Hunton Insurance Recovery Blog

Hunton Andrews Kurth Counsel Geoffrey Fehling was quoted on June 4 in a Law360 article titled “FCPA’s High Costs May Cause Tightening In D&O Market.” The article analyzed heightened FCPA enforcement risks faced by corporate policyholders, which could lead to an even harder market for directors and officers insurance coverage for those exposures, according to Fehling and other legal experts interviewed for the article. Citing recent government-led investigations into FCPA violations, the article discussed, among other things, three key expenses large corporate policyholders must consider when being investigated for a FCPA violation: costs to investigate the alleged violation, costs for any liability for a violation supported by evidence, and costs to shareholders for potential securities or other follow-on litigation.

The US Securities and Exchange Commission has levied $125,000 in civil penalties on Cheesecake Factory as part of a settlement to resolve the agency’s allegations that the company made materially misleading statements to investors about the impact of the COVID-19 pandemic on its business. While this is the first such case reported by the SEC, it is only one in a string of recent third-party liabilities companies have faced that implicate directors’ and officers’ liability insurance coverage.

In March, we reported on the initial filing of several securities class action suits arising from the coronavirus pandemic (COVID-19). For example, at the start of the pandemic, shareholders of Norwegian Cruise Lines Holdings, Ltd. filed a class action alleging that the company and certain officers violated the Securities and Exchange Act of 1934. The lawsuit alleged that the cruise line made false and misleading statements about COVID-19 in order to persuade consumers to purchase cruises. This allegedly caused the share prices to be cut in half.

As has been widely reported, insurance companies have been inundated with claims arising from the novel coronavirus and are locked into contentious coverage battles regarding the scope of coverage afforded for such claims under various policy forms. Courts have begun issuing decisions both for and against policyholders attempting recovery for COVID-19-related losses, and the legal battles resolving those questions will likely take months or even years to play out.

The Delaware Superior Court ruled that insurers could not rely on Written Consent and Cooperation clauses in directors and officers liability insurance policies to avoid coverage for settlements by Dole Food Company, Inc. (“Dole”) in shareholder disputes involving fraud in a go-private transaction.