Hunton Insurance Recovery Blog

Officers and directors must constantly navigate new and emerging risks, and that trend will continue in 2025. Ever-growing use (and misuse) of artificial intelligence, increased geopolitical risk, boardroom fallout following cybersecurity incidents, a new administration in the White House, and many other factors point to another eventful year for D&O exposures. Ensuring adequate protection for company leadership is more important than ever to attract and retain top talent.

On December 13, 2024, the North Carolina Supreme Court refused to follow the herd of poorly and in many cases, erroneously-reasoned decisions and applied settled rules of insurance policy interpretation to find Cincinnati Insurance Company owes coverage to a group of restaurants suffering business interruption losses stemming from the COVID-19 pandemic.  While the North Carolina Court’s decision in North State Deli, LLC v. The Cincinnati Insurance Co., may come too late for many, the decision nevertheless offers reassurance that some courts remain willing to stand firm on fundamental guiding principles.

As businesses integrate artificial intelligence (AI) into their operations, the potential for AI-associated risk increases. The recently filed lawsuit, A.F. et al. v. Character Technologies, Inc. et al., illustrates the gravity of such risk. The lawsuit not only highlights the potential risks associated with products utilizing AI technology but also provides an illustration of how insurance can help to mitigate those risks.

In the year ahead, supply chains for corporate America will likely be vulnerable to disruptions arising from multiple risks—from natural disasters to geopolitical strife—heightening companies’ dependence on insurance to manage their risks. Bloomberg Law’s recent article, “Climate, Labor Disruptions Leave Companies Reliant on Insurers” features commentary from counsel Jorge Aviles on how insurance can help shield businesses from financial losses following a supply chain-related loss. “Any business with operations that rely on a supply chain should be looking into insurance coverage to manage risks.” That safety net “gives the company the confidence that it won’t be out of pocket,” Aviles says. “It gives the employees and managers and directors of the company confidence as well, and it gives your lenders and investors confidence that the company won’t be on the hook for these massive losses.” “Companies relying on such coverage should keep in mind the tiers of suppliers,” Aviles said. “A policy might offer coverage for a direct supplier, for example, but not an indirect supplier that’s disrupted.”

It is common knowledge in the insurance industry that an insurer’s duty to defend is broad.  Recently, a U.S. District Court reminded us just how broad that duty is when it held that a complaint with only two scarce factual allegations triggered an insurer’s duty to defend.

The extent of coverage is often a function of how many occurrences (or accidents) are involved in a claim. For example, lawsuits based on product liability claims may involve a flawed manufacturing process constituting a single occurrence, or the sale of each individual product may result in hundreds of occurrences. A recent ruling involved the number of occurrences debate and resulted in the insured establishing coverage for up to $55 million instead of just $5 million in limits. 

A California appeals court recently reversed a trial court’s determination that a D&O insurer had no duty to reimburse legal fees incurred by a company’s former CFO in defending against an SEC civil enforcement action, shareholder derivative claims, and counterclaims by the company asserting that the CFO breached his indemnification agreement. In doing so, the appeals court rejected the insurer’s argument that the defense costs the company advanced to the CFO were “restitutionary” damages excluded from the D&O policy’s definition of loss.

The court explained that its ruling favoring broad executive protection was consistent with the generally understood purpose of D&O liability insurance—to provide protection for individuals whose business decisions, made in their capacity as the management of a corporation, subject them to the risk of personal liability for losses that the corporation or its shareholders may incur.

Insurance can mitigate cross-border risks arising out of geo-political and government-related disruptions (such as war, corruption or expropriation), social unrest and cyber vulnerabilities. Different insurance products respond to these risks in different ways. For example, contingent business interruption coverage responds to mitigate lost profits resulting from an interruption of business caused by physical damage to a supplier’s property, while cyber insurance protects against the costs of digital threats, such as ransomware attacks, phishing or hacking. In a recent Supply & Demand Chain Executive article, counsel Jorge R. Aviles and associate Jae Lynn Huckaba analyze how the industry can utilize these different insurance products in unison and build a comprehensive insurance portfolio to maximize coverage and minimize losses from the most common cross-border risks.

The Ninth Circuit has 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 and Gen. Ins. Co. v. Heard, No. 23-3399 (9th Cir. Nov. 25, 2024). The decision, premised on Virginia law, rather than the policyholder’s favored California law, underscores the potential for choice of law to have case-dispositive implications.

Courts nationwide have long held that defense costs incurred by a policyholder are presumed reasonable where an insurer breaches its duty to defend. The North Carolina Business Court in an opinion written by Judge Mark Davis recently adopted this rule under North Carolina law in Murphy-Brown, LLC v. Ace American Insurance Company, 2024 WL 4327353 (N.C.Super. Sep. 25, 2024).