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.
BIGGER THAN YOU THINK?: Why New TCPA Revocation Rule May Wreak Havoc on Lead Generators And Buyers After All
As we creep closer at our petty pace, day to day, toward April 11, 2025 lead generators need to be paying close attention to one of the major potential impacts of the new FCC TCPA revocation order.
While enterprise is much more concerned with the “scope” provisions of the new rule crushing their ability to make informational outreach to their customers, lead generators need to be considering these provisions through the lens of ceasing continued marketing after a brand has received a revocation request.
This is a particularly big issue when a brand is buying both data and transfers.
Example.
Major insurance company buys both data leads and transfers from large lead generator.
When a consumer texts “stop” in response to an outreach by the insurance company the company is unlikely to notify the generator of the stop. Yet when the lead generator continues to send messages carrying offers for that insurance company those messages may be viewed as having been made “on behalf” of the insurance company– hence the stop should have been heeded and continued outreach by the lead generator would be illegal.
While a feedback loop between the insurance company and the lead generator in this scenario could avoid this problem–i.e. the insurance company is notifying the lead supplier of the revocations in real time– it is unclear whether that is legal since the CFR bans the sharing of revocation information with third-parties (which is why the R.E.A.C.H. standards have always included a notification that “stop” requests will be shared between buyers of the lead.) So this is a real sticky wicket.
And the problem is even bigger in the context of a lead buyer who is buying data from one source and buying transfers from other sources.
There when a lead buyer receives a “stop” notification it will need to notify not just the lead source–indeed, if the source is not making outbound calls for transfer purposes the data lead supplier need not to be informed at all– but other lead suppliers who may be calling that same consumer on the same or different data.
Suddenly the wisdom of the R.E.A.C.H. model of a hub and spoke approach to lead gen revocation looks very compelling indeed.
Regardless, one thing is crystal clear– brands buying leads and companies generating those leads need to come up with a game plan for April 11, 2025.
FDIC Withdraws Proposed Rule on Brokered Deposits
On March 3, the FDIC announced the withdrawal of its proposed rule on brokered deposits, citing concerns regarding potential disruptions to the financial sector. This move follows significant pushback from industry stakeholders who argued that the proposed changes could have unintended consequences for liquidity management and market stability.
The proposed rule sought to alter the classification and regulatory treatment of brokered deposits by broadening the definition and imposing stricter reporting and supervisory requirements. It aimed to clarify which deposit arrangements qualified as brokered deposits and thus could have resulted in more deposits being subject to restrictions under the FDIC’s capital and liquidity rules. Industry participants also raised concerns that the changes could disrupt long-standing banking relationships, reduce funding access, and create additional disruptive compliance burdens.
The FDIC argued that brokered deposits pose risks to financial stability, particularly during times of market stress, contending that the proposed changes would help to mitigate potential overreliance on such funding sources. In its statement, the FDIC indicated that for any future regulatory action it takes related to brokered deposits, it will pursue such initiatives through new proposals or issuances that comply with the Administrative Procedure Act.
Putting It Into Practice: The withdrawal of the brokered deposits rule aligns with Acting Chairman Travis Hill’s stated commitment to streamlining the FDIC’s supervisory approach (previously discussed here). Given Hill’s focus on reducing regulatory burdens, financial institutions should expect further shifts in the FDIC’s approach to oversight.
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