Insurance Policy Types

Numerous businesses facing class action lawsuits brought under the Illinois Biometric Information Privacy Act (BIPA), 740 ILCS 14 et seq., have sought insurance coverage under general liability policies only to receive blanket denials. It appears some relief may be on the way as the first Illinois Appellate Court to consider the issue affirmed the decision of the trial court and found in favor of coverage. West Bend Mut. Ins. Co. v. Krishna Schaumburg Tan, Inc., 2020 IL App (1st) 191834 (March 20, 2020).
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As the coronavirus (COVID-19) outbreak continues to evolve, more businesses are feeling the impact.  Earlier this week, Apple announced that it does not expect to meet its quarterly revenue forecast due to interruption of its Chinese manufacturing operations and decreased demand from Chinese consumers.  In a previous post, we outlined how business interruption insurance coverage may help offset financial losses in a health emergency like the coronavirus outbreak.

Business interruption coverage is usually purchased as part of a commercial property policy.  As we explained, business interruption coverage typically applies when a policyholder suffers “direct physical loss of or damage to” covered property, and insurers may dispute whether a disease outbreak like coronavirus constitutes “physical loss” or “damage.”  Likewise, contingent business interruption coverage, which insures losses due to suspension of operations by a supplier, typically applies if the supplier suffers “physical loss” or “damage” that would be covered if sustained at the policyholder’s property.  And civil or military authority coverage, which insures losses when a government order restricts access to insured property, usually applies if that order is the “direct result” of physical loss or damage of the same type insured by the policy.
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The start of 2020 has brought uncertainty for tech businesses as individuals in the global health and business communities grapple with trying to understand and contain the deadly new coronavirus. Originating in Wuhan City, Hubei Province, China, the coronavirus has infected more than 28,000 people, killing at least 560. On January 31, 2020, the World Health Organization declared the 2019-nCoV virus (the formal medical designation of this new strand of coronavirus) a public health emergency. The Centers for Disease Control and Prevention, which is also closely monitoring the outbreak, reports that “[t]he potential public health threat posed by 2019-nCoV virus is high, both globally and to the United States.”
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Companies that wish to have higher limits of insurance than their primary (or umbrella) insurance companies are willing to provide usually can purchase excess insurance policies. Excess policies respond to losses above the limits of the primary layer of coverage. A company may purchase multiple layers of excess coverage from different insurance companies, creating a tower of coverage, with the primary layer at the bottom, and one or more excess layers at the top.
Many excess insurance policies are written as “follow-form” coverage. That is, rather than containing a full set of terms and conditions themselves, the excess policies “follow form” to, or incorporate by reference, the terms and conditions of a policy in a lower layer. Follow-form excess policies therefore tend to be shorter than policies that need to set out all of their own terms. The general idea behind follow-form excess coverage is to provide a seamless tower of coverage to the policyholder to respond to large losses.Despite their brevity, the mechanics of follow-form excess policies do not always work as smoothly as intended. This post sets out a number of traps for the unwary that sometimes are hidden within excess insurance policies. As described below, most of these can be avoided if policyholders and their advisors are vigilant when purchasing excess policies, and stay away from those with language that could lead to unintended results. 
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Insurance coverage lawyers and commentators have drawn considerable attention to state and federal data protection statutes in recent years. E.g., Freya K. Bowen, “Beyond GDPR: Insurance Coverage for Emerging Cybersecurity and Privacy Regulatory Exposure,” Perkins Coie Tech Risk Report (April 10, 2019), available here. Statutes governing the collection and use of biometric data have received much less attention, even though several states have passed such statutes and other states presently have some version under consideration. As previously noted in this blog, Jim Davis, “Biometrics Liability on the Rise: Are you Covered?” Perkins Coie Tech Risk Report (May 8, 2019), available here, these statutes apply to data as diverse as fingerscans DNA swabs, and even, potentially, facial recognition scans. Companies may be subject to regulatory actions or private litigation for violations, and, naturally, may seek insurance coverage for the resulting exposure. Some of these insurance claims will be subject to the same issues arising with claims relating to other data protection or privacy statutes, while other claims will raise specific insurance concerns unique to biometric data. Although these statutes are quite new, several recent cases help give policyholders a good indication of where the key risks may lie. Policyholders with exposure to these statutes should ensure that the appropriate insurance coverage is in place. 
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If your business gets hit with a demand letter or lawsuit, your first inclination might be to get rid of the problem as soon as possible. In the tech world, particularly for companies that are just getting off the ground, the last thing you need is expensive litigation to burden your bottom line, or adverse publicity that could give an edge to your competitors.

Most business owners procure basic insurance protection as part of their standard business operations. As the business grows, insurance coverage and limits are broadened. But the pressure to get rid of claims fast can make even the most prudent business executive take a “settle now, check other boxes later” approach. This might be a big mistake—and one that could be easily remedied by taking some simple early steps.

Most insurance policies contain “no action” and/or what is known as “no voluntary payment” or “no voluntary settlement” clauses. These clauses typically look like this:

No insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation or incur any expense other than for first aid, without our [that is, the insurer’s] consent.


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The ability to build and maintain strong relationships with business partners and vendors is an essential requirement for any business seeking long-term success. This is especially true in the fast-paced technology sector, where a company’s ability to put its innovative ideas to work often depends on its access to outside capital and its skill in turning connections into contractually-bound partners, vendors, clients, and customers. The unfortunate corollary to the need for technology firms to build and maintain relationships with outside partners is, of course, that no relationship is perfect. Not all partnerships are built to last. That reality raises an all-important question: how do you prepare your firm for the inevitable day when one of its business relationships sours?

As my colleague Linda Powell discussed recently, firms that provide technology services and products can manage their relationship-based risk by purchasing Technology Errors and Omissions (Tech E&O) insurance. Alternately known as Technology Professional Liability Insurance, Tech E&O insurance is likely to respond to demand letters, claims, or lawsuits brought against your firm by dissatisfied business partners, vendors, or customers who believe that your firm has committed an error or made an omission that caused financial harm.
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Wildfires have wreaked havoc on, and caused incalculable losses to, individuals and businesses in California over the last three years. These disasters—caused by a series of conflating events, including massive shifts to the climate—are not limited to the Golden State, as fires have devastated many western communities, and fires as well as other unprecedented weather events, including hurricanes, flash flooding, cyclone rains, and extreme-cold freezes have disrupted businesses across the world.

Most businesses know how to protect their physical offices and facilities with commercial property insurance, including business interruption coverage, in case they are directly affected by physical disasters. But, in today’s business environment, a company may be closely tied to and dependent on third-party suppliers. What happens if a major player in your supply chain is adversely affected by one of these (unfortunately) all-too common climate disasters? Unless you operate at ground zero in vulnerable environmental zones, you may not be aware of the fact that your vendors may be the ones most directly affected, and this might have a devastating ripple effect on your ability to operate a successful business.
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Most firms that provide technology services or products have insurance to protect them against the risk that a dissatisfied customer will bring a claim or a lawsuit against them for damages arising out of the company’s products or services. It is very likely that such firms purchase general liability insurance, which is an important product that covers many different risks, including property damage, bodily injury, advertising injury, and other business-related claims. Most importantly, general liability insurance policies often require the insurer to defend the company in the event of litigation, making it a particularly valuable type of insurance. But will general liability insurance protect your tech company in the event of a claim by a client for purely financial damages? The short answer is, probably not. This is the reason for tech firms to consider a Technology Errors and Omissions (Tech E&O) policy as part of their overall coverage program. Using the examples below, this article discusses the coverage such policies can provide.

Example 1: Tech Product

Let’s say your company designs and provides building design software to architecture firms. Due to a problem with your software, several architectural designs for major projects have incorrect specifications, which impact many large projects. As a result, your company’s clients lose revenue because they have to revise the design plans for these projects, which takes additional weeks of architect time. If the architects then sue your company for damages, it will have to defend itself in the lawsuit and possibly pay a settlement or judgment to the architecture firms. 
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