Often following the large-scale devastation wrought by severe-weather events such as Superstorm Sandy are lawsuits against individuals and entities responsible for protecting, managing and maintaining the buildings that suffered serious damage in the storm's wake.
A handful of such suits have already been filed in New York City on behalf of residents of large residential buildings. The suits seek monetary damages caused by inadequate preventative measures taken before Sandy, as well as insufficient recovery measures thereafter—and also allege negligence, permitting unlawful entry into residential buildings and failure to mitigate damages.
For those businesses facing potential losses from negligence and breached-duties claims, Liability insurance may be a critical asset to help offset defense costs and settlement or judgment payments. Here's a review of how Comprehensive General Liability (CGL) and Directors and Officers (D&O) coverage can help mitigate such exposures. We also look at the possible triggers.
THE 'DUTY TO DEFEND'
Businesses and boards facing even completely groundless allegations made in suits seeking damages for acts or inaction leading up to and after Sandy should look to their Liability insurance policies for protection. These cover businesses for the costs incurred defending and reasonably resolving suits seeking to hold them liable for alleged bodily injuries or property damage.
The insurer's "duty to defend" its policyholders under CGL policies is a valuable aspect of the coverage. A CGL policy's insuring agreement typically provides that the insurer "will have the right and duty to defend any 'suit' seeking damages [covered by the indemnity provisions of the policy]."
A court determines the duty to defend by comparing the allegations of the underlying complaint with the terms of the policy; a duty to defend arises if the underlying complaint alleges facts within, or potentially within, policy coverage. The duty extends to groundless, false or fraudulent allegations in the underlying action—provided those allegations, if later proven true, would fall within coverage.
Accordingly, businesses with CGL coverage should demand and expect, at the very least, to be afforded a full and complete defense of any lawsuits alleging a negligent failure to prudently act in preparation for and/or following Sandy.
D&O PROTECTION: CHOOSE YOUR 'SIDE'
Management companies, board members, and officers or directors allegedly responsible for disaster preparation or building security may be named as individual defendants in Sandy-related liability suits. The individuals and the corporate entities responsible for indemnifying these individuals may call on their D&O policy for coverage.
D&O policies typically contain several coverage grants. Under Side A coverage, the insurer agrees to indemnify the individual directors and officers for all "loss" that those individuals become legally obligated to pay arising out of a "wrongful act" committed in their capacity as a director or officer. Side A coverage only responds, however, where the policy provides insurance to pay the directors' and officers' personal liabilities for which the corporation cannot or will not provide indemnification.
Side B coverage reimburses the corporation for all payments for which the company is required to indemnify, or has legally indemnified, the directors or officers for loss resulting from a claim alleging a wrongful act.
Individuals and entities—and their agents—facing these potential liabilities as a result of Sandy should consult with experienced policyholder counsel, who can help navigate the coverage issues discussed above, as well as others, and then determine if their policies can help defray the losses.
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