• Posts by Peter S. Selvin

    Peter S. Selvin, Chair of ECJ's Insurance Coverage and Recovery Department, is a business trial lawyer with more than 30 years of experience. While he specializes in the areas of insurance coverage and international litigation, his ...

A New Twist on Coverage for Losses From ‘Spoofed’ Emails

The facts are frequently the same. A company that has retained the services of a vendor receives an authentic-looking email from the vendor’s CFO which advises that the vendor has changed its bank account or method of payment. Believing that the email is genuine, the company wires funds as directed by the vendor’s CFO. It then turns out that a hacker has impersonated the vendor’s CFO and the company’s payment has gone to an overseas account controlled by the vendor.

In due course, the vendor sues the company demanding payment. The question then arises whether the company’s ...

Courts surprisingly affirm insurance coverage to defend against economic loss

For parties facing class action lawsuits, where the class seeks to recover for economic losses, there may still be opportunities for insurance coverage. Thus, where economic losses arise out of the purchase of products that have the potential for causing bodily injury, insurance coverage, at least for purposes of the duty to defend, may well be available.

Two fairly recent cases take up this scenario and both affirm coverage, at least for purposes of the duty to defend. Coverage was affirmed even though the relief sought in the class action complaints was solely for damages occasioned ...

Opportunities for insisting on independent counsel

Civil Code section 2860 authorizes the retention of independent counsel in the event a conflict of interest arises between the insurer and its insured. Under the statute a conflict of interest is deemed to arise “when an insurer reserves it rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim”. Section 2860(b).

But what happens if, in the absence of insurer appointed counsel, the insured selects counsel to defend the claim, with the insurer’s acquiescence? In that circumstance, is the ...

Traps for the Unwary: Reporting Requirements Under Liability Policies

Companies reporting liability insurance claims need to be aware that the pertinent rules vary depending on whether a policy is “claims made and reported” or “occurrence”.

Most, if not all, Directors and Officers and Errors and Omissions policies are written on a claims made and reported basis. By contrast, Commercial General Insurance, or CGL insurance, is written on an occurrence basis. Under a claims made and reported policy, a claim must have arisen and been reported during the same policy period. By contrast, under an occurrence policy, the claim may be reported long ...

Insure Against Data Breaches Suffered By Vendors and Service Providers

Over the last several years several companies, including Marriott, Yahoo and Volkswagen, have been victimized by hackers breaking into a company’s computer network. In some cases, they have put confidential information on the internet. In others, the hackers have held the company’s information hostage through ransomware. While companies are rightly concerned about the security of their own networks, there is another risk. Recent court cases are testing the liability of companies and their directors for data breaches suffered by their vendors or service providers. This is ...

Insurance Coverage for Email Scams

A genuine looking email is sent to a company’s accounts payable department with instructions from its president to pay money to a certain account. The “To” and “From” headers and the signature block look identical to hundreds of emails previously received by the department from the company’s president. In reliance on the email, money is wired to the designated account. It later turns out the email was fake and the company’s money was wired to a fraudster’s account.

In another scenario, the company’s accounts payable department receives an email purportedly from a ...

Companies That Pay Hackers May Be Able to Recoup Their Losses 

Where companies are victimized by ransomware or email scams, their losses arise from payments made by an officer or employee of the company.

In the case of ransomware, a company’s files are held hostage pending payment by the company to release them. In the case of email scams, typically a company’s employee is tricked into sending funds to a third party account which the employee believes is legitimate.

In both cases, the loss is occasioned through some action by the company either in the form of payment to the cyber thief or to the fraudster’s account.

Insurers resisting payment ...

Email Scam Losses May Find Recourse Via Cyber Or Business Interruption Coverage

Losses arising from email scams are usually covered, if at all, under a company’s crime policy. But a recent decision from The District Court in Minnesota suggests that recourse may also be found under an insured’s cyber or business interruption coverage. Importantly, the decision suggests that a “data breach” triggering cyber coverage may occur where a bad actor infiltrates and manipulates an insured’s email system.

In Fishbowl Sols., Inc. v. Hanover Ins. Co., 2022 U.S. Dist. LEXIS 200210 (D. Minn. Nov. 3, 2022), a bad actor gained unauthorized access to the email ...

Getting Your Insurer To Favorably Resolve Litigation 

Where a liability carrier has assumed its insured’s defense under a reservation of rights, a variety of conflicts between those parties may arise when there are settlement discussions to resolve the underlying litigation. These conflicts include:

  • The insurer wants to settle to end its exposure for defense costs and the insured wants to continue to fight for business or reputational reasons.
  • Where the policy has “burning limits”—i.e., defense costs reduce the amount of coverage available to pay a settlement or judgment—the insured has an incentive to have the carrier ...
Are Consumer Protection or False Advertising Claims Covered By Insurance?

Whether consumer protec­tion or false advertising claims are covered by insurance depends on the kind of insurance policies in play. For ex­ample, coverage for such claims under a CGL policy is unlikely be­cause an insured's false represen­tation or false advertising about the qualities of its products typically does not fall within any of the "offenses" enumerated under the "advertising injury" coverage grant. See Applied Bolting Tech Prods v. US Fid & Guar Co., 942 F Supp 1029 (ED Pa 1996), in which the court held that alleged false advertising that an insured's products ...

Insurance Coverage For Claims Involving The Misuse Of Biometric Information 

As the use of biometric information for verification purposes becomes widespread, employers and others should be aware of statutes which regulate the collection, storage and dissemination of this data. In this regard, there have been several lawsuits involving the use or storage of biometric information which have resulted in multi-million dollar settlements.

The California Consumer Privacy Act (Civil Code sections 1978.100 et seq.) defines biometric information as follows:

Biometric information” means an individual’s physiological, biological, or behavioral ...

Third-Party Email Fraud Covered By Insurance Policies

In Medidata Solutions, Inc. v. Federal Insurance Company, 268 F. Supp. 3d 471 (S. D. N. Y. 2017), aff’d, 729 Fed. Appx. 117 (2nd Circuit 2018), the Court found that there was insurance coverage where a company had been victimized by an email spoofing scheme that resulted in the company wiring funds to a fraudster’s account. More recent cases have also found insurance coverage for losses arising from similar incidents of this kind. See, e.g., Ernst & Haas v. Hiscox, Inc., 23 F. 4th  1125 (9th Cir. 2022)

In Medidata, the spoofed email came in the form of an email purportedly coming from the ...

Multiple Liability Policies and Who Pays First

Where multiple liability policies are triggered, does one of the insurers get to insist that its deductible be satisfied before the insured can be provided with a defense? Relatedly, can the insured choose which insurer should provide the defense?  

This situation arises frequently in cases where the underlying damage is “continuous or progressive.” Montrose Chemical Co. v. Admiral Ins. Co., 10 Cal. 4th 645, 662 (1995). In Montrose, the California Supreme Court held where there are successive policies, and where there is damage that is continuous or progressive across multiple ...

Mind the Proper Use of ‘Prior Knowledge’ Exclusions

Liability insurance written on a claims made basis is designed to protect an insured against claims asserted following the policy’s inception even if the acts giving rise to the claim took place prior to policy inception. But if prior to policy inception the insured was aware of facts or circumstances that could have reasonably led the insured to believe a subsequent claim would be asserted during the policy period, then coverage might be challenged.

Liability carriers have sought to address this by including “prior knowledge” exclusions in their policies. Under those ...

Does your Insurance Policy Protect you from Email Spoofing?

Your CFO or accounts payable clerk receives a legitimate-looking email supposedly from the company’s president authorizing a wire transfer to a vendor or business partner. In reliance on that email, the company’s bank is directed to wire funds to that account. It is later revealed that the president was impersonated by an email scammer and the company’s money was wired to the scammer’s offshore bank account.

This practice, known as “spoofing", is widespread and is growing. According to data security firm Proofpoint, it is estimated that 3.1 billion domain spoofing ...

9th Circuit says Computer-Fraud Policies May Cover ‘Spoofing’

Consider the following two scenarios resulting in identical losses, but potentially two entirely different insurance coverage outcomes:

Scenario 1: A thief hacks, or gains unauthorized entry, into an insured’s computer system and causes that computer system to execute a bank transfer to the thief’s offshore account.

Scenario 2: A thief utilizes a process called “spoofing,” in which an authentic-looking, but fraudulent, email is created to trick the insured into wiring funds to the thief’s offshore account. The “spoofing” process in essence tricks the ...

Personal Jurisdiction in the Digital Age

The concept of “presence” for jurisdictional purposes has evolved with the widespread use of websites, social media and other digital platforms. A company or individual may have no physical presence in a forum, but may nevertheless be subject to personal jurisdiction there as a consequence of its activities on these digital platforms.

Importantly, general jurisdiction does not necessarily follow from the defendant’s maintenance and use of an “interactive” website. Thus, “[t]he level of interactivity of a nonresident defendant’s website provides limited help ...

Ruling is Instructive of Biometric-Related Claims and Insurance 

As part of the larger trend of invasion of privacy claims asserted by employees or consumers against businesses, several states have recently passed legislation that sets forth requirements for the collection, storing and dissemination of biometric information such as fingerprints, voice recordings and even keystroke patterns. See, e.g., California Civil Code Sections 1798.100, 1798.140(b). Similar statutes have been enacted in Illinois, Washington and New York.

As claims arising from the collection and disclosure of biometric information proliferate, businesses faced ...

Construction Defect Damages May Exceed Cost To Repair

Construction defect cases often involve damage claims beyond simply the cost to repair the allegedly defective unit or component. These consequential damages may include damages for loss of use, expenses for mitigation and even attorney fees. For this reason, builders, suppliers, contractors and subcontractors who are faced with such claims should carefully review their insurance coverages, especially their CGL policies.

At the threshold, a defendant seeking coverage under its CGL policy in connection with a construction defect claim must satisfy the policy’s ...

Companies Vulnerable to Data Breaches Are Now Vulnerable to Litigation

Data breaches by large companies have been in the news for some time. Over the last several years several companies, including Marriott, Yahoo and Volkswagon, have been victimized by hackers who have broken into a company’s computer network. In some cases, the hackers have put the company’s confidential information on the internet. In other cases, the hackers have held the company’s information hostage through ransomware.

While companies are rightly concerned about the security of their own networks, there is another risk. Recent court cases are testing the liability of ...

Ruling Breaks New Ground For CGL Policy Data Breach Coverage Hackings

A recent case from the 5th U.S. Circuit Court of Appeals breaks new ground on the question of whether a commercial general liability policy provides coverage for damages arising from a data breach caused by a third-party hacker. Landry’s Incorporated v. Insurance Company of the State of Pennsylvania, 4 F. 4th 366 (5th Cir. 2021). In brief, the court in Landry’s held that there was coverage for a data breach where the insured was sued by a credit card processing company for breach of contract.

Landry’s operated retail properties including restaurants, hotels and casinos ...

Insurance Coverage and Recovery Developments in the Post-COVID World

This article provides a summary of a presentation Peter Selvin gave on April 22, 2021 to the Litigation Counsel of America. 

PART 1: Business Interruption: COVID-19

COVID-19 has impacted nearly every aspect of business and insurance is no exception. While infection rates continue to fall, there is a rise in business interruption insurance claims and litigation. This article highlights some of the emerging themes and notable developments in COVID-related insurance litigation claims.

In March 2021, the Los Angeles Lakers filed a COVID-19 business interruption lawsuit against ...

Bad Faith Liability Can Arise Even Absent A Demand Within Policy Limits 

In some circumstances an insurer’s duty to settle may arise even in the absence of a demand by the claimant within policy. The recent case of Planet Bingo, LLC v. The Burlington Insurance Company, 2021 DJDAR 2510 (March 18, 2021) is the latest decision to address this point.

In Planet Bingo, the insured manufactured handheld gaming devices. Those devices were distributed in the U.K. by Leisure Electronic Limited. Leisure leased some of the Planet Bingo’s devices to Beacon Bingo, which operated a bingo hall in London.

In September 2008 there was a fire at Beacon’s bingo hall ...

'Notice-Prejudice Rule' Ruling Could Provide New Arguments

The “notice-prejudice rule,” often applied in the context of occurrence-type policies, requires an insurer to prove that the insured’s late notice of a claim has substantially prejudiced its ability to investigate the insured’s claim. This principle has been applied in the context of both first-party policies. Pitzer College v. Indian Harbor Ins. Co., 8 Cal. 5th 93 (2019), applying the notice-prejudice rule to a consent provision in a first-party policy) and third-party policies written on an “occurrence” basis. See, e.g., Campbell v. Allstate Ins. Co., 60 Cal. 2d ...

Negligent Retention, Hiring Rulings Show Importance of Policy Language

Where an employee of a company commits an intentional act, such as a battery or sexual molestation, the managers of that company are often named as defendants on a theory of “negligent supervision”, “negligent retention” or some other form of vicarious liability. While the company’s liability policy of insurance may contain exclusions which bar coverage for loss arising from the employee’s intentional act, the question arises whether the negligence claims against the managers or the company are nevertheless covered by liability insurance.

The threshold question ...

The Perils of Playing Hard Ball

A recent case from California, Barickman vs. Mercury Casualty, 2 Cal.App.5th 508 (2016) illustrates the perils that may arise when an insurance company, evidently playing hardball with its insured, refuses to deviate from its “form” releases.

In Barickman, the Mercury’s insured (McDaniel) injured two individuals (Barickmand and McInteer) in a car accident in which McDaniel was found to have been intoxicated while driving his car. McDaniel was criminally prosecuted and there was the possibility that McDaniel, as part of any sentence in the criminal proceeding, might be ...

Liability Insurance Coverage: Basic Principles - Part Two

There are certain core principles that must be applied in analyzing coverage under a liability insurance policy.

This two-part article sets out those principles. It also explores some counter-intuitive situations in which such coverage may come into play.

Examples of Coverage in Counter-Intuitive Situations

  • Patent infringement
  • Business and IP disputes
  • Cyber-related risks
  • Trade dress claims
  • Unfair competition claims

Patent Infringement

  • See, e.g., com International, Inc. vs. American Dynasty Surplus Lines Ins. Co., 120 Wash. App. 610 (2004) (patent infringement covered ...
Liability Insurance Coverage: Basic Principles

There are certain core principles that must be applied in analyzing coverage under a liability insurance policy.

This two-part article sets out those principles. It also explores some counter-intuitive situations in which such coverage may come into play.

Insurance Liability

  • Hidden opportunities to obtain coverage in liability cases
  • Sometimes counter-intuitive
  • Often obscured by jargon and complexity
  • What strategies will assist in uncovering these opportunities?

The 8 Key Points

1. Law Tilted in Favor of Policyholders

Liability insurance provides protection (i.e ...

Litigation Practice Meets Covid – The View From California

The Covid-19 pandemic has had a profound and likely lasting impact on the way litigation lawyers conduct their practice. Below are some practical tips for managing in this new environment.

Civil Trial Scheduling

While our local Superior Court has not made an official announcement to this effect, it has been our experience that civil trials will be continued into 2021. This is in part because of the backlog of criminal and unlawful detainer cases, which have priority. While law and motion hearings have continued to proceed, these are all done remotely in our local Superior and US ...

Overcoming Intellectual Property Exclusions In Insurance Policies

A key challenge for policyholders seeking coverage under commercial general liability, directors and officers and other insurance policies is the presence of the so-called “intellectual property exclusion.” In a typical formulation, this provision excludes from coverage claims “based upon or arising out of any actual or alleged infringement, contributory infringement, misappropriation or theft of any intellectual property rights by the insured, including, but not limited to patent, copyright or trademark, service mark, trade dress, trade dress, trade secret, or ...

An Interview With Peter Selvin: Dispute Resolution 

Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes in major jurisdictions around the world. This interview discusses dispute resolution in the United States. 

1. What are the most popular dispute resolution methods for clients in your jurisdiction? Is there a clear preference for a particular method in commercial disputes? What is the balance between litigation and arbitration?

The principal alternatives to court litigation are arbitration and mediation.

As to arbitration, there has been considerable appellate ...

Rulings Disagree: Is Loss of Use of a Leasehold 'Property Damage'?

Is a party’s loss of use of a leasehold or other interest in real property considered “property damage” within the meaning of a comprehensive general liability (CGL) policy? Two recent cases go in different directions on this point.

The starting point is the CGL’s Coverage A which typically provides coverage for “bodily injury and property damage liability”. In turn, “property damage” is typically defined to include the “loss of use of tangible property that is not physically injured”. The key question addressed by the following cases is whether a party’s ...

Courts Wrestle With Coverage of Cyber-Related Claims

Cyber insurance is designed to fill an enterprise's coverage gaps, where coverage under other forms of in­surance may not be triggered by these kind of losses. At the same time, and because cyber insurance is a relatively new prod­uct, there are few reported cases involving coverage disputes. Importantly, those cases highlight the need for policyholders to scru­tinize the menu of available coverage grants in any proposed cyber insurance policy.

While to date there has been relative­ly few reported cases involving cyber in­surance coverage disputes, there has been much ...

Insureds Seek Coverage For Breaches Under Traditional Policies

There have been a number of high-profile insurance coverage cases arising from losses due to cyber fraud – especially data breaches, "spoofing'' and payment instruction fraud. While cyber insurance is specifically designed to address these kinds of losses, insureds covered under traditional insurance products such as commercial general liability, errors and omission and crime poli­cies have continued to seek coverage under those policies for cyber-related losses.

For example, in a case filed on Nov. 15, Target seeks recovery for its cyber fraud-related losses from its ...

Appellate Rulings Depart From Treaty Interpretation Norms 

International treaties and conventions such as the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, November 15, 1965, 20 U.S.T. 361, T.I.A.S. No. 6638 (“the Hague Service Convention”), and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, T.I.A.S. No. 6998 (“the New York Convention”) are considered to be federal law and hence prevail over inconsistent state common law. U.S. Const., art. VI, cl. 2: American Ins. Assoc. v. Garamendi, 539 U.S. 396 (2003). For ...

Can Companies Be Liable If Third-Party Contractors Suffer Data Breaches?

The California Consumer Privacy Act became effective on Jan. 1. Included among its provisions is the grant of a private right of action on behalf of any consumer “whose nonencrypted and nonredacted personal information … is subject to an unauthorized access and exfiltration, theft or disclosure as a result of the business’s violation of the duty to implement and maintain reasonable security procedures and practices.” Civil Code Section 1798.150.

An interesting question is whether a company may face liability under this statute (or based on common law theories) where one ...

Ruling May Shed Light On Physical Losses and COVID-19

In the context of the numerous lawsuits have recently filed by policyholders seeking compensation for lost business income occasioned by the pending pandemic, a key issue will be whether those policyholders have suffered “direct physical loss or damage” to their businesses. A case decided earlier this year (albeit in a different factual context) sheds some light on whether this requirement can be satisfied in the present circumstances.

In Nat’l Ink & Stitch, LLC vs. State Auto Prop. & Cas. Ins. Co.,  2020 WL 374460 (D. Md. Jan. 23, 2020), plaintiff policyholder was the victim of ...

Exceptions to Insurers’ Right to Rescind for Inaccurate Information

Life insurers faced with a claim for benefits within two years after policy inception will often conduct a post-claim investigation to ascertain whether the statements made by an applicant about his or her medical history and health habits were accurate. In those cases where an insurer determines that those statements were inaccurate, the insurer may seek to rescind the policy.

But there are exceptions to the principle that inaccurate information in an application automatically gives the insurer an absolute right to rescind. Thus, while the general rule is that an insurer may ...

Business Interruption Insurance Coverage: A Guide for Restaurants

Restaurants whose operations have been shut down due to the coronavirus crisis are looking to their business interruption or business income insurance policies for relief, and have found resistance from insurance companies paying these claims.

As a general matter, in order to trigger coverage those policies require (1) direct physical loss or damage; (2) to covered property: (3) arising from a covered peril; and (4) resulting in the suspension of the business’ operations.

In cases where coverage is triggered, an insured business may be entitled to recover the net income it would ...

Business Interruption Insurance Coverage in the Age of Coronavirus

Businesses whose operations have been shut down due to the coronavirus crisis rightly look to their business interruption or business income policies for relief. As a general matter, in order to trigger coverage those policies require (1) direct physical loss or damage; (2) to covered property: (3) arising from a covered peril; and (4) resulting in the suspension of the business’ operations.

In cases where coverage is triggered, an insured business may be entitled to recover the net income it would have received but for the interruption and its operating expenses during the time ...


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