With a new year comes a new set of trends for CEOs, CFOs, general counsels, risk management professionals, and brokers to watch when thinking about the insurance market.  This article highlights the following five of those key trends: coverage for liabilities arising out of statutory privacy regimes; new insurance arbitration rules; repeat appointments in insurance disputes; the impact of increases in securities suit filings and event-driven litigation on the D&O market, and; an increase in employment practices liability claims.

Cyber Insurance and The Year of Privacy

2019 has been described as the “Year of Ransomware.” While ransomware will remain a threat and continue to plague businesses in 2020, general counsels and risk professionals seem particularly concerned about compliance with statutory privacy regimes in 2020.  The California Consumer Privacy Act went to effect on January 1, 2020 and the security requirements in New York’s “Stop Hacks and Improve Electronic Data Security” (SHIELD) Act take effect on March 21, 2020.

General counsels and risk professionals are right to be concerned. Under the Illinois’ Biometric Information Privacy Act (BIPA), the first such act in the country, Facebook recently settled a lawsuit for $550 million.[1]  And, across the pond, potential liabilities arising under the General Data Protection Regime (GDPR) appear to be over €282 M against British Airways and Marriott, and €50 M against Google.[2]

While we have yet to see much in the way of insurance coverage litigation over coverage for liabilities arising out of statutory privacy regimes, a survey of BIPA case law undertaken by Pasich LLP shows that insurers have been willing to challenge coverage.[3]  These cases should be closely watched by those concerned with coverage in the “Year of Privacy.”

New Insurance Arbitration Rules

As discussed in the November issue of this publication,[4] new ARIAS-US rules for the resolution of insurance disputes went into effect on September 16, 2019 (the “Insurance Rules”).  The Insurance Rules were intended to assist ARIAS-US in attracting direct insurance disputes by addressing the concerns of policyholders who might have previously been skeptical about utilizing ARIAS-US rules to resolve their disputes.  The changes to the rules were designed to promote fairness and predictability in such disputes.

It remains to be seen, of course, how such rules fare in practice. It will also be interesting to see if other arbitral institutions, in response to the Insurance Rules, seek to develop their own competing rule sets.  To the extent these other institutions also seek to improve the fairness and predictability of insurance coverage arbitration’s, all parties will benefit.

Halliburton and Repeat Appointments in Insurance Disputes

As a corollary to the prior trend regarding the fairness of arbitration, the arbitration world is anxiously awaiting a decision from the UK Supreme Court on disclosure and bias in arbitration. See Halliburton Co. v. Chubb Bermuda Ins. Ltd (formerly known as ACE Bermuda Insurance Ltd), Case ID: UKSC 2018/0100.

Halliburton sought coverage from Chubb under a liability policy in relation to liabilities arising out of the Deepwater Horizon oil spill. Halliburton sought removal of the umpire on the grounds that the arbitrator failed to disclose that Chubb had retained them for two other matters related to the same incident. Although the court of first impression and the intermediate appellate court rejected Halliburton’s challenge, Halliburton has appealed those decisions and the case is currently pending before the UK Supreme Court.

The UK Supreme Court’s ruling will reverberate throughout the insurance world. For in-house counsel and risk professionals the case highlights how important it is to consider what happens when things go wrong under a policy and whether arbitration, including London arbitration, is a forum with which they are comfortable.

Directors and Officers Insurance Will Continue to Experience Increased Risk Exposure

Since 2017 there has been a surge in D&O related claims and rate increases.  This trend is likely to continue due to an increase in securities suit filings, emerging market risks and event-driven litigation.

Increase in Securities Suit Filings

In 2019, the total number of securities suit filings in state and federal courts continued to climb.  According to Cornerstone Research, there were a total of 428 new class action securities filings, nearly double the 1997-2008 annual average number of filings of 215.[5]  This represents the third consecutive year with more than 400 cases filed.[6]

This is in part because the D&O market is still reacting to the U.S. Supreme Court’s decision in Cyan, Inc. v. Beaver County Employees Retirement Fund,[7] which allowed plaintiffs that allege violations of the Securities Act of 1933 (Section 11 claims) to bring suit in both state and federal court.  Policyholders, and by extension their insurers, are now contending with the costs and complexity of defending securities class actions in multiple jurisdictions.

Increase in Event-Driven Litigation

Event-driven litigations—where negative events instead of allegations of financial misstatements or omissions trigger the filing of lawsuits —surged in 2018, especially regarding the filing of securities class actions related to the #MeToo movement and the opioid crisis.[8]  While slightly fewer event-driven litigations were filed in 2019, there was an increase in the type of securities filings.  Namely, there was an increase in securities filings related to cyber breach allegations and for the first time, securities filings in the cannabis industry.[9]

There has also been a trend in recent years, likely to continue in 2020, for high value settlements of event-driven securities and derivative suit settlements.  Of the top 100 U.S. securities fraud settlements ever, 59% are event driven.[10] Indeed, it is likely that 2020 will continue to see a significant number of event-driven securities suits and derivative claims in emerging markets like cyber and cannabis, but filings related to #MeToo, health crises and climate-related losses (i.e., wildfires and hurricanes) should be expected as well.

Rise in Employment Practices Liability Claims

Insurance claims for lawsuits alleging employment practices violations will continue to increase with the passing of new pay equity laws, #MeToo related filings and the expanding scope of wage and hour lawsuits.  Several states in the last few years, including California and New York, have implemented pay equity legislation imposing stricter standards on employers and lessening the burden for plaintiffs alleging wage discrimination—opening the door to more employment-related claims.

The rise in number and type of filings in 2018, with the U.S. Equal Employment Opportunity Commission (EEOC), demonstrates the continued prevalence of these types of claims.  In 2018 (most recent data available), there were 39,469 charges filed with the EEOC for retaliation which was 51.6% of all charges filed with EEOC.[11]  The EEOC also received 7,609 sexual harassment charges, a 13.6% increase from 2017.

There has also been a continued increase in wage and hour lawsuits alleging wrongful denial of minimum wage or overtime pay (often due to the misclassification of workers) that will likely continue.  With these trends in play for 2020, related claims will be made under Employment Practices Liability policies as well as under D&O and General Liability policies.

Full article available at  IRL February Newsletter

[1] Kyle Brasseur, Facebook Reveals $550M settlement for Illinois privacy lawsuit, Compliance Week (Jan. 30, 2020), available at https://www.complianceweek.com/data-privacy/facebook-reveals-550m-settlement-for-illinois-privacy-lawsuit/28379.article

[2] Ryan Browne, Europe’s privacy overhaul has led to just €126 million in fines – but regulators are just getting started, CNBC (Jan. 19, 2020), available at https://www.cnbc.com/2020/01/19/eu-gdpr-privacy-law-led-to-over-100-million-in-fines.html

[3] Peter Halprin, Nicolas Pappas and Vincent Xu, Ill. Cases May Instruct Ins. Suits Over Calif. Privacy Laws, Law360 (Dec. 18, 2019), available at https://www.law360.com/cybersecurity-privacy/articles/1229450/ill-cases-may-instruct-insurance-suits-over-calif-privacy-law?nl_pk=cf9322cf-f65b-42a4-be73-39eca89db00e&utm_source=newsletter&utm_medium=email&utm_campaign=cybersecurity-privacy

[4] Peter A. Halprin, David Ichel, and Peter Rosen, Introducing The ARIAS-US Panel Rules For the Resolution Of Insurance And Contract Disputes, Insurance Research Letter (Nov. 2019), at 12).

[5] Securities Class Action Filings: 2019 Year in Review, Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse (January 2020), available at  https://www.cornerstone.com/Publications/Reports/Securities-Class-Action-Filings-2019-Year-in-Review

[6] Janeen McIntosh and Svetlana Starykh, Recent Trends in Securities Action Litigation: 2019 Full-Year in Review, NERA (Jan. 21, 2020), at 2, available at https://www.nera.com/content/dam/nera/publications/2020/PUB_Year_End_Trends_012120_Final.pdf

[7] Cyan, Inc. v. Beaver Cty. Emps. Retirement Fund, No. 15-1439, 538 U.S. __ (2018).

 [8] NERA, at 7.

[9] Id.

[10] Securities Class Action Services, The Top 100 U.S. Class Action Settlements of All Time As of December 2018 (Dec. 31, 2017), available at https://www.issgovernance.com/library/the-top-100-u-s-settlements-of-all-time-as-of-december-2018/.

[11] EEOX Releases Fiscal Year 2018 Enforcement Litigation Data, (Apr. 10, 2019), available at https://www1.eeoc.gov//eeoc/newsroom/release/4-10-19.cfm?renderforprint=1