Consumer Finance Law Blog : Washington D.C. Consumer Finance Lawyer & Attorney : Kelley Drye & Warren Law Firm : Financial Privacy & Security

Numerous class action suits have been brought over the past several years under the Telephone Consumer Protection Act (“TCPA”) against entities that fax unsolicited advertisements (so-called “blast faxes”) to individuals and businesses.  Companies facing such suits in turn have sought insurance coverage under their comprehensive general liability (“CGL”) policies for costs incurred defending TCPA suits, and for indemnification of any liability.

While coverage disputes in blast faxing cases have historically yielded mixed results, a series of recent rulings have tilted the scales in favor of policyholders.  For example, the Florida Supreme Court decided on January 28, 2010 in Penzer v. Transportation Ins. Co., No. SC08-2068, 2010 WL 308043, that a standard CGL policy provided coverage for a suit brought under TCPA for alleged blast fax activities.  While other recent decisions have yielded similar results, Penzer is significant because it held that the plain language of the insurance policy compels coverage.

Despite the holding in Penzer, insurers will likely use the lack of unanimity among courts, and the potential for inconsistent results in jurisdictions yet to address the issue, as a basis to deny claims going forward.  Policyholders would be well served to not take these denials at face value, but rather should demand the coverage to which they are entitled.

A client advisory prepared by Kelley Drye & Warren LLP’s Insurance Recovery Group summarizes recent coverage decisions regarding blast faxing, including the Penzer decision, and discusses the implications of those cases for policyholders.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The recently filed case of First Bank v. Federal Insurance Company  reflects yet another financial services provider that was the subject of a data breach incident, and was forced into litigation with its insurers as a result. As detailed in our recent article, First Bank is not alone in having their insurance company deny the claim for coverage arising from the data breach. In this area of privacy and data security, anecdotally at least, it appears that many insurers are "underwriting at the point of claim" -- that is, denying coverage in the hope that the policyholder will abandon pursuit of the coverage.

However, you may be covered, even if you do not have a "cyber" or "data security" policy. In fact, the label or title on the policy matters little, as Federal had issued a policy impressively titled, “Cybersecurity by Chubb for Financial Institutions,” yet disclaimed coverage. That old standby -- Comprehensive General Liability (better known as "CGL") policies -- may well provide you with the coverage you need to defend litigation arising from a data breach.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

You may have noticed that premiums for Directors and Officers Liability (“D&O”) insurance are skyrocketing, largely as a result of the subprime lending crisis, stock market volatility, and the ensuing financial uncertainty. According to the American Banker, since 2008 D&O premiums, depending on the coverage type, have increased between 15% to 40% since last year. This trend shows no sign of abating. Other reports, including a recent analysis by Aon, confirm this trend.  Similar increases are forecast for the next several years as claims stemming from the current financial crisis are litigated and resolved. In fact, directors and officers of certain troubled businesses, particularly of financial institutions, may soon find that they are uninsurable at any reasonable price.

Higher premiums, however, are only one of the insurance industry’s reactions to the current financial conditions. Insurers also are instituting more restrictive terms and conditions, lower limits of liability, higher deductibles, and in some cases, specifically tailored exclusions that eliminate coverage for liability resulting from bankruptcy, bank failures, or claims brought by the Federal Deposit Insurance Corporation. In light of these developments, many financial institutions may find it difficult to retain and attract talented directors and officers at the very moment when such leadership is most needed. In fact, this current talent drain is a continuation of a trend that began in 2002 with the passage of the Sarbanes-Oxley Act.

One factor impacting rates and the availability of D&O insurance is the uncertainty surrounding AIG’s financial condition and future viability. AIG has long been the dominant underwriter of D&O insurance. As banks turn away from AIG for their D&O coverage, they are not finding the competition for their business that one might expect when an industry leader appears vulnerable. On the contrary, banks are facing a shrinking D&O market as several smaller carriers have decided to stop underwriting such coverage, especially for banks and other financial institutions, because the premiums are no longer perceived as worth the potential risk. In turn, those smaller insurers’ withdrawal from the market should only exacerbate the rate at which D&O insurance premiums increase in the ensuing months and years.

Faced with higher premiums for less D&O coverage, companies and their directors and officers should aggressively negotiate the most favorable coverage for their money. To that end, when negotiating new policies or renewals, they should carefully gauge their risk and exposure, and closely review proposed D&O policies, including exclusions, for provisions that could potentially eliminate coverage. If the proposed coverage is insufficient, or if sufficient coverage is only available at unreasonable rates, policyholders should consider alternative ways to maximize coverage and/or minimize risk going forward.

(Kelley Drye & Warren LLP Associate Justin F. Lavella contributed to this post.)

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Which among the following businesses are potentially subject to consumer financial services laws, rules, and regulations?

A. a retail clothing chain
B. a bank or mortgage company
C. an internet retailer
D. a fast food franchisor
E. all of the above

If you answered E, “All of the above,” you are CORRECT. However, many companies do not realize their businesses are subject to consumer financial services laws and, consequently, their businesses may not be compliant.

The focus of the Consumer Finance Law Blog is to keep – all on one site – "non-traditional financial service providers," such as retailers, potentially subject to consumer financial services laws abreast of recent developments in:

• State consumer protection statutes and regulations
• State privacy statutes
• Privacy and consumer protection litigation
• Card Association Rules
• Equal Credit Opportunity Act
• Electronic Funds Transfer Act
• Fair Credit Reporting Act
• Fair Credit Transactions Act
• Fair Debt Collection Practices Act
• Fair Housing Act
• Gramm Leach Bliley Act
• National Automated Clearing House Association Rules
• Payment Card Industry Data Security Standard
• State Money Transmitter Statutes
• State Retail Installment Sales Act
• State and Federal Unfair and Deceptive Trade Practices Acts
• TILA, RESPA, and related federal and state consumer disclosure and notice requirements

Kelley Drye & Warren LLP’s Consumer Financial Services practice and the editors of this Blog – Donna Wilson, Joel Hewer, and John McGuinness, with invaluable contributions from analyst Michael McGinn – welcome you and hope that you find our posts interesting, educational, and thought provoking. We also welcome your feedback and invite you to suggest topics or recent decisions of interest that you would like us to address.

• Email This
• Print
• Comments
• Trackbacks
• Share Link