Legal Developments and Risk Management Tips Impacting the Professional Liability Community.
In a recently published article for CLM Magazine, Goldberg Segalla’s Jonathan S. Ziss highlights the best practices for establishing and maintaining an effective attorney-client relationship in a piece entitled, “Representing the Not-for-Profit Board.” Jonathan noted that most of these best practices are most applicable to smaller organizations led by boards mainly comprised of volunteer amateur … Continued
Attorney? Check. CEO? Check. Coverage? Unlikely. Some attorneys wear multiple hats. We have other interests, other business ventures, other opportunities to make a buck. Attorneys are often exposed to other areas of business depending on the nature of their practice. Through their role as counsel, or through other opportunities, some attorneys become more directly involved in non-legal businesses. The more traditional route is to switch to in-house counsel, but sometimes attorneys will go so far as to start a new company. While both are commonplace and not inherently problematic, issues begin to arise when an attorney is both practicing law and working for a company. The blurring of the line between lawyer and business executive not only creates potential conflicts of interest, but may have coverage consequences.
Just like in life, directors must sometimes decide between taking what seems to be an unnecessarily formal route, or simply reaching the inevitable conclusion. Anyone who has spent an entire day putting together IKEA furniture only to finish with a few “leftover” screws can certainly understand that completion is often more important than the path it took to get there. However, the Delaware Chancery Court has made clear that when it comes to director liability, “no harm, no foul” is not the rule of law.
Everything is electronic. Companies are increasingly reliant on electronic processes to obtain and store valuable customer data, confidential, privileged and proprietary information. With that increased reliance comes the increased risk that this information can be compromised. In light of many recent high-profile data breaches, litigation surrounding data and privacy protection is increasing. A side effect of this litigation is the attention now paid to the role of boards of directors in managing and responding to cyber liability risks. Boards concerned about potential liability of its officers and directors can look to two recent sources for guidance on this issue.
It is generally well settled that shareholders may sue a corporation’s board of directors. When business transactions go awry or in the wake of questionable (or certainly fraudulent) business practices shareholders have standing to sue directors and officers under theories of breach of fiduciary duty and the like. But shareholders may have other targets as well. Many corporations rely upon third-party advisors before making corporate decisions. May a shareholder target financial advisors, accountants, attorneys and other third-party professionals in this scenario? A recent decision suggests that shareholders armed with an “aiding and abetting” theory may sue the professional along with the board of directors.
The fallout from the 2007-2010 economic downturn is behind us, right? Nope; not so for the professional malpractice community in light of the many lawsuits arising from the recent market collapse. In fact, lawsuits relating to 2007-10 bank collapses in particular have increased dramatically and the primary targets are executives. According to a February 13, 2014 report which is available here, litigation against directors and officers of failed banks reached an all-time high in 2013. To make matters worse, many of those directors were forced to reach into their own pockets to absorb the costs.
The evolving Jerry Sandusky scandal continues to impact the professional liability community. Most recently, the Middle District of Pennsylvania reached a decision with major implications on the application of D&O – Director’s and Officer’s Insurance. In deciding that Sandusky’s acts occurred outside the scope of his role with the Second Mile even though the conduct occurred during Second Mile events, the court may have also exposed directors and officers to increased risk of personal exposure.