Insurance for Crowdfunding Portals

Every Crowdfunding portal should carry liability insurance. The important questions are what kind, how much, and with what terms.

umbrella 2Like all businesses, Crowdfunding portals should consider the following “standard” liability coverage:

  • General liability insurance (slip and fall, etc.)
  • Employment Practices Liability insurance (sexual harassment, etc.)
  • Workers Compensation and Employers liability Insurance (usually mandatory by law)
  • Excess or Umbrella Liability coverage (providing additional coverage limits for liability claims, and in the case of umbrella coverage, coverage for some claims not provided by a commercial general liability policy)

However, the “standard” coverage probably won’t cover everything a portal does. For that, a portal will need insurance specific to the world of buying and selling securities.

Someday, maybe soon, the insurance industry will create a product specifically for Crowdfunding portals and buying the right policy will be easier. But that hasn’t happened yet. Today, you have to pick a policy type that seems close – maybe a policy for managing a private investment fund – and then seek to modify the policy yourself. For example, the policy might cover making investments in portfolio companies. You would have to seek to modify that policy to explicitly cover “Raising money for debt and equity investments under SEC Rule 506 and Regulation A, and all related activities.”

Don’t assume that a “standard” policy will cover lawsuits from unhappy investors, for example. Also don’t assume that your insurance agent understands exactly what a Crowdfunding portal does. Sure, the insurance company will sell you the policy and accept the premium, but that’s only the first chapter in the story. The rubber hits the road when you’re sued and submit a claim. That’s a really bad time to find out your coverage is inadequate.

Portals should also consider:

  • Director and officer insurance, which protect the officers, directors, and managers of the entity from claims made on behalf of the entity
  • Fiduciary Liability insurance, which covers misappropriations by employees.

How much insurance should you buy? You’ve got to consider the size of your deals, how many deals you do each year, the amount of the typical investment, and the risk profile of your deals. You’ll find that the first dollar of coverage is the most expensive, while each additional dollar is relatively less expensive.

As anyone who’s been through litigation knows, being sued is very expensive. That’s why it’s critical that your insurance cover not only payment of the actual claims (if you lose or settle), but the cost of defending the claims. Sometimes the costs of defense are subtracted from the policy limits, and therefore effectively erode those limits.

EXAMPLE: Your nominal policy limit is $3 million, but defense costs are subtracted. The carrier spends $350,000 to defend a claim (yes, that’s possible). Now your policy limit is $2,650,000.

Other key points to consider in an insurance policy:

  • Whether the coverage is “occurrence” or “claims made” (the former covers all claims that relate to periods while the coverage was in effect; the latter covers only claims made while the coverage is still in effect)
  • Whether and to what extent the coverage includes “prior acts” (things that happened before the coverage was in effect)
  • The deductibles (the amount you have to pay before the insurance kicks in)
  • Whether you have the right to select legal counsel or must accept the lawyer chosen for you by the insurance company

My colleague, Mark Roderick, spends all his time in Crowdfunding. His email address is mark.roderick@flastergreenberg.com and his direct dial is 856.661.2265. You can also follow his blog at www.crowdfundattny.com or on twitter @CrowdfundAttny.

Questions? Let Mitchell know.

Mitchell Kizner of Flaster Greenberg

Mitchell Kizner is a New Jersey focused attorney in Flaster Greenberg PC’s Litigation and Environmental Law departments. He represents clients in insurance, environmental, construction and other commercial matters as part of his active litigation and commercial law practice. He is also General Counsel to the firm. He can be reached at mitchell.kizner@flastergreenberg.com or 856.382.2247.

Old Liability Insurance Policies Are like Gold When it Comes to Environmental Claims

Policyholders facing environmental cleanup claims should be aware that commercial general liability (CGL) policies and excess liability policies issued before approximately 1986 provide a recognized source of payment for environmental remediation costs in New Jersey. Until 1985-1986, these policies, although purporting to contain a pollution exclusion, actually did, under rulings of the New Jersey Supreme Court and the Appellate
Division of the New Jersey Superior Court, provide coverage for pollution claims. It was not until various dates in 1985 and in 1986 that these liability policies began to include what was or is known as the “absolute” or” total” pollution exclusion, which ended coverage for the cleanup of discharges that began after policies with this exclusion were issued.

Pot of GoldIf an owner, operator or supplier is alleged to be responsible for the cleanup of a contaminated site and the discharge can be shown to have first occurred before the absolute pollution exclusion went into effect, there may continue to be insurance for the cleanup. Because discharges that cause contamination may have occurred long ago, even though the existen of the pollution may not be noticed or discovered until decades later, and because these policies were “occurrence” based, which means that the coverage applies if the contamination occurred prior to or during the coverage period of the policy, these policies can provide protection even now. The key, however, is being able to prove that the coverage existed and applies to the contamination in question.

One key to establishing overage is to locate the policies in question, or to find other evidence of the policies, such as invoices or certificates of insurance. Secondly, there must be scientific testing or eyewitness testimony, and preferably both, to establish that the release of contaminants into the environment began prior or during the last policy located that provides coverage for pollution. While insurance companies will typically deny pollution claims when first made, they ultimately would be forced to pay these claims if properly established. In fact under the New Jersey Rules of Court, the insurance company will usually be required to reimburse the policyholder for its legal fees if the policyholder prevails in a suit to establish coverage.

Questions? Let Mitchell know.

Mitchell Kizner of Flaster Greenberg

Mitchell Kizner is a New Jersey focused attorney in Flaster Greenberg PC’s Litigation and Environmental Law departments. He represents clients in insurance, environmental, construction and other commercial matters as part of his active litigation and commercial law practice. He is also General Counsel to the firm. He can be reached at mitchell.kizner@flastergreenberg.com or 856.382.2247.

Mold Exclusion Does Not bar Coverage for all Claims Alleging Mold

Commercial general liability policies typically exclude injury or damage arising from mold. As a result, insurers often deny coverage whenever an alleged injury is caused in whole, or in part, by mold. Without insurance, the cost of defending the case and paying an ensuing settlement or judgment can be crippling. It is important, therefore, for a close analysis to be made of the allegations made by the claimant before any denial of coverage is accepted by the policyholders.

While mold-related exclusions bar coverage for arising from mold, they do not bar coverage for injury arising from something other than mold. So, if a complaint alleges multiple causes of injury (e.g., mold and water) the insured may be entitled to coverage. The New Jersey Supreme Court has made it clear that when a complaint alleges both potentially covered claims and claims that would fall within a policy’s exclusion, an insurer must defend the potentially covered claims until no potentially covered claim is left in the litigation. Moreover, in New Jersey, unlike other jurisdictions an insurer must consider information outside of the underlying complaint in making its coverage determination. Thus, if information obtained during the discovery process shows that there are also allegations of injury from causes other than mold, that should serve as a basis for coverage. Any such information should promptly be brought to the attention of the insurance company which will then have a reasonable period of time to assess the matter of coverage in light of any non mold-related allegations.

If the insurance company continues to deny coverage, despite allegations of injury caused by something other than mold, a declaratory judgment suit seeking to compel the carrier to provide coverage should be strongly considered. Insurance companies may reflexively deny coverage when allegations of mold are made, but under the law, they should provide a defense if it is alleged that the injury was caused by something in addition to, or instead of, mold.

Questions? Let Mitchell know.

Mitchell Kizner of Flaster Greenberg

Mitchell Kizner is a New Jersey focused attorney in Flaster Greenberg PC’s Litigation and Environmental Law departments. He represents clients in insurance, environmental, construction and other commercial matters as part of his active litigation and commercial law practice. He is also General Counsel to the firm. He can be reached at mitchell.kizner@flastergreenberg.com or 856.382.2247.

New Ruling That There is No Statute of Limitations for Spill Act Suits Does Not Mean That Suits Seeking Damages for Contamination Should Wait

The recent ruling in Morristown Associates v. Grant Oil could lead to the misperception that a suit involving a claim for environmental remediation costs can be filed at any time. In Morristown Associates, the Court ruled that the New Jersey “Spill Act” was not subject to the general six year statute of limitations governing suits for property damage in New Jersey. However, there are still many reasons why such a suit should be filed sooner rather than later.

First, evidence bearing upon whether a party is responsible for an environmental discharge will not last forever. There needs to be testing of the substances that have been discharged so that conclusions may be made as to when the discharge occurred (and, ifat issue, who among several parties may be actually responsible). Often, it is as a result of such “dating” and/or “fingerprinting” of contamination that crucial evidence is obtained which can be used to support a claim. If the contamination degrades over time, the testing that can be performed will become less reliable or even meaningless.

Secondly, the New Jersey courts and federal courts applying New Jersey law apply what is known as the “Entire Controversy Doctrine.” That means that, with certain exceptions, all known claims against adverse parties involving a controversy must be raised in the same litigation or are forever barred. In the case of a suit between a landlord and a tenant respecting the condition of rented property or a suit between a property owner and a supplier or contractor concerning damage to property, claims involving known contamination must be raised in that proceeding or may not be able to be pursued later.

Finally, the Morristown decision involves only claims under the Spill Act. While the Spill Act is an important means of relief for those bringing environmental claims, it only provides recovery for remediation costs and natural resource damages. It has no application to claims of lost profits or other economic damages flowing from an environmental spill. Such claims must be brought under common law theories and these are still subject to the six year statute of limitations.

Questions? Let Mitchell know.

Mitchell Kizner of Flaster Greenberg

Mitchell Kizner is a New Jersey focused attorney in Flaster Greenberg PC’s Litigation and Environmental Law departments. He represents clients in insurance, environmental, construction and other commercial matters as part of his active litigation and commercial law practice. He is also General Counsel to the firm. He can be reached at mitchell.kizner@flastergreenberg.com or 856.382.2247.

Governor Christie is Being Unfairly Attacked for his Stance on Exxon Natural Resource Damages Settlement

business handshakeGovernor Christie has come under attack recently as a result of the agreement by his administration to accept $225 million to settle the State’s natural resource damage claim against Exxon Mobil for the Bayonne and Bayway refinery sites in Bayonne and Linden, New Jersey and other sites owned or operated by Exxon, but that criticism seems essentially unfounded. While it is true that the State sought over $8 billion in damages from Exxon for injury to natural resources associated with the two refineries, such a recovery would have been unprecedented and was based upon economic calculations as to injury which are highly controversial and arguably speculative. Just because billions of damages were demanded does not mean that anything near that sum would have been awarded by the trial judge and survived a lengthy appeals process. The State was unsuccessful in the two natural resource damages suit that it did bring to trial.

The recovery of natural resource damages in New Jersey, a concept which reached its zenith during the leadership of the NJDEP by Bradley Campbell in the McGreevey Administration more than a decade ago, seeks payment from a polluter for monies which are in addition to the cost of cleaning up the contamination. The concept is that the pollution has caused injury to the State’s natural resources and that the State and its citizens should be compensated for that injury. However, the problem with that approach is that often the alleged injury is difficult to discern and may involve damage which is not observable, or of any real world consequence. It was Campbell, whose op-ed piece criticizing the proposed settlement was published in the New York Times, who ignited the current furor.

I have generally advised my clients during the past few years to seek to resolve natural resource issues now before the political winds again blow in the direction of seeking more substantial recoveries for such damages. It remains to be seen whether the fallout from this new controversy involving Exxon Mobil will now cause the pendulum to swing back faster than expected.

Questions? Let Mitchell know.

Mitchell Kizner of Flaster Greenberg

Mitchell Kizner is a New Jersey focused attorney in Flaster Greenberg PC’s Litigation and Environmental Law departments. He represents clients in insurance, environmental, construction and other commercial matters as part of his active litigation and commercial law practice. He is also General Counsel to the firm. He can be reached at mitchell.kizner@flastergreenberg.com or 856.382.2247.