Still feeling the love from Valentine’s Day, this 2024 Year in Review highlights the most swoon-worthy coverage decisions of 2024 and offers a glimpse of the future of insurance coverage litigation in 2025 and beyond.

In 2024, D&O coverage and core insurance law principles were the true heartthrobs of the year, while rulings on environmental, social, and governance (ESG) issues showed that insurance disputes can arise in any situation. But the real cupid’s arrow? Policy interpretation—still the key to unlocking these cases. As we reflect on the year, this edition of our Year in Review highlights the most love-worthy coverage decisions of 2024 and examines the evolving landscape of insurance coverage litigation heading into 2025.

Directors & Officers

2024 was largely defined by D&O disputes on issues ranging from professional services exclusions to claims against directors and officers arising from mergers, acquisitions, and regulatory investigations.

• Home Loan Mortgage Corp. v. Twin City Fire Ins. Co. et al., No. 23-cv-1758-CRC (D. D.C. Nov. 8, 2024)

The U.S. District Court for the District of Columbia addressed a coverage dispute between Freddie Mac and its insurer concerning claims related to civil lawsuits and a Securities and Exchange Commission (SEC) investigation related to the 2008 financial crisis. Freddie Mac had multiple layers of primary and excess policies that provided D&O coverage and argued that the SEC’s subpoenas triggered coverage under the policies. The court disagreed, finding subpoenas alone insufficient without clear evidence of an investigation into wrongful acts. The court also ruled that excess insurers cannot challenge payments made by lower-tier insurers unless fraud or bad faith is evident. This decision will be significant for future D&O cases regarding regulatory investigations.

Contractual and Professional Services Exclusions

Insurers often include professional services exclusions in their policies with the intent of barring coverage for claims that instead would be covered under a professional liability policy such as an Errors and Omissions policy. In 2024, many courts examined what defines a professional service within these exclusions. Generally, these cases demonstrate that courts typically define professional services as services provided to others for a fee.

• Software Developer Denied D&O Coverage for $118 Million DOJ Settlement Due to Professional Services Exclusion, Practice Fusion, Inc. v. Freedom Specialty Ins. Co., A167130, A167886 (Cal. Ct. App. June 21, 2024)

A DOJ investigation into violations of federal anti-kickback statutes by Practice Fusion, an electronic health records software developer, led to a $118 million settlement resolving the investigation. Practice Fusion sought coverage under a $50 million tower of D&O coverage, but its insurers denied coverage based on two separate professional services exclusions. One of the exclusions barred coverage for claims “arising out of, based upon or attributable to” Practice Fusion’s performance of “professional services for others,” including “any act(s), error(s) or omission(s) relating thereto.” The insurers argued that the DOJ’s claims arose directly from the company’s design and implementation of clinical decision support (CDS) alerts, which they deemed professional services.

The trial court granted summary judgment in favor of the insurers, agreeing that the CDS-related claims arose directly from Practice Fusion’s provision of professional services. Practice Fusion appealed, and the California appellate court upheld the decision. The appellate court found that the undefined policy term “professional services” reasonably includes services arising out of a vocation involving specialized knowledge, labor, or skill where the labor or skill involved is predominantly intellectual rather than physical. It also found that the term “arising out of” should be broadly interpreted, requiring only a minimal causal connection between the claims and the alleged professional services.

• SXSW, LLC v. Fed. Ins. Co., 22-50933 (5th Cir. Mar. 21, 2024)

The Fifth Circuit addressed a coverage dispute between the popular music festival, South by Southwest (“SXSW”) and its insurer. In 2020, SXSW canceled the festival due to COVID-19 but did not refund tickets, leading a class of ticket holders to sue for breach of contract, unjust enrichment, and conversion. SXSW settled with the class after its D&O insurer denied defense and indemnity coverage, citing the professional services exclusion.

The court determined that a professional services exclusion did not apply to the class claims. While hosting the music festival could be considered a professional service, the court ruled that refunding—or failing to refund—tickets is not a service performed for a fee and therefore are outside the scope of the exclusion. Consequently, claims related to ticket refunds are not excluded from coverage under SXSW’s D&O policy.

• Paraco Gas Corp. v. Ironshore Indem., Inc., 23-1069-cv (2d Cir. June 17, 2024)

In Paraco, the Second Circuit upheld a district court’s finding that a D&O policy’s contractual liability exclusion barred coverage for claims related to shareholder agreements. Paraco, a gas company, sought coverage for a lawsuit alleging one of its officers violated shareholder agreements by transferring shares. The court analyzed the underlying complaints and found that nine out of ten of the claims “[arose] out of” alleged breaches of shareholder agreements. Thus, the court ruled the claims fell within the policy’s exclusion for contractual liabilities.

False Claims Act Exclusion

2024 also saw a notable increase in disputes over whether D&O and professional liability policies would cover claims arising from alleged False Claims Act violations, highlighting the complexities of coverage in the context of government enforcement actions and setting important precedents for how similar cases will be handled in the future.

• In Re Insys Therapeutics, Inc. v. XL Specialty Ins. Co., 19-11292 (JTD) (May 29, 2024)

The Delaware Bankruptcy Court, in Insys’s Chapter 11 proceedings, addressed a dispute between the now-bankrupt opioid manufacturer and its insurer over coverage under its D&O policy. The False Claims Act allegations against Insys stemmed from its marketing and sale of Subsys, a covert spray form of fentanyl, which led to a federal criminal investigation and a $225 million global resolution.

The qui tam action alleged wrongful conduct by Insys’s directors and officers, and a shareholder derivative action was later filed with overlapping allegations. The key insurance issue was whether the derivative action was excluded from coverage due to a prior and pending litigation exclusion, which barred claims involving any fact, circumstance, or wrongful act “brought” before May 2, 2013. The court agreed with the insurer, finding the exclusion unambiguously applied due to the factual overlap with the earlier qui tam lawsuit and interpreting “brought” to mean when a complaint is filed. The decision underscores the broad reach of prior and pending litigation exclusions, which can have preclusive effect where subsequent claims share common factual connections to prior litigation, even if filed after the exclusion date.

ESG

Environmental, Social, and Governance (ESG) also featured prominently in 2024 and well into 2025, as climate change continued to impact communities through wildfires and unusual winter and tropical storms. Apart from the immediate issues arising from the tragic property losses, insurers and policyholders navigated complex disputes over whether insurance also covers broader environmental harm, sustainability practices, and corporate responsibility under ESG frameworks, reflecting a growing trend to address climate-related risks within the insurance landscape.

• Aloha Petroleum, Ltd. v. Nat’l Union Fire Ins. Co., 557 P.3d 837 (Haw. 2024)

Aloha Petroleum, Ltd., a subsidiary of Sunoco, sought insurance coverage for the defense of lawsuits brought by the City and County of Honolulu and the County of Maui. The lawsuits accused fossil fuel companies, including Aloha, of knowingly contributing to climate change through greenhouse gas (GHG) emissions and deceptive marketing practices. Aloha sought coverage under commercial general liability policies issued to its parent company, but insurers National Union Fire Insurance and American Home Assurance denied coverage. The insurers argued, among other things, that the liabilities were not caused by an “occurrence” under the policies and that, even if so, pollution exclusions barred coverage. The case was certified to the Hawaii Supreme Court to resolve questions about whether reckless conduct qualifies as an “accident” and whether GHGs are considered “pollutants” under the policies.

The Hawaii Supreme Court held that recklessness may qualify as an “accident” since reckless conduct may lack intent, insofar as it involves taking risks without certainty that harm will occur. However, the court ultimately sided with insurers, concluding that GHGs are “pollutants” as that term was defined in the subject insurance policies, thus barring coverage. This decision highlights issues policyholders may encounter in climate-related claims.

• Granite State Ins. Co. v. Primary Arms, LLC, 23 Civ. 7651 (S.D.N.Y. Aug. 30, 2024)

The State of New York and Cities of Buffalo and Rochester sued Primary Arms alleging that the company illegally sold unfinished firearm frames and parts to New Yorkers that could easily be converted into functioning firearms, bypassing gun control laws and regulations mandating serial numbers and background checks. The lawsuits claimed Primary Arms’ actions were illegal, a public nuisance, and negligent and constituted deceptive business practices. Primary Arms sought coverage under its commercial general liability and commercial umbrella liability policies, which are intended to cover continuous or repeated exposure to harmful conditions. The Southern District of New York ruled that the insurers had no duty to defend Primary Arms, finding that lawsuits did not allege an “occurrence” as defined in the policies. The court, applying Texas law, found that Primary Arms’ conduct was intentional and not accidental.

Primary Arms has appealed the Southern District of New York’s decision to the Second Circuit, and we are awaiting the court’s ruling on the appeal.

• Michigan Court Finds Separate “Occurrence” for Each Bullet Fired in School Shooting, Oxford Community Schools v. MASB-SEG Property/Casualty Pool, Inc., 2024-204988-CK (Mich. Cir. Ct. 6th Judicial Cir. 2024)

Mass shootings also continued to grab headlines. One such shooting occurred at Oxford High School in Oxford Township, Michigan, where the shooter killed four students and injured seven others. The victims’ families filed state and federal lawsuits against the school district, which sought coverage under its commercial general liability policy. The issue was whether the shooting of eleven students was one occurrence or multiple occurrences. The issue hinged on the definition of “occurrence.” The school district argued that each injury-causing shot was a separate “occurrence,” entitling it to $55 million in coverage. The State of Michigan entered separate criminal charges against the insurer for each person the shooter shot because the state viewed each shot as a separate criminal offense. In contrast, the insurer maintained that the shooting was a single occurrence, limiting coverage to $5 million, because the bodily injury claims in the underlying lawsuits were caused by one “occurrence.” The court sided with the school district, finding the policy’s definition ambiguous and ruling that each shot fired constituted a separate occurrence. As a result, the school district may be entitled to $55 million in total coverage.

The insurer has appealed to the ruling to the state Court of Appeals.

Specialty Lines

Cases involving specialty lines of coverage also garnered significant attention in 2024. These cases highlighted the growing complexity of underwriting and claims handling in specialty lines, with courts grappling to define the boundaries of coverage in response to new challenges and industry-specific risks.

• Alticor Global Holdings Inc. et al. v. Am. Int’l Specialty Lines Ins., Nos. 22-1631/22-1641/22-1679 (6th Cir. Aug. 23, 2024)

Amway sought coverage under a policy issued by American International Specialty Lines for settled copyright-infringement litigation. The policy provided $25 million in coverage but specified it would be excess over any “valid and collectible insurance” available to Amway. Amway also had ACE fronting policies, which offered $2 million per occurrence and $4 million aggregate for “personal and advertising injury,” but with matching deductibles, making Amway effectively self-insured. We blogged about this case in 2019, when the trial court found that the advertising injury coverage under liability policies issued by AIG could apply to the copyright infringement allegations.

The key question before the appellate court, however, was whether the ACE fronting policies were “collectible insurance available” to Amway. The court ruled that the ACE policies did not meet this standard under Michigan law because they were designed to function as regulatory compliance mechanisms rather than traditional risk-transfer policies. As a result, the American International Specialty policy could not defer its coverage obligations.

The decision is of particular significance to those negotiating and ensuring compliance with contractual insurance provisions that require contracting parties to obtain certain minimum levels of insurance. At least under Michigan law, the decision could mean that fronting policies are no longer adequate to fulfill these and other “other insurance” clauses. Insurers may likewise face greater scrutiny when relying on such policies to reduce their exposure, especially if those policies are effectively inaccessible.

• Towers Watson & Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, No. 1:20-cv-810 (E.D. Va. Mar. 6, 2024)

Following the merger of Towers Watson & Co. and Willis, the insured and target company, with its acquirer, shareholders of Towers Watson filed a class action alleging the former CEO, who would become CEO of the merged entity, failed to disclose his compensation package, in violation of Section 14(a) of the Securities Exchange Act and breach of his fiduciary duty. Towers Watson’s D&O insurer agreed to defend but denied indemnification for the $90 million settlement resulting from the class action lawsuit, citing the policy’s “bump-up” exclusion, which excludes coverage for claims alleging inadequate acquisition consideration.

The court ruled that the reverse triangular merger constituted an acquisition, which fell within the definition of the bump-up exclusion. The court further found that the class action claims were based on allegations that the consideration paid for the target company’s shares was inadequate. As a result, the claims were deemed to be within the scope of the exclusion. Additionally, the court concluded that the target company qualified as an entity under the exclusion, reinforcing the insurer’s denial of coverage.

Bump-up provision cases are likely to remain prominent as courts continue to address similar disputes. Hunton’s insurance team previously discussed how coverage disputes rooted in bump-up exclusions will continue to remain relevant as new deals-related coverage actions emerge.

Insurance Fundamentals

In 2024, it was clear that insurance fundamentals remain paramount in the ultimate resolution of claims. From interpreting policy provisions to addressing choice of law and the duty to defend, courts remained committed to the core principles of insurance policy interpretation.

• Rejection of Amber Heard Defense Coverage Underscores Importance of Choice of Law, New York Marine and Gen. Ins. Co. v. Heard, No. 23-3399 (9th Cir. Nov. 24, 2024)

No 2024 recap would be complete without some mention of the Johnny Depp-Amber Heard courtroom spectacle or its related insurance dispute. In the latter, the Ninth Circuit affirmed victory for New York Marine and General Insurance Co. in its legal battle with Amber Heard over the cost of defending defamation claims brought against the actress by ex-husband, Johnny Depp. New York Marine insured Heard under a liability policy with a typically broad duty to defend. After being notified of defamation claims by Depp, the insurer agreed to defend under a reservation of rights. Heard argued that the reservation created a conflict of interest, and, because her claim was made in California, California law applied and requires the insurer to provide independent counsel when the defense presents a potential conflict of interest between the insurer and the insured. When the insurer refused to provide independent counsel because it saw no conflict of interest, Heard hired her own.

The Ninth Circuit rejected Heard’s argument, finding no conflict of interest and thus no need for independent counsel. The court reasoned that, because the underlying case was being litigated in Virginia, Heard’s lawyers were governed by Virginia’s rules of ethics, which require lawyers to prioritize their client’s interests over those of an insurer. No such rule exists in California. Thus, the court concluded that there was no conflict. This ruling highlights the impact of state law and ethical rules on insurance coverage disputes. It also underscores the importance of conducting a proper choice-of-law analysis because factors like where the policy was issued and where the conduct occurred play a critical role in determining which state’s law governs coverage.

• In Re CVS Opioid Ins. Litigation, N22C-02-045 (Del. Super. Ct. Aug. 20, 2024)

The Delaware Superior Court upheld the precedent in ACE American Insurance Co. v. Rite Aid Corp., ruling that claims for economic losses related to public health crises do not qualify as “damages because of bodily injury or property damage.” In Re CVS Opioid Insurance Litigation, No. N22C-02-045 at 7. The court rejected lawsuits from municipalities, healthcare providers, and third-party payors, finding their claims did not meet the policy’s coverage requirements. This decision highlights the need for policyholders to provide individualized evidence of covered losses, especially in the context of the opioid crisis.

• North Carolina Supreme Court Adheres to Settled Interpretive Principles Finding COVID-19 Business Interruption Losses Are Covered, State Deli, LLC v. Cincinnati Ins. Co., 908 S.E. 802 (N.C. 2024)

In a long-awaited, favorable ruling for policyholders, the North Carolina Supreme Court ruled that Cincinnati must cover business interruption losses for restaurants impacted by COVID-19 closures. The restaurants were insured under all-risk commercial property policies that did not contain virus exclusions. After mandatory or voluntary closures, they sought coverage for losses and costs to adapt their businesses.

Central to this dispute was whether “physical loss” occurred when government orders restricted access to the restaurants’ property. The restaurants argued that the orders were sufficient to trigger coverage because the orders directly affected the policyholders’ ability to access and use their properties for their intended and insured purpose. The insurer argued in response that the orders did not cause “physical loss or damage” because they did not permanently alter the physical integrity of the covered property. The trial court sided with the restaurants, but the court of appeals reversed. Ultimately, however, the North Carolina Supreme Court applied longstanding rules of insurance interpretation and found that both sides presented reasonable interpretations of the operative phrase “direct physical loss” such that it could reasonably include the inability to use property as intended. The court held, therefore, that the policies were ambiguous and that coverage therefore must apply as a matter of law. The decision underscores that policy wording matters and that one-size-fits-all interpretations are not applicable.

• Gregory v. Safeco Ins. Co. of Am., Runkel et al. v. Owners Ins. Co., 545 P.3d 942 (Colo. 2024)

In a consolidated review of two cases, the Colorado Supreme Court ruled on the issue of late notice in homeowners’ policies. The insurers had denied hail damage claims because the insureds notified them after the one-year notice period. Historically, Colorado courts did not require insurers to show prejudice from late notice, but this ruling shifts that approach. The court established a two-step process: first, courts must assess if notice was timely or if the delay was reasonable. If not, the insurer must prove they were prejudiced by the delay.

This decision is notable because it expands the notice-prejudice rule beyond uninsured motorist claims, where an insured’s injuries can fail to materialize until long after an automobile accident, potentially setting a precedent for other jurisdictions to follow in 2025.

• Century Indem. Co. v. Diocese of Trenton, No. 24-685 (D.N.J. Oct. 28, 2024)

Last but certainly not least, the U.S. District Court for the District of New Jersey declined to issue a declaratory judgment in a dispute over coverage for more than 200 lawsuits alleging sexual abuse by clergy, agents, and employees of a diocese from the 1940s to the 2000s. The insurer argued that the policy covered only liabilities caused by accidents, not liabilities that the insured intended or expected to occur. The court ultimately ruled that the insurer’s suit was not ripe for review because the underlying lawsuits had not been resolved.

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This Valentine’s season, the Hunton insurance team is sending you a dose of appreciation! Stay connected with us as we keep a close eye on impactful insurance coverage cases in 2025. Don’t miss a beat: continue to follow our blog for all the latest updates and insights!