Hunton Insurance Recovery Blog

A federal court recently ruled that a carrier must defend its policyholder against a claim involving the treasurer’s erroneous payment to a scammer. The ruling shows that a “wrongful act” under a D&O policy need not be an egregious act of wrongdoing, that coverage may hinge on whether extrinsic evidence can establish coverage, and that breach of contract claims are not always uninsurable as a matter of law.

We are pleased to announce that counsel Rachel E. Hudgins has been recognized as one of Business Insurance’s 2024 Break Out Award winners. The magazine’s Break Out Awards honor 40 top professionals each year from a competitive field of nominees who have under 15 years’ experience in the insurance and risk management sector and are “on track to be the next leaders in the risk management and property/casualty insurance field.”

The United States Supreme Court recently held in Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, that choice-of-law provisions in maritime contracts, including maritime insurance policies, are presumptively enforceable under federal maritime law. In Great Lakes, a policyholder asserted counterclaims against its insurer under the state law of Pennsylvania, where the insurer had filed a federal-court action seeking a declaration of no coverage, even though the choice-of-law provision in the applicable maritime insurance policy designated New York law. The policyholder argued that Pennsylvania had the greatest interest in the dispute, and that enforcing the New York choice-of-law provision in the policy would contravene Pennsylvania’s fundamental public policy. The district court dismissed the policyholder’s counterclaims, but the Third Circuit reversed. The Supreme Court agreed to hear the case, and we explained here that the Court’s decision could have significant ramifications for insurance-coverage disputes both under maritime insurance policies and more generally if the Court adopted broad rules regarding the enforcement of choice-of-law provisions.  

No policyholder wants to hear the word “rescission” in the context of an insurance claim. The reality, however, is that when policyholders complete applications for insurance, they are typically focused on obtaining the best policy terms for the best rate. Nuances about question wording, the breadth of the applicant’s representations or how a court may analyze the insurer’s questions or the policyholder’s answers usually take a back seat to the central importance of placing and renewing coverage at a realistic price. But once a claim is made, insurers look back at applications to assess the accuracy and completeness of all information received during the underwriting process, especially in signed applications. If the insurer discovers a misrepresentation, it can be used to rescind the policy, leaving the insured with no coverage. 

A software company—Zywave, Inc. (“Zywave”)—recently filed a lawsuit in California federal court that may provide rare insight into how courts will resolve representations and warranties (“R&W”) insurance coverage disputes. Zywave purchased a buyer-side R&W policy in connection with its acquisition of an insurance product-distribution software company. Zywave alleged that, post-close, it learned that the seller had knowledge of “serious material performance issues with certain customers that it failed to disclose,” amounting to breaches of various sections of the acquisition agreement. The software company further alleged that if the seller had disclosed the performance issues, the software company would have either walked away from the transaction or paid a lower purchase price.