Litigation Minute: Emerging Contaminants: Minimizing and Insuring Litigation Risk
WHAT YOU NEED TO KNOW IN A MINUTE OR LESS
As the scientific and regulatory landscape surrounding various emerging contaminants shifts, so too do the options that companies can consider taking to minimize and insure against the risk of emerging-contaminant litigation.
The second edition in this three-part series explores considerations for companies to minimize that risk and provides consideration for potential insurance coverage for claims arising from alleged exposure to emerging contaminants.
In a minute or less, here is what you need to know about minimizing and insuring emerging-contaminant litigation risk.
Minimizing Litigation Risk
As we discussed in our first edition of this series, regulation of emerging contaminants often drives emerging-contaminant litigation. For example, in emerging-contaminant litigation that alleges an airborne exposure pathway, plaintiffs’ complaints often prominently feature information from the US Environmental Protection Agency’s (EPA’s) National Air Toxics Assessment (NATA) screening tool and its predecessor, the Air Toxics Screening Assessment (AirToxScreen). AirToxScreen, and NATA before it, is a public mapping tool that can be queried by location, specific air emissions, and specific facilities to identify census tracts with potentially elevated cancer risks associated with various air emissions. Despite these tools’ many limitations, their simplicity and the information they provide have served as a foundation for many civil tort claims.
The takeaway: Since NATA and AirToxScreen use the EPA’s National Emission Inventory (NEI) as a starting point, companies with facilities that have emissions tied into NEI should carefully consider the implications of their reported emissions. For example, in some situations for some companies, it could be appropriate to consider whether to examine reported emissions and control technologies to determine whether adjustments can be made to reduce reported emissions to better reflect reality on a going-forward basis. In addition, requests for emerging contaminants sampling and reporting by regulatory agencies may be made publicly available.
Regulatory compliance is not always an absolute defense in tort litigation, but in most situations, compliance with existing regulations will be relevant to whether a company facing emerging-contaminant litigation met the applicable standard of care. Companies should examine applicable regulations against established compliance efforts and, as appropriate and applicable to any given company, consider whether it may be appropriate to closer examine compliance programs for continued improvements or audit established protocols to substantiate safety.
Insurance Coverage Considerations
Policyholders facing potential liability for claims arising out of alleged exposure to emerging contaminants should consider whether they have insurance coverage for such claims.
Commercial general liability insurance policies typically provide defense and indemnity coverage for claims alleging “bodily injury” or “property damage” arising out of an accident or occurrence during the policy period. While some insurers are now introducing exclusions for certain emerging contaminants (and most policies today have pollution exclusions), the underlying claim(s) may trigger coverage under occurrence-based policies issued years or decades earlier, depending on the alleged date of first exposure to the contaminant and the alleged injury process.
These older insurance policies are less likely to have exclusions relevant to emerging contaminants, and policies issued before 1986 are more likely to have a pollution exclusion with an important exception for “sudden and accidental” injuries, or no exclusions at all. In addition, some courts have ruled that pollution exclusions do not apply to product-related exposures or permitted releases of certain emerging contaminants.
In deciding whether there is potential insurance coverage for claims alleging exposure to emerging contaminants, policyholders should also consider whether they have potential coverage for such claims under insurance policies issued to predecessor companies. If insurance records are lost or incomplete, counsel can often coordinate an investigation, potentially with the assistance of an insurance archaeologist, and may be able to locate and potentially reconstruct historical insurance policies or programs.
The takeaway: Do not overlook the possibility of insurance coverage for potential liability regarding claims arising out of alleged emerging contaminant exposure. To maximize access to potential coverage, policyholders should act promptly to provide notice under all potentially responsive policies in the event of emerging-contaminant claims. Our experienced Insurance Recovery and Counseling lawyers can help guide policyholders through this process.
Our final edition will touch on considerations for companies defending litigation involving emerging contaminants. For more insight, visit our Emerging Contaminants webpage.
Who Owns the Policy vs. Who Owns the Proceeds? The Distinction Matters During Bankruptcy
One of the most important assets of a debtor’s estate in bankruptcy often is insurance purchased by the debtor before bankruptcy arises, to protect the company’s business, assets, and leaders. Insurance assets can be particularly key when the debtor’s estate faces liabilities from mass-tort suits and claims, securities and other claims relating to management of the entity before bankruptcy. However, questions often arise about who is entitled to the insurance. Is the debtor (and its trustee) entitled to recover and use the insurance? Or, under the terms of the relevant insurance policy, or policies, are others entitled to payments owed by the insurance?
In addressing these issues, bankruptcy courts often have distinguished between ownership of the policy itself and, under the terms of the policy, the insureds who are entitled to the benefit of the “insurance proceeds.” This issue typically arises with regard to liability insurance and can arise with regard to a variety of types of liability coverages, including commercial general liability (CGL) and directors and officers (D&O) liability coverage. First-party insurance, in contrast, applies to protect assets and exposures of the company, putting it outside of the reach of this issue of ownership of insurance-policy proceeds.
Thus, during bankruptcy, litigation may arise about who owns the insurance policy and who owns, or is entitled to payment of, the policy’s “proceeds.” Determining whether the proceeds from a liability insurance policy often turns on interpretation of policy provisions which, when analyzed, are relevant to resolution of this issue and, thus, present classic insurance-coverage issues. D&O policies typically purchased by companies often present challenging questions because they provide different types of coverage to different entities and individuals. A primary purpose of D&O insurance, of course, is to protect individual directors and officers of the company and other individual insureds, and the existence of such insurance helps ensure that qualified people are willing to serve on company boards and as officers (and, depending on who the D&O policy defines “insured,” as employees) of the company. Resolution of this issue depends on the nature of the liability faced and by whom, as well as numerous insurance factors, like the type of insurance and the policy language at issue.
Who Owns the Policy?
The bankruptcy estate is broadly defined to include “all legal or equitable interests of the debtor in property as of the commencement of the case.”[1] Courts generally consider a debtor’s insurance policy as part of the estate. However, owning the policy as an asset does not automatically determine who receives the proceeds. The key question typically addressed by bankruptcy courts is “whether the debtor would have a right to receive and keep those proceeds when the insurer paid on a claim.”[2] If “the debtor has no legally cognizable claim to the insurance proceeds, [then] those proceeds are not part of the estate.”[3] This inquiry often depends on the nature of the policy and the specific provisions governing the parties’ interests in the payment of policy proceeds. Ultimately, whether the policy proceeds are considered part of the bankruptcy estate depends on the type of policy and who was intended under the insurance policy to benefit from it. Consequently, most courts distinguish between the insurance policies themselves and the proceeds from those policies.
Who Owns the Proceeds?
Whether insurance policy proceeds are considered property of the debtor’s estate depends on who is entitled to the proceeds when the insurer pays the claim. Generally, insurance proceeds paid directly to a debtor are deemed property of the estate. Examples of these “first party” coverages include collision, life, and fire policies where the debtor is the beneficiary. If the proceeds from these policies are payable to the debtor rather than a third party, they are recognized as property of the estate.[4] Conversely, policy proceeds are not considered property of the debtor’s estate when they are not payable to the debtor.[5]
Who Owns D&O Policy Proceeds?
The question often arises in the context of D&O insurance, which is designed to protect individual directors, officers, and other individual insureds; and, under many policies, the debtor company itself against securities claims, fiduciary breach claims, and other similar claims. Indeed, D&O insurance provides its most important protection during bankruptcy, as the debtor company’s ability to indemnify individual insureds may be impaired due to financial constraints or prohibited by bankruptcy law.
D&O insurance policies typically offer three types of coverage:
Side A: Covers losses arising from claims against individual directors and officers that is not indemnified by the company, either by reason of insolvency or because the company is not permitted to indemnify.
Side B: Reimburses the company indemnification paid on behalf of individual directors and officers arising from claims against those individuals.
Side C: Provides direct coverage to the company for securities claims and sometimes some other kinds of claims.
Generally, D&O policy proceeds are not considered property of the debtor’s estate if they benefit only the directors, officers, and individual insureds (e.g., Side A coverage only). Courts have also found that, because the debtor did not have a “direct interest” in Side A or Side B coverage proceeds, those proceeds were not property of the estate.[6]
Other courts have determined that Side B proceeds can be considered property of the debtor if the coverage limits have been or could be depleted by indemnification requests, potentially leaving the company without coverage for future indemnification demands. These courts have found that Side B insurance proceeds were property of the estate.[7] However, if the covered indemnification “has not occurred, is hypothetical, or speculative,” courts may find that the policy proceeds are not property of the estate.[8]
With respect to Side C coverage, courts have found that policy proceeds from entity coverage are property of the estate.[9] This is not surprising because the debtor can easily be said to have an interest in the proceeds as an insured under the policy. Other courts have taken a broader view, asserting that a bankruptcy estate includes any assets that enhance the value of the Estate. Thus, as long as the policy includes Side B or Side C coverage, the policy proceeds meet the “fundamental test” because the bankruptcy estate is worth more with the insurance policy than without it.[10]
Trustees Can’t Settle Company’s Lawsuit Against Former CEO
One recent decision from the U.S. Court of Appeals for the Fourth Circuit, In re Levine, No. 23-1349, 2025 WL 610303 (4th Cir. Feb. 26, 2025), shows how disputes about ownership and control of D&O insurance claims can play out in practice. Levine involved a “tale of two bankruptcies and two adversary actions,” where the Fourth Circuit ruled that the separate bankruptcy trustees for a debtor company and its former CEO could not settle the company’s fraud claims against the CEO using insurance proceeds from a D&O policy purchased by the company before bankruptcy.[11] In affirming dismissal of an adversary declaratory action addressing this issue on jurisdictional grounds, the Fourth Circuit offered insightful commentary on the purpose and intent of D&O liability policies and their treatment in bankruptcy proceedings.
First, the company’s purchase of the D&O policy did not grant the company “first-party” status or standing to sue. The policy was “activated,” the Fourth Circuit concluded, because the company sued the CEO. In that scenario, only the CEO was considered an insured under the policy, not the company.
Second, the trustee sought to recover defense costs in the adversary proceeding against the CEO for fraud. The trustee tried to leverage the “wasting” policy—namely, that defense costs were eroding the policy’s available limits—to support his standing argument. The court ruled that the trustee’s “fear” was not enough.
Third, while the insurance policy itself could be considered an asset of the estate, according to the Fourth Circuit, courts “routinely” find that, when a D&O policy provides direct coverage to the directors and officers (as was the case here), the policy proceeds are not considered property of the debtor company’s estate.
Ultimately, the court emphasized that the purpose of D&O coverage is to protect individuals, like the CEO, from incurring liability as directors and officers of the debtor and to ensure that potential losses incurred as a result of their service in such capacities remain separate from their personal finances. Consequently, courts “regularly” recognize that the benefits provided to these individuals by D&O policies “cannot be stripped from them by a bankruptcy trustee.” As a result, the trustee had no claim to the right of consent to settlement under the policy.
Conclusion
The Fourth Circuit’s decision underscores the importance of Side A coverage to protect directors, officers, and individual insureds when an insolvent company is unable or unwilling to indemnify them for the defense costs and potential liability they face due to their service to the company.
In case of bankruptcy, Side A D&O coverage may be the only protection standing between an individual director or officer and personal exposure. For that reason, preserving scarce insurance limits for the benefit of individual insureds is paramount. This can be accomplished in a number of ways. The simplest perhaps is just buying more insurance in the form of higher limits in the company’s existing “Side ABC” policy covering both the company and its directors and officers. Another pathway is to purchase “dedicated” Side A-only limits, which can be used exclusively to protect individuals when the company is unable or unwilling to indemnify them or advance their legal fees and costs.
Side A-only limits are often provided automatically or with payment of additional premium in existing D&O policy forms, but often times they are better secured in entirely separate, standalone policies. Those standalone policies often provide other benefits, like fewer exclusions, more coverage, and better terms no available under traditional Side ABC forms. Working closely with experienced risk professionals, including insurance brokers, consultants, and outside coverage counsel can help companies place, renew, and modify insurance programs with an eye towards providing effective protection for insured executives that responds as expected at the point of claim. While insurance considerations are important during bankruptcy proceedings, the best time to start ensuring the effectiveness of insurance protection is long before insolvency arises.
[1] 11 U.S.C. § 541(a).
[2] Houston v. Edgeworth (In re Edgeworth ), 993 F.2d 51, 55 (5th Cir. 1993).
[3] Id. at 56.
[4] In re Endoscopy Ctr. of S. Nevada, LLC, 451 B.R. 527, 544 (Bankr. D. Nev. 2011).
[5] In re Allied Digital Techs., Corp., 306 B.R. 505, 512 (Bankr. D. Del. 2004).
[6] See, e.g., In re Youngstown Osteopathic Hosp. Ass’n, 271 B.R. 544, 548-550 (Bankr. N.D. Ohio 2002).
[7] In re Leslie Fay Cos., Inc., 207 B.R. 764, 785 (Bankr. S.D.N.Y. 1997).
[8] In re Allied Digital Techs. Corp., 306 B.R. 505, 512 (Bankr. D. Del. 2004).
[9] In re Sacred Heart Hosp. of Norristown, 182 B.R. 413, 420 (Bankr. E.D. Pa. 1995).
[10] Circle K Corp. v. Marks (In re Circle K Corp.), 121 B.R. 257 (Bankr. D. Ariz. 1990).
[11] In re Levine, No. 23-1349, 2025 WL 610303 (4th Cir. Feb. 26, 2025).
The Ninth Circuit Confirms That Liability Insurers Are Entitled to Corroborating Medical Documentation Before Settling a Third-Party Bodily Injury Claim
Liability insurers often receive policy limit demands from third-party claimants that allege serious injuries without corroborating medical records or bills. Since the enactment of California Civil Procedure Code section 999 et seq. in 2023, these demands are typically made by “unrepresented” claimants who are actually receiving guidance from attorneys behind the scenes.
When insurers ask the claimants for corroborating medical documentation – or medical authorizations and sufficient time to use them – their requests are often ignored. Nevertheless, after the demands expire, the insurers are confronted with accusations that they acted in “bad faith” by failing to accept the uncorroborated demands.
In McGranahan v. GEICO Indemnity Company, GEICO was sued for bad faith based on these very circumstances. GEICO’s summary judgment victory in that case was recently affirmed by the Ninth Circuit, which held that GEICO acted reasonably – as a matter of law – when it declined to settle for its policy limit before receiving corroborating medical records and bills. McGranahan v. GEICO Indem. Co., 2025 WL 869306 (9th Cir. Mar. 20, 2025).
In McGranahan, GEICO’s insured was involved in an accident with a motorcyclist (McGranahan). During its investigation, GEICO spoke with McGranahan’s girlfriend, who claimed that McGranahan had suffered serious injuries and had been hospitalized for several weeks. GEICO asked the girlfriend for medical bills or records so that it could evaluate McGranahan’s claim. GEICO also requested that McGranahan sign and return a medical authorization so that GEICO could order the necessary medical documentation. Despite multiple follow-up requests, neither McGranahan nor his girlfriend provided GEICO with any medical records or bills, or a signed medical authorization.
Instead, after consulting with an attorney, McGranahan sent GEICO a handwritten letter demanding that GEICO pay him its $100,000 policy limit. In his demand letter, McGranahan claimed, among other things, that he suffered “significant injuries” and had “over a million dollars” in medical bills.
GEICO responded by again asking McGranahan to provide corroborating medical documentation, which GEICO explained was “essential” to evaluate the claim. GEICO also asked for an extension to respond to the demand. After McGranahan ignored those requests, GEICO advised him that it could neither accept nor reject his demand until it had adequate supporting documentation. GEICO also continued to send follow-up requests for medical documentation, which continued to go unanswered.
It was not until after McGranahan filed suit against GEICO’s insured that GEICO was first able to obtain corroborating medical documentation via formal discovery in the lawsuit. GEICO then offered McGranahan the policy limit, which he rejected based on his contention that the policy was “open” because GEICO had acted in bad faith by not accepting his prior policy limit demand.
After reaching an agreement to resolve that lawsuit for a stipulated judgment in the amount of $1.5 million, McGranahan obtained an assignment of the insured’s rights and sued GEICO for bad faith failure to settle. Judge Aenlle-Rocha of the Central District of California granted summary judgment in favor of GEICO finding, as a matter of law, that GEICO did not act in bad faith. McGranahan v. GEICO Indem. Co., 714 F. Supp. 3d 1187 (C.D. Cal. 2024). In particular, the court concluded that it was reasonable for GEICO to seek corroborating medical documentation before settling McGranahan’s claim, and that GEICO made reasonable efforts to obtain that information. Id. at 1196-97.
On March 20, 2025, the Ninth Circuit affirmed. McGranahan v. GEICO Indem. Co., 2025 WL 869306 (9th Cir. Mar. 20, 2025). In doing so, the Court made several significant rulings, including:
“An insurance company is entitled to receive medical records and bills to aid it in evaluating a settlement offer”; and
GEICO’s multiple requests for McGranahan’s medical bills/records or a signed medical authorization constituted a reasonable and adequate investigation (rejecting McGranahan’s argument that GEICO was required to send someone to meet with him or his girlfriend in person).
The Ninth Circuit’s ruling in McGranahan is consistent with its prior published decision in Du v. Allstate Ins. Co., 697 F.3d 753, 759 (9th Cir. 2012), where it also recognized that an insurer is not required to accept bodily injury claims that are uncorroborated by medical documentation. Both of these decisions affirm the common-sense principle that liability insurers are entitled to corroborating medical documentation when evaluating a third-party bodily injury claim before their settlement duties are triggered.
Rulings like this will help liability insurers defend themselves in bad faith lawsuits arising out of claims involving purportedly “unrepresented” claimants who submit policy limit demands without supporting medical documentation – a scenario that has become more commonplace after the enactment of California Civil Procedure Code section 999, et seq.
Virginia Moves to Regulate High-Risk AI with New Compliance Mandates
On February 20, the Virginia General Assembly passed the High-Risk Artificial Intelligence Developer and Deployer Act. If signed into law, Virginia would become the second state, after Colorado, to enact comprehensive regulation of “high-risk” artificial intelligence systems used in critical consumer-facing contexts, such as employment, lending, housing, and insurance.
The bill aims to mitigate algorithmic discrimination and establishes obligations for both developers and deployers of high-risk AI systems.
Scope of Coverage. The Act applies to entities that develop or deploy high-risk AI systems used to make, or that are a “substantial factor” in making, consequential decisions affecting consumers. Covered contexts include education enrollment or opportunity, employment, healthcare services, housing, insurance, legal services, financial or lending services, and decisions involving parole, probation, or pretrial release.
Risk Management Requirements. AI deployers must implement risk mitigation programs, conduct impact assessments, and provide consumers with clear disclosures and explanation rights.
Developer Obligations. Developers must exercise “reasonable care” to protect against known or foreseeable risks of algorithmic discrimination and provide deployers with key system usage and limitation details.
Transparency and Accountability. Both developers and deployers must maintain records sufficient to demonstrate compliance. Developers must also publish a summary of the types of high-risk AI systems they have developed and the safeguards in place to manage risks of algorithmic discrimination.
Enforcement. The Act authorizes the Attorney General to enforce its provisions and seek civil penalties of up to $7,500 per violation.
Safe Harbor. The Act includes a safe harbor from enforcement for entities that adopt and implement a nationally or internationally recognized risk management framework that reasonably addresses the law’s requirements.
So how does this compare to Colorado’s law? Virginia defines “high-risk” more narrowly—limiting coverage to systems that are a “substantial factor” in making a consequential decision, whereas the Colorado law applies to systems that serve as a “substantial” or “sole” factor. Colorado’s law also includes more prescriptive requirements around bias testing and impact assessment content, and provide broader exemptions for small businesses.
Putting It Into Practice: If enacted, the Virginia AI law will add to the growing patchwork of state-level AI regulations. In 2024, at least 45 states introduced AI-related bills, with 31 states enacting legislation or adopting resolutions. States such as California, Connecticut, and Texas have already enacted AI-related statutes . Given this trend, it is anticipated that additional states will introduce and enact comprehensive AI regulations in the near future.
Ninth Circuit Clarifies Amount in Controversy Requirement in Declaratory Judgment Actions Between Insurers and Their Insureds
Plaintiff’s counsel often employ a range of strategic tactics to defeat diversity jurisdiction because they view federal court as an unfavorable forum. One such tactic is to challenge the amount in controversy—a key requirement for diversity jurisdiction. However, the Ninth Circuit’s recent decision in Farmers Direct Property & Casualty Ins. Co. v. Perez, — F.4th —, 2025 WL 716337 (9th Cir. March 6, 2025), makes it difficult to challenge the amount in controversy in declaratory judgment actions filed in federal court involving an insurer’s duty to defend and/or indemnify. In Perez, the Ninth Circuit held that in determining the amount in controversy, district courts may consider (i) the insurer’s potential excess liability and (ii) defense fees and costs that the insurer might incur in the underlying action.
Perez arose out of a January 2017 auto accident between Montez and Perez, who was insured by Farmers Direct. Montez, made a policy limit demand, conditioned on an affidavit from Perez that he did not have any other insurance. Farmers Direct offered to pay its $25,000 policy limit but explained that it was unable to reach Perez to obtain an affidavit.
Montez did not accept the policy limit and filed a personal injury lawsuit against Perez in state court. Farmers Direct provided a defense, but Perez would not communicate with defense counsel and was uncooperative in his own defense. Eventually, judgment was entered against Perez for more than $11 million.
Before the state court judgment was entered, Farmers Direct filed a declaratory judgment action against Perez in federal court, seeking a declaration that it had no duty to defend and indemnify Perez because he had breached the policy’s cooperation clause. When Perez did not respond to the complaint, the district court entered a default judgment against him and found that Farmers Direct had no continuing duty to defend and no duty to indemnify Perez.
Montez intervened in the federal action to set aside the default judgment, arguing that given the face amount of the policy, the amount in controversy requirement was not satisfied. The district court agreed, found it did not have subject matter jurisdiction, and vacated the judgment.
Farmers Direct appealed, and the Ninth Circuit reversed. The court concluded that the amount in controversy was not limited to the policy’s $25,000 limit. Rather, in determining the amount in controversy, the district court was required to take into account (i) Montez’s contention that Farmers Direct should be liable for the excess amount of the underlying personal injury judgment and (ii) Farmers Direct’s ongoing defense costs in the underlying tort action. Because there was a legal possibility that Farmers Direct could be liable for these amounts, each of which exceeded $75,000, the panel held that the district court erred in vacating the default judgment and remanded the matter for further proceedings.
Full-Court Coverage for Risks Associated With Major Sporting Events
NCAA March Madness tournaments are among the most anticipated and exciting events in American sports, drawing millions of viewers and generating significant economic activity. But the massive popularity of the tournaments comes with risks that can affect participants, venues, sponsors, and fans. From injuries to property damage and event-related cancellations, this post explores the potential risks and the insurance products available to mitigate the risks associated with major sporting events, concerts, or festivals.
Common Risks
Injury Risks: March Madness, as a high-stakes basketball tournament, inherently involves physical risks for players. Injuries to athletes, whether from collisions, falls, or overexertion, can have serious consequences for the individuals involved and the tournament’s operations.
Liability Claims: Like the athletes, fans and spectators attending the tournament may face also accidents or injuries while at the venue. Additionally, third-party vendors providing services or merchandise at the event could face liability claims if their products or services result in harm.
Event Cancellations or Delays: Unexpected events, such as natural disasters, power outages, or public health emergencies, can cause cancellations or delays in the tournament. These disruptions may lead to financial losses for event organizers, sponsors, and other stakeholders.
Property Damage: The venues hosting the tournament, including arenas and surrounding areas, face potential risks of property damage above and beyond those experienced in their normal operations. Whether from crowd surges, accidents, or other unforeseen incidents, the costs of repairs or compensation can be significant.
Insurance Coverage Options
Several insurance products can manage the risks associated with March Madness and similar events.
Sports Accident Insurance: Under NCAA rules, athletes must have a basic health and accident plan. Coverage can be provided through the school, a parent or guardian’s policy, or the student-athletes’ own policy. The NCAA also provides an insurance program that covers student-athletes who are catastrophically injured while participating in a covered intercollegiate athletic activity. Schools or athletes can purchase more comprehensive programs designed specifically for athletes that also cover potential loss of income if the athlete is unable to play. Sports accident coverage is essential for protecting players during high-risk events, such as NCAA basketball tournaments, and protecting current and future earnings.
General Liability Insurance: General liability insurance covers claims related to injuries or accidents occurring on the premises. For example, general liability insurance may cover injuries to spectators caused by falling objects or slip and falls. Event organizers, sponsors, and venue owners rely on this coverage to protect against legal and medical costs.
Event Cancellation Insurance: Event cancellation insurance helps cover financial losses resulting from event cancellations or delays due to unforeseen circumstances, such as natural disasters or other emergencies. This coverage is particularly important for organizers and sponsors, as it protects their investment against the risk of event cancellation due to circumstances beyond their control. Depending on the specific policy, event cancellation insurance may also cover enforced reduced attendance at the insured event, which covers loss the insured incurs due to unforeseeable circumstances that result in attendance falling below budgeted expectations. For example, if a severe weather event forces a game relocation or results in a reduced crowd due to travel restrictions, event cancellation insurance may compensate organizers for lost revenue.
Property Insurance: Property insurance covers any damage that occurs to the event venue or other associated facilities. It can cover physical damage to the building, as well as the equipment, signage, and other property used during the event. For example, property insurance may cover damage to signs, light poles, or windows caused by students celebrating a tournament win.
Conclusion
While March Madness is thrilling, the risks associated with the tournament are significant, requiring careful planning and protection. Insurance coverage tailored to the unique needs of a major sporting or music event can help mitigate these risks, ensuring that participants, organizers, and fans are protected. By understanding and securing appropriate insurance products, all those involved in the tournament can focus on what really matters—celebrating the excitement of the game.
Supreme Court of New Jersey Clarifies Fault Allocation for Non-Parties Outside of the Court’s Jurisdiction
Highlights
Following a recent decision by the Supreme Court of New Jersey, an individual who is not subject to personal jurisdiction in New Jersey is not considered a “party” under the Comparative Negligence Act (CNA)
Non-parties who are outside the jurisdiction of New Jersey courts cannot have liability assigned to them by a jury under the CNA. As a result, they must be excluded from the jury’s fault allocation on the verdict sheet due to lack of jurisdiction
In New Jersey, a defendant may seek contribution under the Joint Tortfeasors Contribution Law or corresponding state statue in a court that has jurisdiction over the non-party
The Supreme Court of New Jersey rendered its decision in the case of Estate of Crystal Walcott Spill v. Markovitz on March 11, 2025. The decision affirms the Appellate Division’s decision to exclude a New York-based doctor from the verdict sheet due to lack of jurisdiction.
In reaching its decision, the court analyzed the Comparative Negligence Act (CNA) and Joint Tortfeasors Contribution Law (JTCL), which generally cover contribution and allocation of fault. The court explained that “the CNA allows allocation of fault during a trial only to a ‘party’ or ‘parties,’ N.J.S.A. 2A:15-5.2(a), whereas the JTCL allows ‘joint tortfeasors’ to seek contribution after a trial from other ‘persons’ alleged to be ‘liable in tort for the same injury,’ N.J.S.A. 2A:53A -1, -3.”
The court held that “a non-party alleged tortfeasor who is outside the jurisdictional arm of our courts, is not a ‘party’ subject to allocation by the jury pursuant to the CNA.” In other words, the jury cannot determine how much fault, if any, should be attributed to those non-party alleged tortfeasors. As such, the non-party may not be included on a jury verdict sheet.
The court explained that if a judgment is entered against the available defendants, those defendants may then pursue any contribution claim available in a jurisdiction that has personal jurisdiction over the non-party. The court took “no position on the merits of any such potential litigation.”
The Supreme Court disagreed with the Appellate Division’s conclusion that the model civil jury instruction on causation “abates any unfairness that the lack of application of the CNA may impose on defendants. Rather, the court explained that the substantial factor test does not remove the “the need for allocation of fault to reduce a plaintiff’s recovery to the percentage of damages directly attributable to their own negligence, to the extent that the CNA permits such allocation.”
Takeaways
Under this interpretation, parties that are dismissed from a case for lack of personal jurisdiction cannot have liability assigned to them by a jury under the CNA. They could, however, be subject to subsequent actions seeking contribution by the defendants.
Delaware Provides Further Guidance for Navigating Interrelated Claims
A Delaware trial court recently applied the newly minted “meaningful linkage” standard to conclude that multiple lawsuits concerning the merger of CBS and Viacom are not “related” in the context of directors and officers (D&O) liability insurance. The decision in National Amusements, Inc. v. Endurance American Specialty Insurance Co., Case No. N22C-06-018-SKR CCLD (Del. Super. Ct. Feb. 17, 2025), illustrates the fact-intensive nature of the “relatedness” inquiry and how litigants can expect courts to examine the issues under the Delaware standard.
Background
The dispute in National Amusements centered around whether separate litigations—cases initiated in 2016 regarding the control of CBS and another in 2019 concerning the merger of CBS and Viacom (which is now Paramount Global)—were related claims.
In 2016, shareholders of Viacom alleged that Shari Redstone manipulated an allegedly incapacitated Sumner Redstone to make decisions that harmed the company’s value. That lawsuit, among others, was eventually settled or dismissed.
In 2019, litigation arose concerning the merger of CBS and Viacom, both of which were controlled by National Amusements. This time, shareholders alleged that actions by the directors and officers of Viacom, Shari Redstone and National Amusements violated their fiduciary duties and led to an unfair deal for Viacom shareholders. The shareholders allegedly received inadequate consideration from the merger. That litigation also eventually settled.
National Amusements maintained four D&O policies for the 2017 to 2018 policy period. Those policies renewed for 2018 to 2019. Endurance issued the primary policy, with Ironshore, Starr and National Union each issuing excess follow-form policies.
A coverage dispute emerged over whether the 2019 litigation was “related” to the 2016 litigations. Following discovery, the insured moved for summary judgment, which the court granted.
The Court’s Analysis: Interrelated Claims and “Meaningful Linkage”
The central issue before the court was whether the 2016 and 2019 lawsuits were interrelated claims. The D&O policies addressed related claims as follows: “All Claims arising out of the same Wrongful Act and all Interrelated Wrongful Acts of the Insureds shall be deemed to be one Claim, and such Claim shall be deemed to be first made on the date the earliest of such Claims is first made.” In assessing whether the claims as presented here met the policies’ relatedness definition, the court was guided by the “meaningful linkage” standard articulated by the Delaware Supreme Court in Alexion Pharmaceuticals, Inc. Insurance Appeals, discussed in this prior post. Application of that standard required consideration of multiple factors.
The primary factor, commonality of conduct, looks to whether the claims involve the same alleged wrongful acts. While the 2016 and 2019 actions all involved Shari Redstone and her alleged overexerting influence, the court found the conduct at issue in the more-recent 2019 litigation to be distinct. The 2016 cases concerned Shari Redstone’s influence over Sumner Redstone’s decision-making. In contrast, the 2019 litigation concerned alleged conduct that occurred during the CBS/Viacom merger.
The second factor looked to the parties involved. Here, there was substantial overlap in the parties in all the actions, but Sumner Redstone, a critical defendant in the 2016 action, was not a defendant in the 2019 action.
The third factor looked to the relevant time periods. Whereas the 2019 action challenged the merger in 2019, the 2016 actions focused on decisions made in or around 2016. Even though the 2019 complaint referenced conduct dating back to 2016, the court found this factor slightly favored finding the claims as not meaningfully linked.
The fourth factor looked to the relevant facts. Here again, despite some overlap, the court found the factual evidence in each case was mostly distinct. The primary 2016 case focused on Sumner Redstone’s capacity and Shari Redstone’s allegedly improper influence on the companies’ boards, while the 2019 action relied on merger-related evidence, including valuation of CBS and Viacom and the merger negotiations.
The fifth and final factor, the claimed damages, also distinguished the two sets of claims. The 2016 actions primarily requested declaratory and injunctive relief to rectify the corporate governance decisions whereas the 2019 action sought monetary damages to compensate for the inadequate consideration received by the Viacom shareholders.
Based on the weight of these factors, the court ruled that the claims were not meaningfully linked, and thus were not “related claims” for purposes of D&O insurance coverage.
Key Takeaways
The National Amusements decision provides important lessons on the “related claims” issue:
The Burden on Insurers to Undermine Relatedness: The court acknowledged Delaware Supreme Court precedent that “meaningful linkage” should be applied in a coverage context “broadly, where possible, to find coverage” and that any ambiguity favors coverage. In circumstances where the policyholder contends that claims are not related, that puts an insurer in the tough position of carrying the burden to show claims are related. That hill becomes even more difficult to climb considering relatedness is already a fact-intensive inquiry where evidence oftentimes can go either way.
Relatedness Is Neither Pro-Insurer Nor Pro-Policyholder: In this case, the company argued against and the insurers in favor of relatedness. But that is not always the case. Policyholders may see themselves on different sides of the related claims argument for various reasons, including the number of claims, applicable retentions and coverage limits. In either case, this decision provides a roadmap for future Delaware relatedness disputes.
Understanding the Scope of “Related Claims”: The decision reinforces that D&O policies will not automatically treat separate claims as related simply because they involve the same individuals or entities. A careful analysis of the underlying wrongful acts and legal theories alleged in the purported related claims is crucial. As it stands, the “related claims” determination remains a fact-intensive inquiry.
The Impact of Extrinsic Evidence: The insurer defendants in this case tried to introduce allegedly “inconsistent” extrinsic evidence that National Amusements and Shari Redstone represented that the 2016 and 2019 actions were related when they sought indemnification from Viacom before filing this suit. However, under Delaware Supreme Court precedent, the court can rely on policyholder statements about the separate actions when insurance coverage was not at issue only if there is any remaining doubt about relatedness. Since no doubt remained after weighing the different factors, the court concluded it could not consider the extrinsic evidence.
Conclusion
Related claims issues under D&O policies continue to be the subject of insurance coverage disputes in Delaware courts. By understanding the court’s reasoning and the factors it considered in this case, policyholders can better navigate future disputes with insurers and take steps to protect their interests in coverage litigation.
Arkansas Attorney General Sues GM and OnStar Over Alleged Privacy Violations
On February 26, 2025, the Attorney General of Arkansas filed a lawsuit against General Motors Co. (“GM”) and its subsidiary, OnStar LLC (“OnStar”), alleging deceptive trade practices related to the collection and sale of drivers’ data. The complaint alleges that GM and OnStar gathered detailed driving data (including precise geolocation data, GM app usage data, and information about consumers’ driving behavior (e.g., start time, end time, vehicle speed, high-speed driving percentage, late-night driving percentage, acceleration data, braking data, and distance driven)) from over 100,000 Arkansas residents without their consent and sold it to third-party data brokers. The data brokers then allegedly sold the data to insurance companies, which used the data to deny coverage or increase insurance rates for consumers. The complaint asserts that GM and OnStar collected and sold the consumer data to generate additional revenue for the companies. The Arkansas Attorney General is seeking monetary damages, injunctive relief, and attorneys’ fees and expenses.
This lawsuit follows actions by the FTC and the Texas Attorney General over similar data-sharing allegations, and is part of a larger trend of state regulators examining the privacy practices of connected vehicle manufacturers.
Delaware Court Recognizes D&O Coverage for Non-Cash Settlements
The trend of Delaware court decisions favoring policyholders continues with a favorable ruling in AMC Entertainment Holdings, Inc. v. XL Specialty Insurance Company, et al. The Delaware trial court found that AMC’s settlement payment, made in the form of AMC shares valued at $99.3 million, qualified as a covered “Loss” under its directors and officers (D&O) liability insurance policy. This ruling is noteworthy for a variety of reasons, particularly because it establishes that non-traditional forms of currency, like stock, can be a covered “Loss” under D&O policies.
Background of the Underlying Action
AMC, the movie theater chain, was financially strained during the pandemic. It experienced a dramatic surge in stock price, turning into a “meme stock” due to retail investor activity. To take advantage of the situation, AMC sought to issue more common stock. However, shareholder approval to increase the common stock issuance was blocked, prompting AMC to create a new security—the AMC Preferred Equity Units (APEs). These units carried voting rights similar to common stock and were intended to convert to common stock if authorized by shareholders.
This led to a legal battle with shareholders, who filed lawsuits to prevent AMC’s proposal to convert the APEs into common stock. The suits were consolidated in Delaware’s Court of Chancery.
AMC notified its D&O insurers of the shareholder claims, which proceeded to mediation. The day after mediation, AMC received a settlement offer and had discussions with its insurers about the proposed terms. A week later, AMC settled the litigation, agreeing to issue 6,897,018 shares of common stock and pay the plaintiffs’ attorneys’ fees. AMC recorded this settlement as a contingent liability and expense on its books and valued it at $99.3 million.
AMC’s D&O insurers denied coverage. After AMC commenced coverage litigation, most insurers settled, except for one excess insurer that continued to refuse coverage. AMC and the insurer moved for summary judgment.
The Parties’ Arguments
The insurer argued that there was no coverage for the settlement payment for three reasons. First, it argued that the settlement payment was not a “Loss” under the terms of the policy. The policy defined “Loss”, in relevant part, as “damages . . . settlements . . . or other amounts . . . that any Insured is legally obligated to pay.” Further, the policy provides that the insurer will “pay ‘Loss’ on behalf of AMC.” The insurer contended that because the settlement involved the issuance of stock, not cash, and because the insurer could not pay the settlement on AMC’s behalf, it was not a covered “Loss”.
Second, the insurer argued there was no “Loss” because AMC did not suffer economic harm by issuing the stock. And third, even if settlement in the form of stock issuance was a covered “Loss,” the insurer was not obligated to pay it because AMC did not receive the insurer’s prior written consent.
AMC countered that the settlement met the policy’s definition of “Loss”, which is not limited to cash payments, because it was an amount that AMC was “legally obligated to pay.” AMC also argued that it suffered an economic harm since it recognized a permanent loss in its accounting by issuing new shares and suffered an opportunity cost in providing the shares. Finally, AMC believed it received the insurer’s consent on a conference call about the anticipated settlement.
The Decision
The court found in favor of coverage, granting AMC’s motion.
As for the definition of “Loss,” the court found that “Loss” was not limited to cash payments. It emphasized that, under Delaware law, stock is a form of currency that can be used for a variety of corporate purposes, including settling debts. Thus, AMC’s issuance of stock was deemed a covered “Loss,” which the court refused to limit in a way not explicitly provided for in the D&O policy.
In further support of AMC’s covered “Loss,” the court looked to the policy’s bump-up exclusion, which uses the word “paid” twice. The court stated, “[t]his is exclusion is not applicable to the issue presented, but its use of the word ‘paid’ is relevant” because words used in different parts of a policy are presumed “to bear the same meaning throughout.” The court reasoned that because under Delaware Law the bump-up exclusion, and its use of the word “paid,” can apply to stock transfers, it is “necessarily implie[d] that stock can be an amount AMC ‘pays’ which creates a covered ‘Loss’.” Bump-up exclusions are a common insurer defense and source of frequent coverage disputes, including in Delaware, but here the insurer’s bump-up wording ended up supporting the policyholder’s position in favor of coverage.
The court disposed of the insurer’s “economic harm” argument because the policy did not condition coverage on the existence of such harm. Once again, the court refused to “insert a restricting clause into the Policy.”
Finally, the court ruled that whether AMC sought the insurer’s consent to settle, or waiver of consent, on a phone call was a factual issue to be decided by a jury. However, the court noted that Delaware law allows a policyholder that does not comply with consent requirements to obtain coverage by rebutting the presumption that the insurer was prejudiced by the breach and showing that the settlement was reasonable.
Discussion
This case has a has a variety of takeaways for policyholders.
Non-Cash Settlements: Non-cash settlement payments, including stock, may be covered as a “Loss” under D&O policies in Delaware. While AMC’s non-cash payment was in stock, the court’s ruling may apply equally to a variety of other payment forms, such as cryptocurrency or other amounts that insureds are legally obligated to pay as damages or settlement. Policyholders should carefully review policy language regarding the definition of “Loss” to determine if there is coverage for non-cash settlement payments.
Delaware Coverage Trends: Over the past few years, Delaware courts have issued several significant rulings, many in favor of policyholders. The court’s decision in this case is yet another example of this. Delaware’s leadership in corporate governance and shareholder litigation also bleeds over into insurance disputes. In the recent decision, the court ruled in AMC’s favor by relying on Delaware law recognizing that stock is a form of currency. Insurers and policyholders will continue to pay attention to Delaware’s developing role in issuing important coverage rulings.
Choice of Law Matters: In one such landmark decision, the Delaware Supreme Court held that Delaware corporations and their insured officers and directors should be able to get the benefit of Delaware law governing their D&O coverage disputes. The AMC case exemplifies a Delaware policyholder reaping the benefits of Delaware law.
First, it was the Delaware’s Chancery court’s decision in a non-insurance suit determining whether a claim was a derivative or direct claim that the Superior Court used to support the conclusion that AMC’s settlement was a covered “Loss” because “[s]tock is a form of currency.” Other jurisdictions may not have similar law to support such a conclusion.
Second, the AMC court held that if the company did not seek the insurer’s consent to settle, it may still obtain coverage if it can rebut the presumption that the insurer was prejudiced and show that the settlement was reasonable. This is not true in all jurisdictions. See, e.g., Perini/Tompkins Joint Venture v. Ace Am. Ins. Co., 738 F.3d 95, 104-06 (4th Cir. 2013) (recognizing that, under Maryland and possibly Tennessee law, an insured’s breach of a policy’s consent to settle provision negates coverage without regard to whether the insurer was prejudiced by the breach).
The point is that choice of law is significant, and Delaware policyholders may be able to leverage a growing body of favorable Delaware law on important coverage issues. Conversely, the importance of what law governs an insurance policy makes choice-of-law, choice-of-forum, and similar policy provisions even more significant when insurers mandate application of another state’s law. These provisions often go unnoticed but can have an outsized impact on coverage in the event of a dispute.
Policy Drafting Matters: The court’s refusal to rewrite the policy highlights the importance of clear and unambiguous language. Insurers must ensure that policy’s are drafted precisely, and policyholders must remain vigilant to ensure that insurers are not making inferences or interpreting policy language to support their preferred reading if it is not stated expressly in the policy. It is the terms of the policy—not the insurer’s unstated intentions—that controls.
Consider Insurance Ramifications in Underlying Litigation: Policyholders seeking defense and indemnity coverage under liability policies should be strategic in how they approach settlement in underlying litigations, keeping an eye towards potential coverage and ways to maximize recovery. Small changes, like nuances in settlement agreements or accounting practices, can make or break claims for millions of dollars of potential coverage. In the AMC case, for example, the company recorded the settlement as a contingent liability and expense valued it at $99.3 million, which the court relied on to support a finding that the non-cash payment was covered loss.
Records of Insurer Communications: In the midst of high-stakes settlement negotiations and fast-paced litigation, it is not always feasible to document all communications with insurers. Nonetheless, this case shows the risks of not documenting what is said during conversations held in-person or via phone or video call. This is critical to avoid post-conferral disputes. The AMC court was unable to resolve the question of whether the insurer consented to AMC’s settlement because a factual dispute existed as to what was said during a phone call. It is unclear if a post-call confirmation email would have helped here, but, at a minimum, these kinds of written records can potentially minimize the risk of factual disputes.
Are You Really Covered as an Additional Insured?
For your next construction project in New York, securing commercial general liability coverage as an additional insured may not be as simple as it would appear. Recent court rulings have interpreted the terms of insurance policies, where additional insured parties are intended to be covered pursuant to a “blanket” endorsement (i.e., the additional insureds are not explicitly named in the body of the endorsement or the underlying insurance policy), to provide coverage only to those persons or entities that the named insured has agreed to add as additional insureds in writing.
As a result of the rulings described below, when drafting construction contracts, it is important to be unambiguously clear as to which parties are intended to be additional insureds under any insurance policies required to be obtained under such contracts. In order to protect against the risks of non-coverage highlighted below, any party entering into a construction contract or subcontract should take the following actions when additional insureds are added to an insurance policy pursuant to a “blanket” endorsement:
(i) require by direct written agreement between the applicable named insured and each proposed additional insured that such named insured must include such proposed additional insureds as additional insureds under its insurance policy, together with a contractual indemnity by the named insured in favor of such proposed additional insureds, or preferably (where feasible) (ii) require that any insurance policy required under such construction contract should expressly name each and every party that is intended to be included as an additional insured thereunder; and
review the underlying insurance policies (i.e., not just the applicable certificates of insurance, which are informational only and do not supersede or modify the actual policy terms) to confirm exactly what persons or entities are covered as additional insureds thereunder and to confirm whether coverage as an additional insured is primary or excess to other coverage available to such additional insured.
In 2018, the New York Court of Appeals upended market norms in affirming a ruling limiting coverage for additional insureds to those in contractual privity. Gilbane Bldg. Co. v. St. Paul Fire & Marine Ins. Co., 31 N.Y.3d 131 (2018). In Gilbane, the court found that a project’s construction manager was not covered as an additional insured by the insurance purchased by the general contractor (GC Policy), because the GC Policy included a “blanket” additional insured endorsement and the construction manager did not have privity of contract with the general contractor, the named insured under the GC Policy. The court specifically and exclusively relied on the language of such “blanket” endorsement, which read “WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization with whom you have agreed to add as an additional insured by written contract … ” (with emphasis added). The court specified that the language “with whom” clearly required a written agreement between the named insured and any proposed additional insured, in which the named insured agreed to add such person or entity as an additional insured in order to effectuate coverage for the proposed additional insured.
This approach was reinforced in a recent decision in the New York Supreme Court, Appellate Division, Second Department, New York City Hous. Auth. v. Harleysville Worcester Ins. Co., 226 A.D.3d 804 (2024). In that case, an owner contracted with a general contractor who subsequently contracted with a subcontractor for construction work. The subcontractor obtained insurance coverage for the project and was later sued by its own employee in a lawsuit that also named as defendants the owner, general contractor and other parties whom the subcontractor had agreed to include in its insurance policy as additional insureds. The court determined that, apart from the general contractor, none of the other parties were entitled to coverage, relying on the language of the subcontractor’s insurance policy: “Who Is An Insured is amended to include as an insured any person or organization for whom you are performing operations only as specified under a written contract … that requires that such person or organization be added as an additional insured on your policy” (with emphasis added). The court interpreted this language as limiting coverage to those with whom the named insured (the subcontractor) had contracted directly to do work, thereby finding that the general contractor qualified as an additional insured under the terms of the policy, but that no other parties seeking additional insured status were covered.
The court also held that language in the subcontract between the general contractor and the subcontractor, incorporating the terms of the prime contract between the owner and the general contractor that required the general contractor to add the owner as an additional insured under the general contractor’s policy, was “insufficient to confer additional insured status on [the owner] with respect to the subcontractor’s policy.” Finally, after comparing the terms of the respective policies issued to the general contractor and the subcontractor, the court determined that the subcontractor’s policy was excess to the general contractor’s policy, so coverage for the general contractor — the one party the court determined was entitled to coverage under the subcontractor’s policy as an additional insured — would be triggered only if and when the liability limits of the general contractor’s own policy were exhausted. As a result, the general contractor would first have to pursue any applicable claim under its own insurance policy, and only after policy limits under its own policy were exhausted could the general contractor seek coverage as an additional insured under the subcontractor’s policy.
Appraisal of Amount of Loss is a Predicate to Article III, Injury-In-Fact Standing for a Suit Alleging Wrongful Withholding of Policy Benefits
50 Exchange Terrace LLC suffered losses from frozen burst pipes that caused water damage to its property and tendered a claim to its insurer, Mount Vernon Specialty Insurance Company. The parties disputed the cost of repairs (i.e., the amount of the loss) and Mount Vernon demanded appraisal to resolve the dispute. Rather than proceeding with appraisal, 50 Exchange filed suit in California state court, asserting that Mount Vernon had wrongfully withheld policy benefits pending the appraisal. Mount Vernon removed the case to federal court based on diversity jurisdiction. The federal district court then dismissed the suit for lack of ripeness and Article III standing.
The Ninth Circuit affirmed, reasoning that 50 Exchange had not sustained any actionable injury pending resolution of the amount of loss dispute through appraisal. That is because the extent of 50 Exchange’s loss could not be determined in court until the parties had completed appraisal. Until then, “[a]ny alleged injury before appraisal is too speculative to create an actionable claim.” 2025 WL 666363 at *2.
The Ninth Circuit did “not break new ground here.” Recognizing several non-precedential decisions of the Court and district court orders requiring appraisal before allowing an insured to sue for the wrongful delay or withholding of policy benefits, the Ninth Circuit explained:
We have chosen to issue this decision as a precedential opinion in the hope of deterring or at least short-circuiting other similarly premature cases where the agreed insurance appraisal process has not yet been completed.
2025 WL 666363 at *2.