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- Fourth Circuit Upholds Jury’s Sarbanes-Oxley Award of Emotional Distress Damages to Fired CFO
- Supreme Court Holds That TSA Whistleblower’s Disclosure Wasn’t “Prohibited by Law”
- Individual Liability of Officers and Directors for a Corporate Data Breach
- 2015 Brings Significant Changes to Maryland’s Campaign Finance Laws
- Five Issues in Executive Disputes to Watch in 2015
- Suits by Suits’ Greatest Hits of 2014
- Tune Up Your D&O Insurance Policy To Make Sure It Provides The Protection Corporate Officers And Directors Need
- Yet Another Reason Why D&O Insurance Is Critical
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Showing 16 posts in D&O.
The hacking of Sony’s private data has been one of the biggest stories in the country over the past couple of months. It won’t surprise anyone to learn that lawsuits have been filed over the breach. Indeed, the plaintiffs in several class action lawsuits are seeking to consolidate their cases into one massive Sony Data Breach Litigation case.
So far, the plaintiffs in those cases haven’t alleged claims against individual Sony officers or directors. This begs a couple of questions: is that something that plaintiffs do? And what kinds of allegations can they bring?
The answer is that a number of plaintiffs have brought claims against officers and directors who worked at companies that suffered data breaches. Typically, they allege that the defendants did not properly manage the company’s cyber risks.
For example, in February 2014, Kevin LaCroix of D&O Diary brought to our attention lawsuits that Target shareholders filed against the company’s officers and directors, arising from the massive theft of Target’s private customer information. The shareholders alleged that the company’s executives and board knew how important the security of private customer information was, and failed to take reasonable steps to put controls in order to detect and prevent a breach. Further, they alleged, the defendants exacerbated the damage by publicly minimizing the breach. Read More ›
Tune Up Your D&O Insurance Policy To Make Sure It Provides The Protection Corporate Officers And Directors Need
A D&O liability policy protects key individuals in a corporate structure. These individuals are likely targets for shareholder frustration if an entity is underperforming or suffering from other troubles. In addition, they may be exposed to personal scrutiny from regulators if the corporation is investigated for any wrongdoing. As previously discussed in this space, an insurance policy can provide more reliable protection for the indemnification rights of the officers and directors in times of financial distress because corporations plagued by regulatory or other legal problems frequently suffer financial setbacks. However, when a bankruptcy results from the financial troubles, not all insurance policies offer the same protection for the payment of fees and expenses for its directors and officers.
Under section 541 of the Bankruptcy Code, a debtor’s liability insurance policy is the property of a bankruptcy estate and is subject to the jurisdiction of the Bankruptcy Court, including the automatic stay. There is considerable disagreement among the courts over whether the proceeds of the policy are also property of the estate. The actual determination of whether the proceeds are property of the estate is made on a case by case basis and is controlled by the express language and scope of the policy.
When the D&O policy only provides direct coverage to the debtor, there is little doubt that the proceeds are part of the debtor’s estate and are to be administered by the Bankruptcy Court for the benefit of all creditors. Similarly, when the policies only provide direct coverage to the individuals for their indemnification claims courts generally hold that the bankruptcy estate has no interest in the proceeds. However, when the policy provides direct coverage to both the debtor and the directors and officers, the proceeds will be property of the estate if depletion of the proceeds would have an adverse effect on the estate. Depletion of the proceeds will be construed to have an adverse effect on the estate if the policy proceeds actually protect the estate’s other assets from diminution. Read More ›
Corporate directors and officers may think indemnification provisions are sufficient to protect them from claims asserted against them by shareholders or regulators. However, if a director or officer chooses to rely solely on indemnification in bylaws or contracts, and ignores the availability of directors & officers (“D&O”) liability insurance, he or she could be making a significant mistake. In particular, a D&O policy can offer these individuals more reliable protection in times of financial distress. When corporations are plagued by regulatory or other legal problems, they may also suffer from financial setbacks, eventually leading to bankruptcy proceedings. The manner in which a bankrupt corporation has provided for the payment of fees and expenses for its directors and officers may be critical to the individuals affected.
Under section 502(e) of the Bankruptcy Code, a claim for indemnification is subordinated to the class of claims in which the underlying claim is placed. This means that, to the extent that the directors and officers are jointly liable with the corporation to a third party on an adverse claim, they will not receive any distribution on their resulting indemnification claim unless, and until, all of the claims of the class in which the underlying obligation is placed have been paid in full. This provision is intended to provide for equality of distributions in favor of all similarly situated creditors: if the underlying claim receives payments from both the corporation and the director and officer defendants and then the defendants receive payment on account of any contributions they made on the claim, that claim will have received a higher rate of distribution at the expense of other creditors. Read More ›
The Supreme Court of Washington’s recent decision in Failla v. FixtureOne Corporation is noteworthy on two levels.
First, it involved the surprising claim by a salesperson, Kristine Failla, that the CEO of her employer (FixtureOne) was personally liable for failing to pay her sales commissions. Typically, if an employee had a claim for unpaid commissions, you’d expect the employee to assert that claim against her company, not the chief. But under the wage laws of the state of Washington, an employee has a cause of action against “[a]ny employer or officer, vice principal or agent of any employer ... who ... [w]ilfully and with intent to deprive the employee of any part of his or her wages, [pays] any employee a lower wage than the wage such employer is obligated to pay such employee by any statute, ordinance, or contract.” Read More ›
Government Investigations: The Treacherous Path to Obtaining (and Keeping!) Defense Costs Paid Under D&O Policies
For my first foray into blog-writing, allow me to tell a cautionary tale intersecting two of my favorite topics: defending companies and individuals in government investigations and Directors and Officers (D&O) Liability Coverage. As a contract junkie who enjoys reading, interpreting, and arguing contract language, parsing through various interrelated D&O policy provisions to glean favorable language for my white collar clients offers hours of amusement (lest ye be worried about me, I do have other hobbies). D&O policies can be effectively used to defray defense costs incurred due to a government investigation. The trick is keeping the money.
The recent suit between Protection Strategies, Inc. (PSI) and Starr Indemnity & Liability Co. in the Eastern District of Virginia, case 1:13-cv-00763-LO-IDD, illustrates how difficult keeping the money can be. PSI is an Arlington, Va.-based defense contractor. In January 2012, PSI received a subpoena from the NASA Office of the Inspector General and a search warrant issued by the United States District Court for the Eastern District of Virginia. On February 1, 2012, the NASA OIG executed the search warrant at PSI’s headquarters. In addition to the company itself, several of PSI’s current and former officers were informed that they were also targets of the NASA OIG investigation. PSI retained Dickstein Shapiro to represent it and hired separate counsel to represent the individual targets and other company employees. Read More ›
The answer to that question, at least according to the Ninth Circuit Court of Appeals, is “no.”
It seems straightforward, but getting to that “no” requires a little bit of an understanding of insurance – in this case, directors’ and officers’ (“D&O”) insurance. A D&O policy was at issue in this case, Forest Meadows Owners Assoc. v. State Farm Ins. Co., in which the policyholder – a condominium association – was sued by an employee it had fired, and sought coverage from its insurer. Read More ›
When the dog bites
When the bee stings
When I'm feeling sad
I simply remember my favorite things
And then I don't feel so bad.
Just from looking at the lyrics, your mind will automatically add in the tune. Rodgers & Hammerstein wrote it, Mary Martin, Julie Andrews, and even Carrie Underwood have performed it: the classic song “My Favorite Things” from The Sound of Music (which for mysterious reasons is now associated with Christmas, even though the musical isn’t about Christmas at all).
But I bet few people know how I interpret the song. I’m an insurance coverage lawyer – so my favorite things aren’t brown paper packages tied up with string or schnitzel or bright copper kettles. My favorite things (or, at least, the things I use every day) include principles that – if some thought is given to them before a claim comes about, or in presenting the claim when it happens – can help executives and the companies that hire and fire them have access to the right insurance for the disputes that develop between them. So, in that spirit, this post looks at some of those executive-employment-related insurance issues that we’ve reviewed throughout this year. They’re all things that business leaders should think on as they consider a company’s insurance strategy. You could think of it as a cream-colored pony with an insurance treatise on its back. But I’ll make it much more appealing than some book – more like a crisp apple streudel. Read More ›
Even When “Loss” Is Defined, Insurance Policy Interpretation For Executive Agreement Claims Can Still Be Tricky
What’s a “loss?” And, no, I don’t mean something our beloved Washington Nationals have racked up in equal number to their wins this season.
I’m talking about a loss as defined in an insurance policy – or, as the word is used in most insurance policies that apply to employment-related claims, a capitalized “Loss.” Believe it or not, even when this term is specifically defined in an insurance contract, it can still cause confusion. Read More ›
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) required every public company to disclose its incentive-based compensation and to adopt a policy to recover from current and former executives, in the event of a restatement, any such compensation that would not have been awarded under the restated financial statements. As a result of the Act, many public companies in America have adopted new compensation “clawback” policies, even though the SEC has yet to promulgate regulations as required by the statute and there is no effective date for implementing these requirements. Read More ›
EPLI: If You Hire Or Manage People And You Don’t Know What That Stands For, You Should Probably Read This, Part 2
In Part One of this series, we looked at insurance for employment-related claims against business owners and managers. Specifically, we looked at employment practices liability insurance (“EPLI”), and I suggested you find out if your company has this coverage – which, if you’re doing any of the hiring, firing, or supervising, is something you should know.
Assuming your company (or entity – employment-related claims hit not-for-profits as well) has EPLI, then you need to ask some more questions to really understand what it covers and how it will work. And the time to consider this is before you may potentially have a claim for coverage under it. Read More ›