The Insurance Coverage Counseling & Litigation Group is sending this alert to
clients and interested parties because of the potential for insurance coverage
issues arising out of investor losses in connection with the recent collapse of
alleged Ponzi schemes run by Bernard L. Madoff, Stanford Financial and others
whose schemes recently have come to light. Businesses that had direct or
indirect dealings with investment scammers should evaluate what protection is
afforded by their liability insurance program since.
Most McGuireWoods clients have an arsenal of insurance protection that
potentially provides them with a fertile source of recovery for losses arising
out of these alleged Ponzi-related losses. Clients should focus on their
Directors’ and Officers’, Errors and Omissions and Fiduciary Liability insurance
policies. Businesses that were involved with any Ponzi scheme should consult
with insurance coverage counsel now to avoid problems in pursuing insurance
Following are some examples of the types of claims arising out of these two
situations that may be covered by insurance:
- Claims against accounting firms that performed
audits on funds that invested their clients’ funds with Madoff or Stanford.
- Claims made against directors and/or officers of businesses that
invested with either entity.
- Claims brought against investment funds, outside brokerages, and
investment advisors that placed their clients’ funds with Madoff or
- Corporate bankruptcy brought about by Madoff’s or Stanford’s failure is
likely to raise D&O coverage concerns.
- ERISA claims against pension plan fiduciaries, including directors and
officers arising from the investment, management and oversight of employee
benefit and retirement plans.
As with any insurance claim it is critically important to evaluate and submit
insurance claims promptly. Our clients should be aware of the following
recommendations in order to maximize the potential for their insurance recovery:
- Locate all potentially applicable insurance policies and review
coverages with an insurance coverage lawyer.
- Verify the reporting dates in “claims made” insurance policies. Failure
to give timely notice of a loss within the reporting period specified in a
claims made insurance policy may bar coverage. You should be aware that for
insurance programs that renew around the beginning of the year, reporting
deadlines may be rapidly approaching.
- Attorneys and risk managers should be aware that the term “claim” is not
limited to lawsuits. Insurers may argue that receipt by a client of a
written demand or even a request to toll or waive a statute of limitations
period triggered the “notice” obligations under an insurance policy. In
addition, insurance policies may not only cover defense costs but may
provide coverage for responding to governmental subpoenas or investigations.
- What initially appears to be a small claim not worth reporting to an
insurance company may later blossom into a much more significant situation.
Policyholders should not put off notifying an insurance carrier simply
because they think a claim presents minimal exposure or can be defended
within the deductible or self-insured retention level.
- D&O policies may contain Prior Acts and Prior Notice Exclusions that can
severely hamper, if not completely extinguish, any right to recovery.
- A client contemplating bankruptcy should evaluate its D&O coverage
position. A client already in bankruptcy will need to understand the
bankruptcy issues that surround D&O coverage.
Insurance Coverage Counseling & Litigation Group works closely with our
clients’ in-house counsel and risk managers to handle D&O, E&O (including
professional liability) and Fiduciary insurance claims. Our practice group has
helped many businesses and financial institutions collect from their insurers
for losses arising from these types of claims.