In Today's Financial Markets Crisis, More, Not Less, Insurance Protection Is In Order

Thursday, January 1, 2009 - 01:00

Editor: Would each of you tell our readers something about your professional background?

Cohen: I joined Proskauer Rose as a partner in 2008. Prior to that I was the managing shareholder of Heller Ehrman's Los Angeles office, where I also served as co-chair of the firm's Insurance Recovery and Products Liability Practice Groups. My area of expertise is in insurance coverage, mass tort, toxic torts, class actions, products liability and general commercial litigation.

I have been lead counsel in the prosecution of many insurance coverage lawsuits relating to environmental and product liability, resulting in recoveries in excess of $1 billion, and my practice includes first-party claims involving business interruption, third-party claims involving reimbursement for environmental liabilities and prosecution of claims by Holocaust survivors against insurance carriers that failed to pay life insurance benefits. I was lead counsel for the lender on the World Trade Center in prosecuting claims for insurance coverage for the towers.

Siemens: I also joined Proskauer as a partner in 2008 from Heller Ehrman, where I co-chaired the litigation department of the firm's Los Angeles office. My practice is in the areas of insurance coverage, product liability, mass torts and complex commercial litigation. I represent policyholders in insurance coverage disputes and litigation, and I have recovered approximately $1 billion from insurance companies. I handle a wide range of first-party (property loss, business interruption, equipment, mold), third-party (errors and omissions, directors and officers, advertising, aviation, employment, environmental, fiduciary, intellectual property, privacy, products, bodily injury, property damages) and specialty coverages such as bond, cap, credit, Internet, mortgage, nuclear and insolvency risk insurance.

I also handle product liability, mass tort and complex commercial litigation for major manufacturers, defense contractors and financial institutions, and healthcare, accounting, high technology, pharmaceutical and medical services companies.

I take particular pride in having represented, on a pro bono basis, Holocaust survivors in prosecuting class action claims against European insurers alleged to have wrongfully denied death benefits owed under life insurance policies sold to Holocaust victims.

Editor: Please tell us about your practice. Specifically, how has it evolved over the course of your career?

Cohen: Beginning in the early 1980s a great many practitioners in this field cut their teeth on asbestos. This work continues, but in recent years the volume of asbestos cases has declined, and other environmental themes have taken first billing. We are seeing a movement in insurance law cases toward corporate record-keeping and directors and officers liability insurance as it regards the fiduciary responsibility. We have seen more cases where the company's business has been interrupted as a consequence, say, of a hurricane or some other natural disaster, and insurance should cover the loss.

Siemens: As with so many areas of the law, the practice is becoming increasingly specialized. Up until a few years ago, it was sufficient for a practitioner to hold himself out as an insurance lawyer, and prior to that he might introduce himself as a litigator with an insurance law feature to his practice to convey a pretty fair idea of the practice. Today, considerably more detail is required to describe the practice with any accuracy.

Editor: What were the things that attracted you to Proskauer?

Cohen: The firm has done a tremendous job of developing the practice, and its most notable representation of Larry Silverstein in the World Trade Center litigation gave practitioners in this area a real idea of its importance in the firm-wide scheme of things. Reynold and I were very much involved in that litigation, of course, and the degree of support the firm gave to this matter made a singular impression on us.

We were already in California, having practiced at Heller Ehrman for some 13 years. Joining Proskauer gave us an opportunity to become part of a platform capable of drawing upon world-class experience and expertise from across a wide range of legal disciplines and practice groups. And, of course, for exposure to some very important clients. These clients are going to be addressing a variety of issues, many of which overlap in terms of the legal resources required. We have the ability to staff our projects from any number of practice groups and, indeed, from offices all over the country. The firm's insurance practice is spread across the entire firm, but New York, Chicago and Los Angeles are the principal resources, and much of our work can call upon the expertise residing in those offices.

Finally, it was important for us to stay in California. Los Angeles is something of a gateway to the Pacific Rim. Almost all global enterprises with aspirations to carry on their activities in East Asia, in South Asia and, indeed, the West Coast have offices in this city or elsewhere in the region. Proskauer - as any forward-thinking law firm - understands the need to be where the clients wish them to be.

Editor: You mention Los Angeles as a gateway. In light of the current financial markets crisis, does California continue to be an attractive investment destination and introduction to the Pacific Rim region?

Siemens: One of the significant benefits of being part of a law firm enterprise that is national in its reach and, at the same time, celebrated for the experience and expertise it brings to its clients, is the ability to ride out the storm. That is, when public offerings, private placements and other corporate financing transactions are down as a consequence of the state of the economy, bankruptcies, insolvencies, workouts, and similar arrangements - which you do not hear about in good times - are calling upon other areas from across the firm-wide practice. The latter holds steady, even if individual practices suffer.

California is one of the principal sources of technological research in our country, and that requires access to capital whatever the state of the economy. I think it is fair to say that the tap has not been turned off altogether here. In addition, there are many astute investors who understand the need to be in place when the economy does turn around. They may be slowing down their activities, but they are not going away.

Finally, with respect to insurance, we are in the midst of a real lesson concerning what happens when catastrophe strikes - some natural disaster or a corporate governance arrangement that fails to function - and the appropriate insurance is not in place. If something good is going to come out of the financial markets crisis, it is that a more attentive insurance and risk management structure will replace what has existed until quite recently.

Editor: What kind of impact is the crisis having on the firm's clients?

Cohen: Each client is unique, of course, but one thing that appears to be universal is a concern for legal expenses. Companies are scrutinizing their options vigorously. Discussions on whether to pursue litigation, whether to settle, and so on, arise much earlier in the process than was the case in the past. Clients are also anxious to reach some sort of resolution on a dispute, and that, I think, is a reflection of the uncertainty of the times.

Siemens: The crisis constitutes a much bigger downturn of the economy than originally anticipated, but we believe this is still part of a cyclical process, albeit a very serious one. It also represents an opportunity for business to regroup and move forward. And that is precisely when the right insurance is absolutely necessary. Insurance is about shifting risk. A company pays a great deal of money for its insurers to assume the risk - money that does not represent either an afterthought or even a necessary evil, but rather the key to being able to transcend the crisis - and in such an environment insurance coverage litigation is bound to grow. Notwithstanding the enormous concern for expense, this is a time for more, not less, in the way of insurance.

Editor: Are there types of insurance that are specifically directed to the current financial crisis?

Cohen: I cannot say there is a specific insurance for risks arising from the crisis, but I can say that many of the exposures inherent in litigation from the crisis are covered by insurance. A company's historic coverage may well be relevant, including claims made (D&O/E&O/ EPL) vs. occurrence (CGL) vs. discovery (fidelity/crime). General counsel must review the company's historic coverage with a great deal of care, keeping in mind that the factual allegations are usually more important than the captions of a complaint.

In the area of employee actions, for example, a claim may include wrongful termination in addition to some allegation that an ERISA benefits plan has been mishandled. An ERISA fiduciary liability policy, accordingly, may extend to such termination in addition to, say, claims of discrimination, sexual harassment and the like. The general rule is that a liability policy covers the unintended results of intentional acts - the results of intent to harm, really - but an intent to harm will not necessarily be inferred in discrimination and harassment-type claims.

Siemens: Similarly, bankruptcy presents an array of issues, particularly for creditors. A claim by the trustee in bankruptcy as against the directors and officers raises the issue of who owns the D&O policy, the company or the directors and officers. If the company, the policy may be property of the estate, and the automatic bankruptcy stay may preclude directors and officers access to the policy even though claims against them continue.

An issue of this type seriously complicates the order of payment and the ability of those for whom the policy was purchased to obtain advances for their defense. Absent an "order of payment" provision in the policy itself, this normally has to be resolved by agreement or litigation.

Cohen: In connection with the notice and renewal issue, please note that claims made and occurrence policies require prompt notice of a claim, and that may hinge on the individual knowledge of a risk manager or general counsel. Failure to give notice, or even prompt notice, may preclude coverage.

At the same time, exclusions typically preclude coverage for claims known before the inception of the policy or circumstances likely to give rise to any such claim, and many applications require warranties that no such claims or circumstances exist. It is important to conduct an audit that will identify all existing claims and circumstances under an expiring policy by the appropriate deadline.

Siemens: On renewal, it is important for the company to take all necessary steps to protect against insurer insolvency, which, in an economic climate like today's, can be both unpredictable and rapid. That means exploring excess coverage, with more layers of diversity and more capabilities among the company's insurers.

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