Hunton Insurance Recovery Blog

When a cyber incident occurs and the insurer pays out the claim, they often face the frustrating reality that pursuing the actual criminals – the threat actors – for indemnification is virtually impossible. Thus, insurers are now turning to subrogation claims against the very cybersecurity vendors entrusted by policyholders to protect their systems. Indeed, insurers are increasingly examining whether outsourced cybersecurity providers may have breached their contractual obligations or failed to deliver adequate protection, leading to the loss. This shift means policyholders may find their cybersecurity vendors facing legal action from their own insurer, creating a new layer of risk in vendor relationships.

The decision of when to sue insurance companies, especially excess insurers, can be difficult, especially in disputes involving multiple claims, long timelines, and conflicting coverage positions between insurers. A recent federal court in Delaware, General Cable Corp. v. Scottsdale Indemnity Co., No, 1:24-CV-00797-TMH, 2025 WL 2576384, (D. Del. Sept. 5, 2025) underscores the timing risks in pursuing recovery in and out of litigation. In a word of warning to Delaware policyholders, the court dismissed a lawsuit against a manufacturer’s directors and officers excess liability insurers because its claims were either not ripe for adjudication or untimely filed.

Earlier this month, the Southern District of New York issued an opinion in The Vale Fox Distillery LLC v. Central Mutual Insurance Company, No. 24-cv-4169 (S.D.N.Y.), which concerned a catastrophic collapse of storage racks holding whiskey barrels at Vale Fox’s distillery, destroying over $2.5 million worth of aging single malt whiskey. The court determined there was coverage for Vale Fox’s loss but left the issue of valuation to be determined another day.

The recent Illinois federal court decision McDonald’s Corporation, et al., v. Homeland Insurance Company Of New York illustrates the perils that policyholders may face if they fail to understand the contours of key defined terms in their insurance policies. In McDonald’s, the court agreed that an insurer who sold a general liability policy did not have a duty to defend its insured against claims alleging fear and emotional distress because that harm did not meet the definition of bodily injury in the insurance policy.

A recent decision in federal court in Montana provides another example of different standards applied to assessing “related claims” under directors and officers (D&O) liability insurance policies. In this instance, the district court found that two class action lawsuits were related because they involved the same “general course of conduct.” Because the two claims were related, they were treated as a single claim first made in an earlier policy period. As a result, the Montana policyholder lost out on $5 million in potential coverage under a second policy in place when the second claim was asserted.

Examinations under oath (EUOs) are a common coverage condition in property and other first-party insurance policies that can make or break an insurance claim.  In theory, EUOs are straightforward:  they’re an investigative tool for insurers to gather information about a claim.[1]  But in practice, insurers often use them to poke holes in the policyholder’s story, identify grounds to challenge coverage, and even set up fraud claims. 

Artificial intelligence is transforming how businesses operate—but with innovation comes new, complex risks. A recent lawsuit—Raine, et al. v. OpenAI, Inc., Docket No. CGC25628528 (Cal. Super. Ct. Aug 26, 2025)—spotlights this dynamic and highlights why tried-and-true insurance products are still a critical first line of defense.

On August 26, 2025, the parents of a 16-year-old boy sued OpenAI, its CEO Sam Altman, and certain employees and investors. They claim that ChatGPT contributed to their son’s suicide by encouraging suicidal conduct, providing instructions on how to commit suicide, and even offering assistance in tying the knot used by the boy in the noose that eventually took the boy’s life. According to the complaint, the boy told ChatGPT that he “intended to commit suicide.” Rather than dissuade the suicide, the complaint claims that ChatGPT offered to “help him write a suicide note,” stating “I’ll help you with it. Every word.” Based on this factual background, the lawsuit alleges design defects, inadequate warnings, and violations of California’s Unfair Competition Law. Importantly, these allegations are just that: allegations. The case is just beginning, meaning no proof or substantiation has yet been offered beyond the allegations.

Businesses decide to switch liability insurers or obtain higher policy limits for various reasons. In doing so, policyholders should exercise caution to avoid future claim denials (or even policy recission) based on so-called “prior knowledge” issues. Prior knowledge comes into play when the policyholder knew about facts, incidents, or circumstances that occurred before the policy incepted, which can lead to problems if the insurer asserts that the policyholder had “prior knowledge” of an incident before seeking new coverage, limits, or policies.

The Minnesota Court of Appeals recently handed policyholders an important win in Life Time, Inc. v. Zurich American Insurance Co., reversing a trial court ruling that had capped coverage under a communicable disease endorsement at the $1 million per occurrence limit. Relying on the express language of the communicable disease coverage at issue, the appellate court held that government shutdown orders—not the COVID-19 pandemic itself—constituted the operative “occurrences” under Life Time’s policy. By interpreting the cause of loss in this way, the court expanded Life Time’s recovery from a single $1 million limit to 29 separate limits, one for each jurisdiction that independently ordered closure of Life Time’s business locations.

Hunton receives many inquiries about litigation risk insurance. Hunton partner Latosha M. Ellis and associate Charlotte Leszinske provide insight on this topic in an article recently published in the Real Estate Finance Journal. The article explains how litigation risk insurance often works in tandem with traditional insurance, providing extra protection against uncertain legal outcomes. It describes the ins and outs of several types of litigation risk insurance products—judgment preservation insurance, adverse judgment insurance, and punitive wrap insurance—and how each of these products can target specific risks related to ongoing litigation. The authors also explain how these insurance products can be used to further other strategic goals, such as freeing up cash flow, obtaining settlement in pending cases, and reaching agreement on terms in a prospective merger or acquisition.

The article is available for review at the following link: Reducing Legal Exposure in Real Estate: Leveraging Litigation Risk Insurance