceChapter 8 Employment Practices Liability InsuranceChapter 9 Excess InsuranceChapter 10 Fidelity/Crime InsuranceChapter 11 Cyber Liability InsuranceChapter 12 Claims

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xv

Table of Contents

Acknowledgments ..........................................................................................ixAbout the Author .............................................................................................xiTable of Chapters .......................................................................................... xiii

Table of Contents ............................................................................................xv

Chapter 1 Emerging Areas of Claims Litigation

Possible Types of Claims and Litigation ..............................................................1-3

Q 1.1 Who are the potential targets of litigation? .....................................1-3Q 1.2 What types of claims and litigation are likely? ................................1-4

Greatest Risk for Directors and Officers .............................................................1-5

Q 1.3 What types of claims pose the greatest risk of liability for directors and officers? ........................................................................1-5

Q 1.3.1 What are derivative ations? .....................................................1-5Q 1.3.2 What is a shareholder class action? ........................................1-6Q 1.3.3 What are some common types of securities law

claims? .......................................................................................1-6Q 1.3.4 How risky is shareholder litigation? ......................................1-7Q 1.3.5 What is ERISA? ..........................................................................1-7Q 1.3.6 What is the SEC ? .......................................................................1-7Q 1.3.7 What is the DOJ ? ......................................................................1-7Q 1.3.8 What is the Foreign Corrupt Practices Act of 1977 ? ..............1-8

Foreign Corrupt Practices Act of 1977 ................................................................1-8

Q 1.4 Who does the FCPA cover? ................................................................1-8Q 1.5 What does the FCPA cover? ...............................................................1-8Q 1.6 What are the criminal and regulatory ramifications of the

FCPA? .....................................................................................................1-8Q 1.7 Can FCPA violations result in civil suits? ..........................................1-9

SEC and DOJ Investigations ...............................................................................1-10

Q 1.8 How concerned should directors and officers be about SEC and DOJ investigations? ...................................................................1-10

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Cyber Liability.......................................................................................................1-11

Q 1.9 What risks are posed by data breaches? ........................................1-11Q 1.10 What is the Dodd-Frank Act? ...........................................................1-12

Q 1.10.1 What is the effect of the Whistleblower Bounty Program? .................................................................................1-12

Q 1.10.2 What is the effect of the conflict minerals disclosure requirement? ...........................................................................1-13

ERISA .....................................................................................................................1-13

Q 1.11 What is ERISA? ...................................................................................1-13Q 1.11.1 What claims are likely to arise out of ERISA plans? ...........1-13Q 1.11.2 Who are the targets of ERISA class actions? .......................1-14Q 1.11.3 Why are ERISA class actions advantageous to

plaintiffs’ lawyers? .................................................................1-14Q 1.11.4 Are there new trends in ERISA claims? ................................1-15

Claims Against Professionals .............................................................................1-15

Q 1.12 What claims are likely to arise against accountants/auditors? .......1-15Q 1.13 What claims are likely to arise against attorneys? ........................1-15

Employment Claims .............................................................................................1-16

Q 1.14 What types of employment claims are likely? ...............................1-16

The Future .............................................................................................................1-18

Q 1.15 How will the proliferation of litigation against officers and directors affect insurance coverage under D&O liability insurance policies? ............................................................................1-18

Chapter 2 Insurance Concepts and Definitions

Concepts and Definitions ......................................................................................2-2

Q 2.1 What is an additional insured ? ...........................................................2-2Q 2.2 What does adjudication or adjudicated mean? .................................2-2Q 2.3 What is advancement ? ........................................................................2-2Q 2.4 What is an aggregate limit ? .................................................................2-2Q 2.5 What is allocation? ..............................................................................2-2Q 2.6 What is an application? .......................................................................2-3Q 2.7 What is arbitration? .............................................................................2-3Q 2.8 What is a binder ? .................................................................................2-3Q 2.9 What is breach of duty ? .......................................................................2-3

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Q 2.10 What is a broad form policy ? ..............................................................2-3Q 2.11 What is a broker ? .................................................................................2-3Q 2.12 What is business liability insurance? ..................................................2-4Q 2.13 What is a captive insurance company? ..............................................2-4Q 2.14 What is a claimant ? .............................................................................2-4Q 2.15 What is a claims-made policy ? ...........................................................2-4Q 2.16 What is a commercial general liability policy ? .................................2-5Q 2.17 What are conditions? ...........................................................................2-5Q 2.18 What is contractual liability coverage? ..............................................2-5Q 2.19 What does declarations mean? ...........................................................2-5Q 2.20 What is a deductible? ...........................................................................2-5Q 2.21 What are the definitions? ....................................................................2-6Q 2.22 What is a derivative claim? .................................................................2-6Q 2.23 What is difference in conditions coverage? .......................................2-6Q 2.24 What is directors’ and officers’ liability insurance? ..........................2-7Q 2.25 What is the duty to defend ? ................................................................2-7Q 2.26 What is the duty to indemnify ? ...........................................................2-7Q 2.27 What is the duty to pay ? ......................................................................2-7Q 2.28 What is the effective date of a policy ?...............................................2-8Q 2.29 What is employee benefits plan liability coverage ? .........................2-8Q 2.30 What is employer’s liability insurance? ..............................................2-8Q 2.31 What is employment practices liability insurance coverage? ..........2-8Q 2.32 What is an endorsement ? ....................................................................2-8Q 2.33 What is enterprise risk management ? ................................................2-8Q 2.34 What is environmental damage? ........................................................2-9Q 2.35 What is errors and omissions insurance? ..........................................2-9Q 2.36 What is an excess policy? ....................................................................2-9Q 2.37 What are exclusions? ...........................................................................2-9Q 2.38 What is an extended reporting period ? ............................................2-10Q 2.39 What is fidelity insurance? ................................................................2-10Q 2.40 What is a fiduciary ? ...........................................................................2-10Q 2.41 What is fiduciary liability coverage? ................................................2-11Q 2.42 What is a follow form policy ? ...........................................................2-11Q 2.43 What is fraud ? ....................................................................................2-11Q 2.44 What is a fronting arrangement ? ......................................................2-11Q 2.45 What is full prior acts coverage? .......................................................2-12Q 2.46 What is a hammer clause? ................................................................2-12Q 2.47 What is the inception date? ..............................................................2-12Q 2.48 What is indemnification? ...................................................................2-12Q 2.49 What is an indemnity policy? ............................................................2-12

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Q 2.50 What is the insuring agreement ? ......................................................2-12Q 2.51 What is an interim funding agreement ? ...........................................2-13Q 2.52 What is the known loss doctrine? .....................................................2-13Q 2.53 What is liability insurance? ...............................................................2-13Q 2.54 What is Lloyd’s of London? ................................................................2-14Q 2.55 What is loss? .......................................................................................2-14Q 2.56 What is a manuscript policy? ............................................................2-14Q 2.57 What is material information? ..........................................................2-14Q 2.58 What is negligence? ...........................................................................2-14Q 2.59 What is a notice of circumstances? ...................................................2-14Q 2.60 What is an occurrence? .....................................................................2-15Q 2.61 What is an occurrence-based policy ? ...............................................2-15Q 2.62 What is a per-occurrence limit of liability ? .....................................2-15Q 2.63 What is a plaintiff ? ............................................................................2-15Q 2.64 What is a primary policy?..................................................................2-15Q 2.65 What is professional liability insurance? .........................................2-16Q 2.66 What are punitive damages? .............................................................2-16Q 2.67 What is recklessness? ........................................................................2-16Q 2.68 What is rescission? .............................................................................2-16Q 2.69 What is a reservation of rights letter ? ...............................................2-16Q 2.70 What is a retroactive date? ................................................................2-16Q 2.71 What is a risk retention group (RRG)? ..............................................2-17Q 2.72 What is severability ? .........................................................................2-17Q 2.73 What is side A coverage? ..................................................................2-17Q 2.74 What is side A only coverage? ..........................................................2-17Q 2.75 What is side B coverage? ...................................................................2-17Q 2.76 What is side C coverage? ...................................................................2-17Q 2.77 What is subrogation? .........................................................................2-18Q 2.78 What is tail coverage? .......................................................................2-18Q 2.79 What is a tort ? ....................................................................................2-18Q 2.80 What is a wrongful act ? .....................................................................2-19

Chapter 3 Practical Liability Insurance Solutions

Attorneys .................................................................................................................3-2

Q 3.1 Should I consult an attorney? ............................................................3-2Q 3.2 What can an attorney do for me? ......................................................3-2Q 3.3 How will my broker and my attorney work together? ....................3-3

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Typical Business Coverage ....................................................................................3-3

Q 3.4 What is the typical business coverage we might want to include in our company’s liability insurance portfolio? .................3-3

Q 3.5 What are some common coverage needs? .......................................3-4

Specific Policies ......................................................................................................3-4

Q 3.6 What type of claims might a CGL policy cover? ..............................3-4Q 3.7 What might a typical umbrella policy cover? ..................................3-5Q 3.8 What should a typical E&O policy cover? ........................................3-5Q 3.9 What should a typical employment practices liability

insurance (EPLI) policy cover? ..........................................................3-5Q 3.10 What should a fiduciary liability policy cover? ...............................3-6Q 3.11 What should a typical internet liability policy cover? ....................3-6Q 3.12 What should a typical private company D&O policy cover? .........3-6Q 3.13 What might a typical public company D&O policy cover? ............3-7Q 3.14 What kind of insurance covers cyber liability ? ................................3-7

Q 3.14.1 What should a cyber insurance policy cover? .......................3-7

Understanding Which Policy Is Best for You ......................................................3-8

Q 3.15 How do I make the most of my premium dollars? ...........................3-8Q 3.16 How do I make sense of a policy form? ............................................3-9

Q 3.16.1 What is the declarations page?................................................3-9Q 3.16.2 What is the insuring agreement ? .............................................3-9Q 3.16.3 What are the definitions? .........................................................3-9Q 3.16.4 What are the exclusions? .........................................................3-9Q 3.16.5 What are the endorsements? .................................................3-10

Q 3.17 What duties do I have in applying for insurance? .........................3-10Q 3.18 What does it mean when the application refers to other

information incorporated into the application by reference like public filings? ..............................................................................3-11

Q 3.19 What is a Best rating and what does it mean to me? .....................3-11Q 3.20 Why do we want excess layers of liability coverage—

why can’t we just buy a primary policy with higher limits? ........3-11Q 3.21 What alternatives are there to traditional insurance

carriers? ..............................................................................................3-12Q 3.22 What is a captive insurance company ? ............................................3-12

Q 3.22.1 What are the advantages of captive insurance? ..................3-12Q 3.22.2 How common are captives? ...................................................3-13Q 3.22.3 How are captives structured? ................................................3-13Q 3.22.4 What is a group captive? ........................................................3-13

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Q 3.22.5 What is an associate captive? ................................................3-13Q 3.22.6 What is an agency captive? ....................................................3-13Q 3.22.7 What is a risk retention group? ..............................................3-14Q 3.22.8 What type of coverage is provided by an RRG? .................3-14Q 3.22.9 What are the advantages and potential risks of

insuring with an RRG? ............................................................3-14Q 3.23 How are captives regulated? ............................................................3-15

Chapter 4 Commercial General Liability Coverage

Basics of CGL Insurance ........................................................................................4-2

Q 4.1 What kind of liability risks does a business face? ...........................4-2Q 4.2 What is CGL insurance? ......................................................................4-3Q 4.3 Does CGL insurance cover damage to the insured’s

property? ..............................................................................................4-4Q 4.4 What is a manuscript policy? .............................................................4-4

Benefits of CGL Coverage .....................................................................................4-5

Q 4.5 How does a CGL policy protect a company? ...................................4-5Q 4.6 What is the duty to defend benefit? ..................................................4-5

Q 4.6.1 When is the duty to defend triggered? ..................................4-5Q 4.7 What is the duty to indemnify benefit? ............................................4-6Q 4.8 What is the loss control benefit? .......................................................4-6Q 4.9 What is the investigation benefit? .....................................................4-6Q 4.10 What is the loss mitigation benefit? ..................................................4-6

When Does CGL Policy Apply? ............................................................................4-7

Q 4.11 What categories of risks are covered by a CGL policy? .................4-7Q 4.12 When does coverage under a CGL policy come into play? ............4-7Q 4.13 When will coverage under a CGL policy be triggered? ...................4-8

Q 4.13.1 What is an occurrence-based policy? ......................................4-8Q 4.13.2 What is a claims-made policy? ................................................4-8Q 4.13.3 What types of manuscript policy triggers are

available? ...................................................................................4-8

Standard CGL Policies ...........................................................................................4-9

Q 4.14 What are the parts of the standard CGL policy? .............................4-9Q 4.15 What are definitions? ...........................................................................4-9Q 4.16 What are the declarations? .................................................................4-9Q 4.17 What are limits of insurance? ..............................................................4-9

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Q 4.17.1 What is an aggregate limit ? ......................................................4-9Q 4.17.2 What is a per-occurence limit ?...............................................4-10

Q 4.18 What is included in Section I of the CGL policy? ...........................4-10Q 4.18.1 What is an insuring agreement ? ............................................4-10Q 4.18.2 What are the coverage parts of a CGL policy? ...................4-10Q 4.18.3 What are exclusions? ..............................................................4-10

Q 4.19 What is included in Section II of the CGL policy form? ................4-10Q 4.19.1 Who is an insured ? .................................................................4-10Q 4.19.2 Who else is an insured ? .........................................................4-11Q 4.19.3 When is a volunteer worker an insured ? .............................4-11Q 4.19.4 When is an employee an insured? ........................................4-12Q 4.19.5 Are there any other limitations that govern whether

an employee will be insured? ...............................................4-12Q 4.19.6 What are the qualifications with respect to a newly

acquired or newly formed organization being insured? ...................................................................................4-13

Q 4.19.7 Who should be insured under a CGL policy? .....................4-13Q 4.20 What are conditions? .........................................................................4-14

Q 4.20.1 What are our duties in regard to notifying the insurance carrier about a potential claim? .........................4-14

Q 4.20.2 What if we didn’t give notice of an accident and six months later we receive a summons and complaint? .......4-15

Q 4.20.3 What are the consequences of failing to give prompt notice of claims, accidents or potential claims? ................4-15

Q 4.20.4 If we settle a claim on our own, is the carrier responsible for paying it? ......................................................4-16

Q 4.20.5 Who gets to select defense counsel if we get sued? ..........4-16Q 4.20.6 What is the duty to cooperate? ..............................................4-16

Q 4.21 What are endorsements? ...................................................................4-17

Coverage A ..........................................................................................................4-17

Q 4.22 What is Coverage A? .........................................................................4-17Q 4.23 What is insured under Coverage A? ................................................4-17Q 4.24 What is bodily injury ? ........................................................................4-18

Q 4.24.1 Does bodily injury include emotional injury? .....................4-18Q 4.24.2 What is an occurrence? ..........................................................4-18Q 4.24.3 What is typically not deemed an occurrence? ....................4-18

Q 4.25 What is property damage? .................................................................4-18Q 4.25.1 Are lost profits considered property damage? ...................4-19Q 4.25.2 What is premises/operations hazard? ..................................4-19Q 4.25.3 What is the products-completed operations hazard

coverage? ................................................................................4-19

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Exclusions Under Coverage A ...........................................................................4-19

Q 4.26 What are the exclusions under Coverage A? .................................4-19Q 4.27 What is the intentional or expected injury exclusion? ...................4-20Q 4.28 What is the contractual liability exclusion? .....................................4-21Q 4.29 What is the liquor liability exclusion? ..............................................4-21Q 4.30 What is the workers’ compensation exclusion? ..............................4-21Q 4.31 What is the employment liability exclusion? ...................................4-22Q 4.32 What is the pollution exclusion? ......................................................4-22

Q 4.32.1 What are pollutants? ...............................................................4-22Q 4.32.2 Are there any exceptions to the pollution exclusion? ........4-22Q 4.32.3 Is the cost of cleanup on behalf of a governmental

authority excluded? ...............................................................4-22Q 4.33 What is the aircraft/auto/watercraft exclusion? .............................4-23Q 4.34 What is the mobile equipment exclusion? .......................................4-23Q 4.35 What is the war exclusion? ...............................................................4-23

Q 4.35.1 Does the war exclusion apply to terrorism?........................4-23Q 4.36 What is the damage to property exclusion? ....................................4-23Q 4.37 What is the damage to your work exclusion? ..................................4-24Q 4.38 What is the recall of products, work or impaired property

exclusion? ...........................................................................................4-24Q 4.39 What is the damage to impaired property or property not

physically injured exclusion? .............................................................4-24Q 4.39.1 What is impaired property? ....................................................4-25Q 4.39.2 What kind of loss of use claims are excluded? ...................4-25Q 4.39.3 Are there exceptions to the damage to impaired

property exclusion? .................................................................4-25Q 4.40 What is the personal and advertising injury exclusion? .................4-25Q 4.41 What is the electronic data exclusion? ............................................4-25Q 4.42 What is the distribution of material in violation of statutes

exclusion? ...........................................................................................4-25Q 4.43 What is the fungus/mold exclusion? ................................................4-26Q 4.44 What is the employment-related practices exclusion? ....................4-26Q 4.45 What is the asbestos exclusion? .......................................................4-26Q 4.46 What is the lead exclusion? ..............................................................4-26Q 4.47 What is the nuclear exclusion? .........................................................4-26Q 4.48 What is the securities and financial interest exclusion? .................4-26Q 4.49 What is the silica exclusion? .............................................................4-27Q 4.50 What is the known injury or damage exclusion? ............................4-27

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Coverage B ...........................................................................................................4-27

Q 4.51 What is Coverage B? .........................................................................4-27Q 4.52 Who needs Coverage B? ...................................................................4-27Q 4.53 What kinds of claims are covered under Coverage B? .................4-28

Exclusions Under Coverage B ............................................................................4-29

Q 4.54 What claims are excluded under Coverage B? ..............................4-29Q 4.55 What is the knowing violation of rights of another exclusion? ......4-30Q 4.56 What is the material published with knowledge of falsity

exclusion? ...........................................................................................4-30Q 4.57 What is the material published prior to policy period

exclusion? ...........................................................................................4-30Q 4.58 What is the criminal acts exclusion? ................................................4-30Q 4.59 What is the contractual liability exclusion? .....................................4-31Q 4.60 What is the breach of contract exclusion? .......................................4-31Q 4.61 What is the quality or performance of goods—failure to

conform to statements exclusion? .....................................................4-31Q 4.62 What is the wrong description of prices exclusion? ........................4-31Q 4.63 What is the infringement of copyright, patent, trademark or

trade secret exclusion? .......................................................................4-31Q 4.64 What is the insured’s in media and Internet-type businesses

exclusion? ...........................................................................................4-32Q 4.65 What is the electronic chatroom or bulletin boards

exclusion? ...........................................................................................4-32Q 4.66 What is the unauthorized use of another’s name or product

exclusion? ...........................................................................................4-32Q 4.67 What is the pollution exclusion? ......................................................4-33Q 4.68 What is the pollution-related exclusion? ..........................................4-33Q 4.69 What is the war exclusion? ...............................................................4-33Q 4.70 What are the other exclusions that apply to Coverage B? ...........4-33

Coverage C ..........................................................................................................4-33

Q 4.71 What is Coverage C? .........................................................................4-33Q 4.72 When does Coverage C apply? ........................................................4-34Q 4.73 What are covered medical expenses under Coverage C? ............4-34

Exclusions Under Coverage C ...........................................................................4-34

Q 4.74 What are exclusions under Coverage C? ........................................4-34

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Other Insurance ....................................................................................................4-35

Q 4.75 What is the purpose of the other insurance provision? ................4-35Q 4.76 How does the other insurance provision work when there

are excess policies? ...........................................................................4-35Q 4.77 When is the CGL policy deemed excess? .......................................4-36Q 4.78 What happens when the CGL policy is primary, but there

are other primary policies that also apply? ...................................4-36Q 4.78.1 What is contribution by equal shares? ..................................4-36Q 4.78.2 What is contribution by limits? ..............................................4-37

Representations Clause .......................................................................................4-37

Q 4.79 What is the representations clause? ................................................4-37Q 4.80 What kind of misstatement in the application will justify

the carrier avoiding coverage? ........................................................4-37Q 4.81 What is the separation of insured clause? .......................................4-37

Tailoring a CGL Policy..........................................................................................4-38

Q 4.82 Can we tailor a CGL policy to meet the specific or unique business needs of our business? .....................................................4-38

Q 4.83 What are some kinds of liability that should be addressed through purchasing special or separate coverage through another policy or endorsement? .....................................................4-38

Endorsements .......................................................................................................4-39

Q 4.84 What types of endorsements are available? ..................................4-39Q 4.85 What is the additional insured endorsement? ...............................4-39

Q 4.85.1 Practically speaking, what does the additional insured endorsement actually insure? ..............................................4-40

Q 4.85.2 Can the additional insured be covered for its own negligence under the additional insured endorsement? .........................................................................4-41

Q 4.85.3 Is there coverage for an injury sustained by an additional insured or the employee of an additional insured where such injury is the result of a workplace accident? ..............................................................4-42

Q 4.86 Are the endorsements discussed in this chapter the only ones available? ...................................................................................4-42

Advertising Injury Coverage ..............................................................................4-43

Q 4.87 Can you purchase coverage for advertising injury even though the standard policy form excludes such coverage? ........4-43

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CGL Policy and Construction Projects...............................................................4-43

Q 4.88 How will a CGL policy operate in a construction setting? ...........4-43Q 4.89 What type of property damage is covered under a CGL

policy issued to a contractor? .........................................................4-43Q 4.89.1 What is the difference between coverage under a

CGL policy and a surety policy? ...........................................4-44Q 4.89.2 When will coverage be triggered under a

contractor’s general liability policy? ...................................4-44Q 4.89.3 What is the subcontractor exception to the your work

exclusion? ................................................................................4-45Q 4.90 Does the completed operations hazards clause have any

effect on a contractor’s liability insurance policy? .......................4-45

Product Liability Insurance ..................................................................................4-46

Q 4.91 Who needs product liability insurance? .........................................4-46Q 4.92 What is product liability insurance? ...............................................4-46Q 4.93 What kinds of claims arise out of the manufacture,

distribution or sale of goods or products? ....................................4-46Q 4.94 Who might be sued for products liability? .....................................4-47Q 4.95 What is the legal basis for products liability? ...............................4-47Q 4.96 What type of claims are covered under a CGL endorsement

relating to products liability? ...........................................................4-47Q 4.96.1 Do the products hazard and completed operations

hazards clauses affect coverage under a CGL policy for products liability–related claims? ..................................4-47

Q 4.96.2 What is the sistership exclusion included in CGL policies insuring products liability claims? ........................4-48

Environmental or Pollution Claims .....................................................................4-49

Q 4.97 Can we purchase liability insurance to cover environmental or pollution claims? ..........................................................................4-49

Q 4.98 What is an absolute pollution exclusion? .........................................4-49Q 4.98.1 What is a qualified pollution exclusion? ...............................4-50

Q 4.99 Can any business purchase an endorsement that will provide coverage for liability resulting from environmental pollution? .................................................................4-50

Endorsements Relating to Real Property ...........................................................4-51

Q 4.100 Are there endorsements that relate specifically to real property? ............................................................................................4-51

Q 4.101 What does a landlord’s policy cover? .............................................4-51

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Q 4.102 Is there any need for a lender to obtain CGL coverage, or seek coverage under some type of endorsement? ...................4-51

Q 4.103 What about claims based on the entry on/eviction from property or otherwise relate to the right of private occupancy to property? ...................................................................4-51

Motor Carrier Liability .........................................................................................4-52

Q 4.104 Is there coverage for motor carrier liability? .................................4-52

Emerging Issue: Coverage Under CGL Policies for Cyber Attacks ................4-52

Q 4.105 Why is coverage for cyber attacks important? .............................4-52Q 4.105.1 Are cyber attacks covered by Coverage

A (Property Damage) under an ISO CGL policy? .................4-53Q 4.105.2 Are cyber attacks covered by Coverage B

(Personal and Advertising Injury Liability) under an ISO CGL policy? ......................................................................4-54

Q 4.105.3 What are the new ISO cyber exclusion endorsements? .......................................................................4-54

Chapter 5 Professional Liability Insurance

Features of Professional Liability Insurance .......................................................5-2

Q 5.1 What is the difference between errors and omissions (E&O) insurance and professional liability insurance? ..................5-2

Q 5.2 What are the significant features of professional liability insurance? ............................................................................................5-2

Q 5.3 What is a professional ? .......................................................................5-3Q 5.4 Who are professionals? ........................................................................5-3Q 5.5 What do professional services include? ............................................5-3Q 5.6 What is professional liability insurance designed to cover? .........5-3Q 5.7 What is the difference between a commercial general

liability policy and an E&O policy? ...................................................5-4Q 5.8 Who is typically insured under a professional liability

insurance policy? ................................................................................5-4

Duty to Defend .......................................................................................................5-5

Q 5.9 Does the insurance carrier have a duty to defend me under my professional liability policy? ............................................5-5

Q 5.10 What is the advantage of a duty to defend policy? .........................5-5Q 5.11 Does the duty to defend apply even if the allegations are

false? .....................................................................................................5-6

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Q 5.12 Do I have to reimburse the insurer for costs of defense if the claims turn out to not be covered? ..........................5-6

Q 5.13 Are defense costs in addition to the limits of liability? ..................5-6

Claims-Made Versus Occurrence-Based .............................................................5-6

Q 5.14 Is my professional liability policy a claims-made or an occurrence-based policy? ....................................................................5-6

Q 5.14.1 What is an occurrence-based policy? ......................................5-7Q 5.14.2 What is a claims-made policy? ................................................5-7Q 5.14.3 What is a claims-made and reported policy? .........................5-7

Q 5.15 What are some claims that might trigger professional liability coverage? ...............................................................................5-7

Parts of a Typical Professional Liability Policy ...................................................5-8

Q 5.16 What are declarations? ........................................................................5-8Q 5.17 What is the insuring agreement ? ........................................................5-8Q 5.18 What are exclusions? ...........................................................................5-8Q 5.19 What are definitions? ...........................................................................5-8Q 5.20 What are conditions? ...........................................................................5-8Q 5.21 What are endorsements? .....................................................................5-8

Potential Definitional Problems ............................................................................5-8

Q 5.22 What are definitional problems that might be encountered with professional liability claims? .....................................................5-8

Q 5.23 Who is insured ? ....................................................................................5-9Q 5.24 What is a wrongful act ? .......................................................................5-9Q 5.25 What is insured capacity? ....................................................................5-9Q 5.26 Why is the definition of claim important? ........................................5-9Q 5.27 What is aggregate limit ? ....................................................................5-10Q 5.28 What is the significance of interrelated claims? .............................5-10Q 5.29 What determines whether there is one claim or multiple

claims? ................................................................................................5-11Q 5.30 Does an investigative demand or governmental subpoena

constitute a claim? ............................................................................5-11Q 5.31 Is a complaint seeking injunctive relief a claim? ...........................5-11Q 5.32 What is covered loss or covered damages? ....................................5-12Q 5.33 What is restitution? ............................................................................5-12Q 5.34 What are punitive damages? .............................................................5-13Q 5.35 Are fines, penalties or sanctions covered loss? .............................5-13

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Exclusions from Professional Liability Policy ....................................................5-13

Q 5.36 What exclusions might apply to a professional liability policy? .................................................................................................5-13

Q 5.37 What is the dishonesty, fraudulent or criminal acts exclusion? .....5-14Q 5.37.1 If my law partner does something dishonest and

I get sued, does the dishonesty exclusion bar coverage for me too? .............................................................5-15

Q 5.37.2 At what point can the insurer deny coverage based on the dishonesty exclusion? ....................................5-16

Q 5.37.3 What if one of the insureds under our professional liability policy signs a confession admitting that he is guilty of criminal conduct? ...................................................5-16

Q 5.37.4 If a court enters judgment against an insured under our professional liability policy that establishes dishonesty or fraud, do we have to repay the costs of defense? ..............................................................................5-17

Q 5.37.5 If an insured agrees to settle a claim, does that mean the insurer can claim that bad conduct has been established? ...................................................................5-17

Q 5.37.6 Can the insurer sue an insured in a separate court action and get a judgment that the insured was guilty of dishonesty or fraud so as to avoid coverage? ................................................................................5-17

Q 5.38 What is the personal profit or advantage exclusion? .....................5-18Q 5.38.1 Is it important to have language in the policy

requiring a final adjudication before the personal profit exclusion applies? .........................................................5-18

Q 5.38.2 Can the personal profit exclusion bar coverage for an innocent insured where another insured is actually the one who received the benefit? .......................................5-18

Q 5.39 What is the misappropriation of another’s intellectual property exclusion? ............................................................................5-18

Q 5.40 What is the sexual misconduct exclusion? ......................................5-19Q 5.41 What is the willful violation of law or statute exclusion? ...............5-19

Q 5.41.1 Is it important to have language in the policy requiring a final adjudication before the intentional acts exclusion applies? ..........................................................5-19

Q 5.42 What is an insured versus insured exclusion? .................................5-19Q 5.42.1 How can we avoid problems with the insured versus

insured exclusion? ..................................................................5-20Q 5.43 What are environmental exclusions? ...............................................5-21Q 5.44 What are securities laws exclusions? ...............................................5-21

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Q 5.45 What are fee dispute exclusions? ......................................................5-21Q 5.46 What are contract exclusions? ..........................................................5-22Q 5.47 What are other insurance exclusions? ..............................................5-22

Q 5.47.1 What are discrimination and harassment exclusions? ........5-22Q 5.47.2 What are prior acts exclusions? .............................................5-22Q 5.47.3 What are prior notice exclusions? .........................................5-22Q 5.47.4 What problems arise with prior notice exclusions? ............5-23Q 5.47.5 What are prior knowledge exclusions? .................................5-23Q 5.47.6 What are ERISA exclusions? ...................................................5-23Q 5.47.7 What are workers’ compensation exclusions? ......................5-24Q 5.47.8 What are bodily injury or loss of property exclusions? ........5-24Q 5.47.9 What are exclusions for libel, slander and

defamation? .............................................................................5-25Q 5.47.10 What is the motor vehicle exclusion? ...................................5-25Q 5.47.11 What is the cyber liability exclusion?....................................5-25

Duties of the Insured ............................................................................................5-25

Q 5.48 What are the duties of the insured in the event of a claim? ........5-25Q 5.49 What duty does the insured have with regard to

providing notice of a claim? .............................................................5-26Q 5.50 What triggers the duty to notify the insurer of a potential

claim? ..................................................................................................5-27Q 5.51 What method of providing notice is required? ..............................5-27Q 5.52 What are the consequences of failure to give timely

notice? .................................................................................................5-28Q 5.53 What is the duty to assist or cooperate? .......................................5-28Q 5.54 What is the duty to provide documents or submit to

examination? ......................................................................................5-29Q 5.55 What are the most common issues encountered by

insureds with regard to the duty of cooperation? ........................5-30

Potential Problems with Disclosures ..................................................................5-30

Q 5.56 What are potential problems with disclosures on the insurance application? ......................................................................5-30

Q 5.57 What are the typical disclosure requirements for potential claims? ................................................................................................5-30

Q 5.58 Do I have to provide information not requested on the application? ........................................................................................5-31

Q 5.59 What happens if I do not answer a question? ................................5-32Q 5.60 What happens if I give an incomplete answer? .............................5-32

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Q 5.61 How precise do I have to be on those questions that ask what percentage of my time is spent on certain activities? ............................................................................................5-32

Selecting Counsel .................................................................................................5-32

Q 5.62 Who has the right to select counsel? ..............................................5-32Q 5.62.1 What is panel counsel ? ..........................................................5-33

Q 5.63 Who does the insurer-appointed attorney represent? .................5-33Q 5.64 Should I be worried that the defense attorney is more

interested in what the insurer wants than in what is best for me? ........................................................................................5-33

Q 5.65 What if I want to settle the claim and the insurer does not? .......5-33Q 5.66 What if the insurance company wants me to agree to a

settlement? .........................................................................................5-34Q 5.66.1 What is a hammer clause? .....................................................5-34Q 5.66.2 Is a hammer clause enforceable? ..........................................5-35Q 5.66.3 Can the insurance company settle a case without

telling me? ...............................................................................5-35Q 5.67 Can I settle a claim without asking the insurer? ............................5-35

Specialized Professional Liability Insurance .....................................................5-36

Q 5.68 What types of professions have specialized professional liability coverage? .............................................................................5-36

Accountants ..........................................................................................................5-36

Q 5.69 Who is insured under our accountant’s professional liability coverage? .............................................................................5-36

Q 5.70 What types of services are covered under our accountant professional liability coverage? .......................................................5-36

Q 5.71 What types of claims are covered under our accountant professional liability policy? ............................................................5-37

Q 5.72 What loss or damages are covered under our accountant professional liability coverage? .......................................................5-37

Q 5.73 What loss or damages may not be covered under our accountant professional liability coverage? ..................................5-38

Q 5.74 What are some common exclusions under an accountant professional liability coverage? .......................................................5-38

Q 5.75 Do we have a right to choose our own counsel? ...........................5-39Q 5.76 Do we have a right to veto settlement? ..........................................5-39Q 5.77 What are incentive provisions? .......................................................5-39Q 5.78 What is a late notice savings clause? ..............................................5-39

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Architects and Engineers ....................................................................................5-40

Q 5.79 Who is insured under our professional liability coverage? .........5-40Q 5.80 What kinds of claims does our architect and engineer

professional liability policy cover? .................................................5-40Q 5.80.1 What are professional services? ............................................5-40

Q 5.81 What loss or damages are covered under our architect and engineer professional liability policy? ............................................5-41

Q 5.82 What loss or damages may not be covered under our architect and engineer professional liability policy? ....................5-41

Q 5.83 What are some common exclusions under an architect and engineers professional liability coverage? .............................5-41

Q 5.84 Do we have a right to choose our own counsel? ...........................5-42Q 5.85 Do we have a right to veto settlement? ..........................................5-42

Attorneys ...............................................................................................................5-42

Q 5.86 Are attorneys required to carry professional liability insurance as a condition for being licensed? ................................5-42

Q 5.87 Are there any special considerations for attorneys with regard to applications for professional liability insurance? ........5-42

Q 5.88 Who is insured under our lawyers professional liability policy coverage? ................................................................................5-43

Q 5.89 What kinds of claims does our lawyer’s professional liability policy cover? ........................................................................5-44

Q 5.89.1 Will my coverage include risks associated with the unintentional disclosure of confidential client information due to a cyber attack? ......................................5-44

Q 5.90 What professional services are covered under our lawyer’s policy professional liability coverage? ...........................................5-45

Q 5.91 What losses or damages are covered under our lawyer’s professional liability policy? ............................................................5-45

Q 5.92 What are some common exclusions under a lawyer’s professional liability policy? ............................................................5-46

Q 5.93 Do we have a right to choose our own counsel? ...........................5-47Q 5.94 Do we have a right to veto settlement? ..........................................5-47

Financial Institutions ............................................................................................5-47

Q 5.95 What are special considerations for financial institutions? .........5-47Q 5.96 Who is insured under our financial institution professional

liability policy? ...................................................................................5-47Q 5.97 What kinds of claims does our financial institution

professional liability policy cover? .................................................5-48Q 5.97.1 What are professional services? ............................................5-48

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Q 5.98 What loss or damages are covered under our financial institution professional liability policy? .........................................5-48

Q 5.99 What loss or damages may not be covered under our financial institution professional liability policy? .........................5-48

Q 5.100 What are some common exclusions under a financial institution liability policy? ...............................................................5-49

Q 5.101 Do we have a right to choose our own counsel? ...........................5-49Q 5.102 Do we have a right to veto settlement? ..........................................5-49

Health Care Professionals ..................................................................................5-50

Q 5.103 What are special considerations for health care professionals? ....................................................................................5-50

Q 5.104 Who is insured under our health care organization professional liability coverage? .......................................................5-51

Q 5.105 Who is insured under my individual health care professional liability coverage? .......................................................5-51

Q 5.106 What if a physician cannot find liability coverage? ......................5-52Q 5.107 How do JUAs or PCFs work? ............................................................5-52Q 5.108 What kinds of services does our health care organization

professional liability policy cover? .................................................5-52Q 5.109 What types of services are covered under my individual

health care professional liability policy? .......................................5-53Q 5.110 What types of claims are covered under our health care

professional liability policy? ............................................................5-53Q 5.111 What loss or damages are covered under our health care

professional liability policy? ............................................................5-53Q 5.112 What loss or damages may not be covered under our

health care professional liability policy? .......................................5-54Q 5.113 What are some common exclusions under a health care

professional liability policy? ............................................................5-54Q 5.114 Do we have a right to choose our own counsel? ...........................5-55Q 5.115 Do we have a right to veto settlement? ..........................................5-55Q 5.116 How are premiums set? ....................................................................5-55

Insurance Professionals .......................................................................................5-55

Q 5.117 Who buys insurance professional liability coverage? ..................5-55Q 5.118 Are there special considerations for insurance

professionals? ....................................................................................5-56Q 5.119 What kinds of claims does our insurance agents and

brokers errors and omissions policy cover? .................................5-56

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Q 5.120 Who is insured under our insurance professional liability policy? .................................................................................................5-57

Q 5.121 What loss or damages are covered under our insurance professional liability coverage? .......................................................5-58

Q 5.122 What loss or damages may not be covered under our insurance professional liability coverage? .....................................5-58

Q 5.123 What are some common exclusions under an insurance professional liability coverage? .......................................................5-59

Q 5.124 Do we have a right to choose our own counsel? ...........................5-60Q 5.125 Do we have a right to veto settlement? ..........................................5-60

Media Liability Coverage ...................................................................................5-60

Q 5.126 Who buys media liability coverage? ...............................................5-60Q 5.127 What protection does media liability insurance afford? ..............5-60Q 5.128 Who is insured under our media professional liability

policy? .................................................................................................5-61Q 5.129 What kinds of activities of media professionals are

included in the risks insured by media liability insurance? ........5-61Q 5.130 Are there any limitations to the breadth of the covered

activities under our media liability policy? ...................................5-62Q 5.131 What loss or damages are covered under our media

professional liability policy? ............................................................5-62Q 5.132 What if we are responsible for liability because of a

contract? .............................................................................................5-62Q 5.133 What loss or damages may not be covered under our

media professional liability policy? ................................................5-62Q 5.134 What are some common exclusions under our media

professional liability coverage? .......................................................5-63Q 5.135 Do we have a right to choose our own counsel? ...........................5-64Q 5.136 Do we have a right to veto settlement? ..........................................5-64Q 5.137 What special considerations apply to Internet-related

services? .............................................................................................5-64Q 5.138 What types of claims are asserted against Internet

service professionals? ......................................................................5-64

Technology Companies .......................................................................................5-65

Q 5.139 What are special considerations for technology companies? ........................................................................................5-65

Q 5.140 What are some of the risks that technology companies face? ....................................................................................................5-65

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Q 5.141 What services will be included under our technology professional liability policy? ............................................................5-66

Q 5.142 Who is insured under our technology professional liability policy? .................................................................................................5-66

Q 5.143 What types of claims does our technology professional liability policy cover? ........................................................................5-66

Q 5.144 What loss or damages may not be covered under our technology professional liability policy? .......................................5-67

Q 5.145 What are some common exclusions under a technology professional liability coverage? .......................................................5-67

Q 5.146 Do we have a right to choose our own counsel? ...........................5-69Q 5.147 Do we have a right to veto settlement? ..........................................5-69

Chapter 6 Directors’ and Officers’ Liability Insurance

Determining D&O Coverage Needs ....................................................................6-3

Q 6.1 What are some of the claims that might trigger D&O coverage? ..............................................................................................6-3

Q 6.2 How can our broker help us define our D&O insurance needs? ...................................................................................................6-3

Q 6.3 Do we need to consult an attorney in evaluating D&O policies? ................................................................................................6-4

Q 6.4 What is a manuscript policy? .............................................................6-4Q 6.5 What are the typical D&O insuring agreements? ............................6-4

Side A Coverage ...................................................................................................6-5

Q 6.6 What is Side A coverage? ....................................................................6-5Q 6.7 How do indemnification and D&O coverage work together? ........6-5Q 6.8 When does Side A coverage apply? ...................................................6-6Q 6.9 In what instances will the corporation not indemnify the

officers or directors? ...........................................................................6-6Q 6.10 What is Side A excess coverage? ........................................................6-7

Side B Coverage ....................................................................................................6-8

Q 6.11 What is Side B coverage? ....................................................................6-8Q 6.12 When is reimbursement made under Side B coverage? .................6-8

Side C Coverage ...................................................................................................6-9

Q 6.13 What is Side C coverage? ....................................................................6-9

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Shareholder Derivative Demand Coverage ........................................................6-9

Q 6.14 What is shareholder derivative demand coverage? ..........................6-9Q 6.15 What is a shareholder demand? ........................................................6-9Q 6.16 Why do we need shareholder derivative demand coverage? ........6-10Q 6.17 Does our D&O policy cover the costs of investigations? .............6-11

Q 6.17.1 Are internal investigations covered? ...................................6-11Q 6.17.2 How likely are we to utilize investigative costs

coverage? .................................................................................6-11

Outside Entity Insured Person Coverage ..........................................................6-12

Q 6.18 What is outside entity insured person coverage? ............................6-12

Defense Costs .......................................................................................................6-12

Q 6.19 Does the insurance carrier have a duty to defend us under our D&O policy? ................................................................................6-12

Q 6.20 Do I have to reimburse the insurer for costs of defense if the claims turn out not to be covered? ..........................................6-13

Q 6.21 Are defense costs in addition to the limits of liability? ................6-13

Claims Made ........................................................................................................6-14

Q 6.22 Is our D&O policy a claims-made policy or an occurrence-based policy? .................................................................................................6-14

Q 6.22.1 What is a claims-made policy? ..............................................6-14

Parts of the D&O Policy ......................................................................................6-14

Q 6.23 What are the parts of a typical D&O policy?..................................6-14Q 6.23.1 What are declarations? ..........................................................6-14Q 6.23.2 What is the insuring agreement? ..........................................6-14Q 6.23.3 What are exclusions? ..............................................................6-15Q 6.23.4 What are definitions? ..............................................................6-15Q 6.23.5 What are conditions? ..............................................................6-15Q 6.23.6 What are endorsements? ........................................................6-15

Potential Problems ...............................................................................................6-15

Q 6.24 What potential problems might we encounter with D&O claims? ................................................................................................6-15

Disclosure Problems .............................................................................................6-15

Q 6.25 What are potential problems with disclosures on the insurance application? ......................................................................6-15

Q 6.25.1 What is rescission?.................................................................6-16

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Q 6.25.2 Do we have to provide information not requested on an application? ..................................................................6-16

Q 6.25.3 What happens if we do not answer a question? .................6-16Q 6.25.4 What happens if we give an incomplete answer? ..............6-16Q 6.25.5 Can the insurance carrier rely on things not listed

in our specific answers on the application? .......................6-17Q 6.25.6 What is severability and why is it important to me? ..........6-17

Definitional Problems ...........................................................................................6-17

Q 6.26 What are definitional problems? .....................................................6-17Q 6.26.1 Who is insured ? .......................................................................6-18Q 6.26.2 What problems might arise with regard to who is

insured? ...................................................................................6-18Q 6.26.3 What is insured capacity? .......................................................6-18Q 6.26.4 What qualifies as an insured subsidiary ? .............................6-19Q 6.26.5 How can you protect yourselves against confusion

as to what entities are to be insured under the policy? ...............................................................................6-19

Who Qualifies As an Officer? ............................................................................6-20

Q 6.27 What problems might we encounter with regard to who qualifies as an officer?.......................................................................6-20

Claims ....................................................................................................................6-22

Q 6.27.1 What is a claim? ......................................................................6-22Q 6.27.2 Why is the definition of claim important? ...........................6-22Q 6.27.3 Does an investigative demand or governmental

subpoena constitute a claim? ...............................................6-23Q 6.27.4 Is a complaint seeking injunctive relief a claim? ................6-23

Wrongful Act ........................................................................................................6-23

Q 6.27.5 What is a wrongful act ? ..........................................................6-23Q 6.27.6 What does wrongful act mean in the insured

person context? .......................................................................6-23Q 6.27.7 What does wrongful act mean in connection with a

public company insured organization? ...............................6-24Q 6.27.8 What is a securities claim? .....................................................6-24Q 6.27.9 What does wrongful act mean in connection with a

private company insured organization? ..............................6-24Q 6.27.10 What does wrongful act mean when used in

connection with an outside entity ? .......................................6-25Q 6.27.11 What happens when the allegations include both

covered and non-covered acts? ............................................6-25

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Q 6.27.12 When must the wrongful acts have occurred to be covered? ..................................................................................6-25

Q 6.27.13 What does interrelated wrongful acts mean? .......................6-26

Loss ........................................................................................................................6-27

Q 6.27.14 What is loss? ............................................................................6-27Q 6.27.15 What is included within the definition of loss? ...................6-27Q 6.27.16 What are punitive damages? ..................................................6-28Q 6.27.17 What is not included as loss? ................................................6-28Q 6.27.18 What are some of the problems encountered

with loss? .................................................................................6-29Q 6.27.19 What is restitution? .................................................................6-29

Exclusions ..............................................................................................................6-30

Q 6.28 What exclusions might apply? .........................................................6-30Q 6.29 What problems are encountered with introductory

phrases and exclusions? ..................................................................6-31Q 6.30 What are conduct exclusions ? ...........................................................6-32Q 6.31 What is the personal profit or advantage exclusion ? .....................6-32

Q 6.31.1 What is the effect of the final adjudication language? .................................................................................6-33

Q 6.32 What is the dishonesty, fraudulent or criminal acts exclusion? ...........................................................................................6-34

Q 6.32.1 What if one of the insureds under our D&O policy signs a confession admitting that he is guilty of criminal conduct? ...................................................................6-35

Q 6.32.2 Does the bad conduct of one insured bar coverage for other insureds under the conduct exclusions? ............6-36

Q 6.32.3 What is a severability of exclusions provision? ...................6-36Q 6.32.4 If a court enters judgment against an insured under

our D&O liability policy that establishes dishonesty or fraud, do we have to repay the costs of defense? .........6-37

Q 6.32.5 If an insured agrees to settle a claim, does that mean that the insurer can claim that bad conduct has been established? ...................................................................6-37

Q 6.32.6 Can the insurer sue an insured in a separate court action and get a judgment that the insured was guilty of dishonesty or fraud so as to avoid coverage? ................................................................................6-37

Q 6.33 What are specific exclusions? ...........................................................6-37Q 6.33.1 What is the insured versus insured exclusion? .....................6-38Q 6.33.2 Why do carriers want to limit coverage of insured

versus insured claims? ............................................................6-38

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Q 6.33.3 How can we avoid problems with the insured versus insured exclusion? ...................................................................6-38

Q 6.33.4 What does a typical insured versus insured exclusion look like? ..................................................................................6-39

Q 6.33.5 What are regulatory exclusions? ............................................6-40Q 6.33.6 What is the pollution exclusion? ...........................................6-40Q 6.33.7 What is the securities laws exclusion? ..................................6-41Q 6.33.8 What is the contract exclusion? .............................................6-41Q 6.33.9 What are other insurance exclusions? ...................................6-41Q 6.33.10 What is the employment practices exclusion? .....................6-42Q 6.33.11 What is the prior acts exclusion?...........................................6-42Q 6.33.12 What is the prior notice exclusion? .......................................6-42Q 6.33.13 What problems arise with a prior notice exclusion? ...........6-43Q 6.33.14 What is the prior or pending litigation exclusions? .............6-43Q 6.33.15 What is the ERISA exclusion? ................................................6-43Q 6.33.16 What is the bodily injury or loss of property

exclusion? ................................................................................6-44Q 6.33.17 What kinds of problems might we encounter with

other insurance exclusions? ...................................................6-44Q 6.34 What other exclusions might be included in our D&O

policy? .................................................................................................6-44

Duties of the Insured ............................................................................................6-45

Q 6.35 What are the duties of the insured in the event of a claim? ........6-45Q 6.36 What duty does the insured have with regard to providing

notice of a claim? ...............................................................................6-45Q 6.37 What triggers the duty to notify the insurer of a potential

claim? ..................................................................................................6-46Q 6.38 If we have notice of a potential claim, how do we make

sure we are covered? ........................................................................6-47Q 6.39 What is a Notice of Circumstance? ....................................................6-47Q 6.40 What method of providing notice is required? ..............................6-47Q 6.41 What are the consequences of failure to give timely notice? ......6-48Q 6.42 What is the duty to cooperate? .......................................................6-48

Q 6.42.1 What are the most common issues encountered by insureds with regard to the duty of cooperation? .............6-48

Counsel ..................................................................................................................6-49

Q 6.43 Who has the right to select counsel? ..............................................6-49Q 6.44 What is panel counsel ?......................................................................6-49Q 6.45 Who does the insurer-appointed attorney represent? .................6-49

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Q 6.46 Should I be worried that the defense attorney is more interested in what the insurer wants than in what is best for me? ................................................................................................6-49

Settlements ............................................................................................................6-50

Q 6.47 Do outside directors ever have to contribute to settlements of securities class actions? .........................................6-50

Q 6.48 If there’s so much risk, why aren’t directors called upon to contribute to settlements more often? ......................................6-50

Q 6.49 Who controls the process of settlement? ......................................6-50

Chapter 7 Fiduciary Liability Insurance

Features of Fiduciary Liability Insurance ............................................................7-3

Q 7.1 What is ERISA? .....................................................................................7-3Q 7.2 What is an ERISA plan? .......................................................................7-3

Q 7.2.1 What is an employee pension benefit plan? ...........................7-3Q 7.2.2 What is an employee welfare benefit plan? ............................7-3Q 7.2.3 What is an employee organization? ........................................7-3Q 7.2.4 Who might create an ERISA plan? ..........................................7-3

Q 7.3 Who is an ERISA fiduciary? ................................................................7-4Q 7.3.1 Must there be formal documents appointing a

person or entity as a fiduciary? ..............................................7-4Q 7.4 What duties does an ERISA fiduciary have? ....................................7-4Q 7.5 What is a fiduciary precluded from doing? ......................................7-5Q 7.6 What are the consequences of breaching fiduciary duties? ..........7-5Q 7.7 I depend on third parties to administer most of my

employee benefit plans, so why should I consider purchasing fiduciary liability insurance coverage? ........................7-5

Q 7.7.1 Can an employer insulate itself from liability by providing employee benefits through a third party such as a disability or health insurance company? .............7-6

Q 7.8 Is an employer subject to claims for discrimination under ERISA? ...................................................................................................7-7

Q 7.9 Who needs to worry about claims potentially covered by a fiduciary liability insurance policy? ..................................................7-7

Q 7.10 Who is at risk for fiduciary liability under ERISA? ..........................7-7Q 7.11 Can a fiduciary face criminal penalties? ...........................................7-8Q 7.12 Who can pursue claims against employers and fiduciaries? .........7-8Q 7.13 Where can an ERISA action be filed? .................................................7-8Q 7.14 What other penalties might be imposed under ERISA? ..................7-8

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Q 7.15 What coverage language should we look for in a fiduciary liability insurance policy? ..................................................................7-9

Q 7.16 How can our broker help us define our fiduciary liability insurance needs? ...............................................................................7-10

Q 7.17 Do we need to consult an attorney in evaluating fiduciary liability policies? ................................................................................7-10

Q 7.18 What is a manuscript policy ? ............................................................7-10

Duty to Defend .....................................................................................................7-10

Q 7.19 Does the insurance carrier have a duty to defend us under our fiduciary liability policy? ...........................................................7-10

Q 7.19.1 Do I have to reimburse the insurer for the costs of defense if the claims turn out not to be covered? .............7-11

Q 7.19.2 Are defense costs in addition to the limits of liability? .....7-11Q 7.20 What if we discover an error in plan administration

before any claims are filed against me? ..........................................7-11

Claims-Made Versus Occurrence-Based ...........................................................7-12

Q 7.21 Is our fiduciary liability policy a claims-made policy or an occurrence-based policy? ..................................................................7-12

Q 7.22 What is a claims-made policy? .........................................................7-12Q 7.22.1 What is tail coverage? ............................................................7-12

Parts of a Typical Fiduciary Liability Policy ......................................................7-12

Q 7.23 What are the parts of a typical fiduciary liability policy? ............7-12Q 7.23.1 What are declarations? ...........................................................7-12Q 7.23.2 What is the insuring agreement? ...........................................7-12Q 7.23.3 What are exclusions? ..............................................................7-13Q 7.23.4 What are definitions? ..............................................................7-13Q 7.23.5 What are conditions? ..............................................................7-13Q 7.23.6 What are endorsements? ........................................................7-13

Potential Problems with Disclosures ..................................................................7-13

Q 7.24 What potential problems might we encounter with fiduciary liability claims? .................................................................7-13

Q 7.25 What are potential problems with disclosures on the insurance application? ......................................................................7-13

Q 7.25.1 What is rescission? ..................................................................7-13Q 7.25.2 Do I have to provide information not requested on

application? .............................................................................7-14Q 7.25.3 What happens if I do not answer a question?.....................7-14Q 7.25.4 What happens if I give an incomplete answer? ..................7-14

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Q 7.25.5 Can the insurance carrier rely on things not listed in our specific answers to the application? ........................7-14

Q 7.25.6 What is severability and why is it important to me? ......................................................................................7-15

Potential Definitional Problems ..........................................................................7-15

Q 7.26 Who is insured ? ..................................................................................7-15Q 7.26.1 What problems might arise with regard to who is

insured? ...................................................................................7-16Q 7.27 What is insured capacity ? .................................................................7-16

Q 7.27.1 What qualifies as an insured subsidiary ? ............................7-16Q 7.27.2 How can we protect ourselves against confusion as

to what entities are to be insured under the policy? .........7-17

Claims ....................................................................................................................7-17

Q 7.28 What is a claim? .................................................................................7-17Q 7.28.1 Why is the definition of claim important? ...........................7-18Q 7.28.2 Does an investigative demand or governmental

subpoena constitute a “claim”? ............................................7-18Q 7.28.3 Is a complaint seeking injunctive relief a claim? ................7-18

Wrongful Acts ......................................................................................................7-18

Q 7.29 What is a wrongful act ? .....................................................................7-18Q 7.30 What does wrongful act mean in the insured person

context? ..............................................................................................7-19Q 7.31 What happens when the allegations include both

covered and non-covered acts? .......................................................7-19Q 7.32 When must the wrongful acts have occurred to be

covered? .............................................................................................7-19Q 7.32.1 What does interrelated wrongful acts mean? .......................7-20

Loss ........................................................................................................................7-20

Q 7.33 What is loss ? .......................................................................................7-20Q 7.33.1 What is not included as loss ? ................................................7-21

Exclusions from Fiduciary Liability Policy .........................................................7-21

Q 7.34 What are significant exclusions ? .......................................................7-21Q 7.35 What does severability mean to us? ...............................................7-21Q 7.36 What exclusions might apply? .........................................................7-22Q 7.37 What are problems encountered with introductory

phrases and exclusions? ..................................................................7-23Q 7.38 What are conduct exclusions ? ...........................................................7-24

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Q 7.38.1 What is the personal profit or advantage exclusion ? ..........7-24Q 7.38.2 What is the dishonesty exclusion? .........................................7-24Q 7.38.3 What is the effect of the final adjudication language? .......7-25Q 7.38.4 What if one of the insureds under our fiduciary

liability policy signs a confession admitting that he is guilty of criminal conduct? ..........................................7-25

Q 7.39 Does the bad conduct of one insured bar coverage for other insureds under the conduct exclusions? .......................................7-25

Q 7.39.1 What is a severability of exclusions provision? .................7-26Q 7.39.2 If a court enters judgment against an insured under

our fiduciary liability policy that establishes dishonesty or fraud, do we have to repay the costs of defense? ..............................................................................7-26

Q 7.39.3 If an insured agrees to settle a claim, does that mean that the insurer can claim that bad conduct has been established?............................................................7-27

Q 7.39.4 Can the insurer sue an insured in a separate court action and get a judgment that the insured was guilty of dishonesty or fraud so as to avoid coverage? ................................................................................7-27

Q 7.40 What is the insured versus insured exclusion? ................................7-27Q 7.41 What is the pollution exclusion? ......................................................7-27Q 7.42 What are other insurance exclusions? ...........................................7-27

Q 7.42.1 What is the employment practices exclusion ? .....................7-28Q 7.43 What is the prior acts exclusion ? .....................................................7-29

Q 7.43.1 What is the prior notice exclusion ? .......................................7-29Q 7.43.2 What problems arise with the prior notice exclusion ? .......7-29Q 7.43.3 What is the prior or pending litigation exclusions? .............7-29Q 7.43.4 What is the bodily injury or loss of property

exclusion ? ................................................................................7-29Q 7.43.5 What kinds of problems might we encounter with

other insurance exclusions? .................................................7-30

Duties of the Insured ............................................................................................7-30

Q 7.44 What issues arise with claims? ........................................................7-30Q 7.45 What are the duties of the insured in the event of a claim? ........7-31Q 7.46 What duty does the insured have with regard to providing

notice of a claim? ...............................................................................7-32Q 7.47 What triggers the duty to notify the insurer of a potential

claim? ..................................................................................................7-33Q 7.48 If we have notice of a potential claim, how do we make sure

we are covered? .................................................................................7-33

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Q 7.49 What is a notice of circumstance? ....................................................7-33Q 7.50 What method of providing notice is required? ..............................7-34Q 7.51 What are the consequences of failure to give timely notice? ......7-34Q 7.52 What is the duty to cooperate? .......................................................7-34Q 7.53 What are the most common issues encountered by

insureds with regard to the duty of cooperation? ........................7-35

Selecting Counsel .................................................................................................7-35

Q 7.54 Who has the right to select counsel? ..............................................7-35Q 7.55 What is panel counsel? .....................................................................7-35Q 7.56 Who does the insurer-appointed attorney represent? .................7-35Q 7.57 Should I be worried that the defense attorney is more

interested in what the insurer wants than in what is best for me? ................................................................................................7-35

Q 7.58 Who controls the process of settlement? ......................................7-36

Chapter 8 Employment Practices Liability Insurance

What and Who Are Covered by an EPLI Policy? ...............................................8-2

Q 8.1 What types of employment practices are covered under an EPLI policy? ...........................................................................................8-2

Q 8.2 Who is covered? ..................................................................................8-3Q 8.3 Does an EPLI policy cover punitive damages? ................................8-3

Particulars of an EPLI Policy .................................................................................8-3

Q 8.4 Is there a standard form EPLI policy? ...............................................8-3Q 8.5 Is the EPLI policy a claims-made policy? ..........................................8-4Q 8.6 Is the EPLI policy a duty to defend policy? ......................................8-4

Q 8.6.1 What is panel counsel? ............................................................8-4Q 8.6.2 Do we have to use panel counsel if we already have

employment law counsel? .......................................................8-4Q 8.7 Who does the insurer-appointed attorney represent? ...................8-5Q 8.8 Should we be worried the defense attorney is more

interested in what the insurer wants than in what is best for us? ...................................................................................................8-5

Q 8.9 What determines coverage under an EPLI policy? .........................8-6

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Exclusions ................................................................................................................8-6

Q 8.10 What are the typical exclusions in an EPLI policy? ........................8-6

Severability .............................................................................................................8-8

Q 8.11 What is severability? ...........................................................................8-8Q 8.12 Does the EPLI policy have severability of exclusions? .....................8-8Q 8.13 Does the EPLI policy provide for severability

of representations? ...............................................................................8-8

Claims That Trigger Coverage Under an EPLI Policy .........................................8-9

Q 8.14 What is a claim under an EPLI policy? ..............................................8-9Q 8.15 What kind of claims trigger coverage under an

EPLI policy? ........................................................................................8-10Q 8.16 What are the discrimination claims that are covered by an

EPLI policy? ........................................................................................8-11

ADA .......................................................................................................................8-11

Q 8.17 What is the ADA? ...............................................................................8-11Q 8.17.1 Do EPLI policies cover ADA claims? ....................................8-12

Family and Medical Leave Act ..........................................................................8-12

Q 8.18 What is the Family and Medical Leave Act? ...................................8-12Q 8.18.1 Do EPLI policies cover FMLA claims? ..................................8-12

ADEA .....................................................................................................................8-12

Q 8.19 What is the ADEA? .............................................................................8-12Q 8.19.1 Does an EPLI policy cover ADEA claims? ............................8-13

Sexual Harassment ..............................................................................................8-13

Q 8.20 What is sexual harassment ? .............................................................8-13Q 8.20.1 Do EPLI policies cover harassment claims? .......................8-14

Wrongful Termination ..........................................................................................8-14

Q 8.21 What are wrongful termination claims?..........................................8-14

Immigration ...........................................................................................................8-15

Q 8.22 What are immigration claims? .........................................................8-15Q 8.22.1 Do EPLI policies cover immigration claims? .......................8-15

Fair Labor Standards Act ....................................................................................8-16

Q 8.23 What is the Fair Labor Standards Act? ...........................................8-16Q 8.23.1 Do EPLI policies cover FLSA claims? ...................................8-16Q 8.23.2 Are whistleblower claims related to FLSA covered? .........8-16

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WARN Act ............................................................................................................8-16

Q 8.24 What is the WARN Act? .....................................................................8-16Q 8.24.1 Do EPLI policies cover WARN Act claims? ..........................8-17

Sarbanes-Oxley or SOX .....................................................................................8-17

Q 8.25 What is Sarbanes-Oxley or SOX? ......................................................8-17Q 8.25.1 Do EPLI policies cover SOX claims? .....................................8-17

Defamation ...........................................................................................................8-18

Q 8.26 What are defamation claims and are they covered under an EPLI policy? ........................................................................................8-18

Invasion of Privacy ...............................................................................................8-19

Q 8.27 What is invasion of privacy? ............................................................8-19Q 8.27.1 Do EPLI policies cover claims for invasion of privacy? .....8-19

Intentional Infliction of Emotional Distress ........................................................8-20

Q 8.28 Do EPLI policies cover claims for intentional infliction of emotional distress? ..................................8-20

Definitions .............................................................................................................8-20

Q 8.29 Who is insured under an EPLI policy? ............................................8-20Q 8.30 What is the typical insuring agreement in an EPLI policy? ..........8-20Q 8.31 Who is an employee under the terms of an EPLI policy? .............8-21Q 8.32 What is loss? .......................................................................................8-21Q 8.33 What are the duties of the insured in the event of a claim? ........8-22Q 8.34 What is a discovery period ? ..............................................................8-22Q 8.35 What is a notice of circumstance? ....................................................8-22Q 8.36 What are the duties of the insured with regard to

settlement? .........................................................................................8-23Q 8.37 What is a hammer clause? ................................................................8-23

Q 8.37.1 Is a hammer clause enforceable? ..........................................8-23Q 8.37.2 What does a typical hammer clause look like? ...................8-23

Q 8.38 Should we buy excess EPLI coverage? ...........................................8-24

Chapter 9 Excess Insurance

Policies That Are Not Excess Insurance ...............................................................9-2

Q 9.1 What is a primary insurance policy ? .................................................9-2

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Q 9.2 What is the difference between an excess policy and an umbrella policy? ..................................................................................9-2

Q 9.2.1 Do umbrella policies contain a duty to defend? ...................9-2Q 9.3 What is differences in conditions coverage? .....................................9-2

Layers of Excess Coverage ...................................................................................9-3

Q 9.4 Does it make a difference if an insured elects to purchase numerous excess layers of coverage? ..............................................9-3

Q 9.5 Why purchase separate excess insurance instead of simply opting for higher policy limits? .........................................................9-3

Q 9.6 How does excess coverage work when there are several layers of insurance? ............................................................................9-3

Types of Excess Policies ........................................................................................9-4

Q 9.7 What is a following form excess policy? ...........................................9-4Q 9.8 What is a stand-alone excess policy? ................................................9-4

How Does Excess Insurance Work? ....................................................................9-4

Q 9.9 Does an excess policy contain a duty to defend? ...........................9-4Q 9.10 What is a quota share program? .........................................................9-4Q 9.11 When must I notify my excess carrier of a potential claim? ..........9-5Q 9.12 How might a coverage dispute with my primary carrier

impact my excess coverage? .............................................................9-5Q 9.13 How might settlement with an underlying insurer impact

my excess coverage? ..........................................................................9-5Q 9.14 If my primary carrier becomes insolvent can I then turn to

my excess carrier? ..............................................................................9-6Q 9.15 What is a shaving of limits endorsement? ........................................9-6Q 9.16 What is a most favored nation clause? ..............................................9-6Q 9.17 If our settlement is less than the total primary insurance

limits do we have to have the consent of the excess insurer? ......9-7Q 9.18 Does the primary insurance company have a duty to the

excess insurance company in connection with settlement? .........9-7Q 9.19 What duty does the excess insurance company have to

cooperate in the settlement or defense of a lawsuit against its insured? ...........................................................................................9-7

Q 9.20 What is horizontal exhaustion? ..........................................................9-7

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Chapter 10 Fidelity/Crime Insurance

How Does Fidelity/Crime Insurance Work? .....................................................10-2

Q 10.1 What is fidelity coverage? .................................................................10-2Q 10.1.1 What is the Financial Institution Bond ? ................................10-2Q 10.1.2 What does the Financial Institution Bond cover? ................10-2Q 10.1.3 What is the Commercial Crime Coverage Form? .................10-2

Q 10.2 Why do we need to buy fidelity/crime insurance? .........................10-3Q 10.3 Whose dishonest and fraudulent acts are covered by

fidelity insurance policies? ................................................................10-3Q 10.4 Who is typically insured under a fidelity policy? ...........................10-4Q 10.5 What is generally covered under fidelity/crime policies? .............10-4

Q 10.5.1 What is employee theft coverage? ........................................10-4Q 10.5.2 What is premises coverage? ...................................................10-4Q 10.5.3 What is in-transit coverage? ...................................................10-5Q 10.5.4 What is forgery coverage? ......................................................10-5Q 10.5.5 What is computer fraud coverage? ........................................10-5Q 10.5.6 What is funds transfer fraud coverage? .................................10-5Q 10.5.7 What is money orders and counterfeit currency fraud

coverage? .................................................................................10-5Q 10.5.8 What is credit card fraud coverage? ......................................10-6Q 10.5.9 What is client coverage? .........................................................10-6Q 10.5.10 What is expense coverage? ....................................................10-6

Q 10.6 What are the typical exclusions to coverage under a fidelity policy? .....................................................................................10-6

Q 10.7 What are our duties if we discover a loss has occurred? .............10-7Q 10.8 What are some common issues that arise with

fidelity/crime insurance? ...................................................................10-8Q 10.8.1 What issues arise with regard to discovery? ......................10-8Q 10.8.2 What constitutes dishonesty? ..............................................10-8Q 10.8.3 What problems arise with whether losses are direct or

indirect? ...................................................................................10-9Q 10.8.4 What kind of issues come up with on-premises

coverage? .................................................................................10-9Q 10.8.5 What kind of issues arise concerning computer

fraud coverage? .......................................................................10-9

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Chapter 11 Cyber Liability Insurance

When Data Breaches Occur ...............................................................................11-3

Q 11.1 What is cyber liability? ......................................................................11-3Q 11.1.1 How do data breaches occur? ..............................................11-3Q 11.1.2 What is the likely fallout of a cyber breach? ........................11-3Q 11.1.3 What is personally identifiable information? .......................11-4Q 11.1.4 What is protected health information? ..................................11-4Q 11.1.5 What is health information? ...................................................11-4Q 11.1.6 What is individually identifiable health information? .........11-4Q 11.1.7 What is personally identifiable financial information? .......11-5Q 11.1.8 What are the potential sources for a hacker

to target? .................................................................................11-5

Claims That Arise Out of Data Breaches ...........................................................11-6

Q 11.2 What types of claims might arise out of data breaches? .............11-6Q 11.2.1 What kinds of claims are brought by customers? ..............11-6Q 11.2.2 What types of allegations do customer-plaintiffs

make? .......................................................................................11-7Q 11.3 Who is at risk for claims arising out of a data breach? ................11-7

Q 11.3.1 What is the risk for public companies? ...............................11-7Q 11.3.2 What is the risk for private companies?..............................11-8Q 11.3.3 What is the risk for directors and officers? ........................11-9Q 11.3.4 What is the risk for lawyers? ................................................11-9Q 11.3.5 What is the risk for financial advisors and financial

institutions? ..........................................................................11-10Q 11.3.6 What is the risk for health care professionals and

entities? .................................................................................11-11Q 11.3.7 What is the risk for insurance companies? .......................11-11Q 11.3.8 What is the risk for employers?..........................................11-12

Protection Against Losses Incurred in a Data Breach ....................................11-12

Q 11.4 What kind of insurance coverage do we need to protect against cyber liability? .....................................................................11-12

Q 11.4.1 Can we rely on our Commercial General Liability policy alone? .........................................................................11-13

Q 11.5 What is cyber insurance? .................................................................11-13Q 11.5.1 What is the difference between cyber insurance and

Technology Errors and Omissions Insurance? ....................11-14Q 11.5.2 What does a typical stand-alone cyber insurance

policy cover ? .........................................................................11-14Q 11.5.3 What types of claims are covered by cyber

insurance? ..............................................................................11-15

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Important Cyber Policy Terms ..........................................................................11-15

Q 11.5.4 What is a record ? ..................................................................11-15Q 11.5.5 What is a wrongful act ? ........................................................11-16Q 11.5.6 What is a claim? ....................................................................11-16Q 11.5.7 What is loss? ..........................................................................11-17Q 11.5.8 What does direct loss mean and how does that affect

our coverage? .......................................................................11-17Q 11.5.9 What is a privacy injury? ......................................................11-17Q 11.5.10 What are privacy notification expenses? ............................11-17Q 11.5.11 What is crisis management expense? .................................11-18Q 11.5.12 What is business interruption loss? .....................................11-18Q 11.5.13 What is business income? ....................................................11-18Q 11.5.14 What is E-theft loss? ..............................................................11-18Q 11.5.15 What is E-communications loss? ..........................................11-18Q 11.5.16 What is E-threat expense coverage? ....................................11-19Q 11.5.17 What is E-vandalism expense?.............................................11-19Q 11.5.18 What is content injury ? .........................................................11-19Q 11.5.19 What is cloud failure coverage? ...........................................11-20Q 11.5.20 What is notification cost reimbursement

coverage? ...............................................................................11-20Q 11.5.21 What is HI-TECH ? ..................................................................11-20Q 11.5.22 Whose acts are covered? .....................................................11-21Q 11.5.23 What incidents are covered? ..............................................11-21Q 11.5.24 What is a cyber-attack? .......................................................11-21

Limitations and Exclusions ................................................................................11-21

Q 11.6 How do insurers limit coverage in cyber insurance policies? ............................................................................................11-21

Q 11.6.1 What is the Failure to Follow Minimum Required Practices Exclusion? .............................................................11-22

Q 11.6.2 What is the retroactive date exclusion? ..............................11-22Q 11.6.3 What is the contract exclusion? ...........................................11-22

Considerations in Purchasing Cyber Insurance .............................................11-23

Q 11.7 What should we consider in buying cyber insurance? ................11-23Q 11.7.1 Should we buy a duty to defend or an indemnity

policy? ....................................................................................11-23Q 11.7.2 Is it possible to just add an endorsement to our

professional liability/E&O policy to cover a data breach? ..................................................................................11-23

Q 11.7.3 Can we obtain coverage for acts and omissions of our vendors? .....................................................................11-24

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Q 11.7.4 What should the policy definition of territory include? .................................................................................11-24

Q 11.7.5 Should we buy business interruption coverage? ................11-24Q 11.7.6 Is there anything we can do to rectify the retroactive

date exclusion problem? ......................................................11-24Q 11.7.7 What should we know about allocation of costs? ............11-25Q 11.7.8 Is subrogation a problem with cyber insurance? ..............11-25Q 11.7.9 What limits should we carry on cyber insurance? ............11-26

Chapter 12 Claims

Notice Requirements ............................................................................................12-2

Q 12.1 What happens if we fail to give timely notice? ..............................12-2Q 12.2 What types of events should put me on claim-alert? ...................12-2Q 12.3 Whom do we notify? .........................................................................12-3Q 12.4 Is there any required method of notice? ........................................12-3Q 12.5 How can our broker help us? ...........................................................12-4Q 12.6 When do we hire an attorney? .........................................................12-5

Duties to Defend, Cooperate, and Indemnify ...................................................12-5

Q 12.7 Who controls the process of responding to and handling a claim? ..................................................................................................12-5

Q 12.8 Are there any special controls we should implement when the claim comes in? ................................................................12-6

Q 12.9 What is the duty of cooperation? ......................................................12-7Q 12.10 Can we make an offer to settle the claim without notifying

the insurer? ........................................................................................12-7Q 12.11 What is the difference between the duty to defend and

the duty to indemnify? .......................................................................12-8

Coverage Disputes ..............................................................................................12-8

Q 12.12 What is a coverage dispute? ..............................................................12-8Q 12.12.1 How does a coverage dispute affect the duty to

defend ? .....................................................................................12-8Q 12.12.2 What is a reservation of rights letter? ....................................12-9Q 12.12.3 What is a non-waiver agreement ? .......................................12-10Q 12.12.4 What is an interim funding agreement, and do

I have to sign it? ....................................................................12-10Q 12.12.5 What is rescission? ................................................................12-11Q 12.12.6 What is a declaratory judgment ? .........................................12-11

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Q 12.13 If the insurance company sues me for declaratory judgment, who bears the costs of defending against that action? ...............................................................................................12-11

Q 12.14 What is bad faith? ............................................................................12-12Q 12.15 What is allocation? ..........................................................................12-13

Settlements ..........................................................................................................12-14

Q 12.16 How do we work with the insurance carrier in connection with potentially settling the claim against us? ............................12-14

Q 12.17 If my policy is an indemnity policy rather than a duty to defend policy, can I settle the claim without the insurance company’s agreement? ...................................................................12-14

Q 12.18 What problems arise when there are multiple insurance policies that may cover a given loss? ...........................................12-14

Index ........................................................................................................................I-1

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