Professional Liability Insurance: A Key Factor In The Post-Sarbanes Arena

Friday, June 1, 2007 - 01:00

Editor: Mr. Standish, would you tell our readers something about your background and professional experience?

Standish: I graduated from Bowdoin College, after which I went to law school at the University of Chicago. I began practicing in Washington, DC in 1986. After three years I left the firm to join the U.S. Attorney's Office in Washington to work in the Civil Division. After that experience I returned to the firm I had left, where I worked until joining Wiley Rein in 1999. I have been here since then.

Editor: How did you come to Wiley Rein? What were the things that attracted you to the firm?

Standish: Wiley Rein has had an extraordinarily strong insurance coverage practice and insurance litigation practice for a very long time. It is well established and recognized all across the country. In the late 1990s the firm was looking to expand into professional liability lines of insurance coverage. Since that was the focus of my work, I saw this as a real opportunity. I talked to the firm and was struck by its entrepreneurial spirit, particularly in the support it gave to lateral partners interested in taking advantage of the opportunities to develop a practice. My impression at the time has turned out to be entirely correct.

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

Standish: I started out my career as a general litigator. Over time, it has become increasingly focused on the representation of insurers in coverage litigation, the resolution of disputes between insurers and their insureds and the resolution of underlying matters against parties that are insured by our clients. The practice is national in scope. Clients retain us because of our background and experience in professional liability insurance coverage issues. We have cases pending all over the country. A significant component of our practice also consists of counseling for clients who are facing issues with respect to either coverage or liability in the underlying litigation that is giving rise to a claim under a policy. We often serve as the insurer's representative in the context of attempting to resolve underlying disputes.

Editor: You are head of the firm's professional liability practice. Would you give us an overview of the practice?

Standish: When I arrived in 1999 there was an existing insurance practice, but I was essentially the only full-time professional liability attorney. The practice has grown. There are now five partners who practice in the professional liability arena on a full-time basis, and three additional partners spend a significant part of their time in the professional liability practice. There are also two of counsel who devote their time exclusively to the practice, and at last count we had about 12 associates who spend all or a substantial portion of their time with us.

Editor: Where does the practice reside?

Standish: We are all in Washington, DC, but, as I say, but we work with clients on litigation matters in state and federal courts all across the country. At the moment, for example, we are engaged in litigation matters in California, Colorado, Delaware, Florida, Illinois, Louisiana, Maryland, Massachusetts, Minnesota, New York, Ohio, Pennsylvania, Texas, Utah, and Virginia.

Editor: Who are the clients?

Standish: We represent a broad range of the insurers who issue professional liability insurance policies. At last count we had fourteen professional liability insurance clients. They include some well established professional liability insurers as well as newer entrants into the field. Among them are Chubb Specialty Insurance, CNA, and XL.

We work with these clients on a variety of matters, including D&O policies issued to corporations, policies for investment advisors and mutual funds, policies that insure banks, lawyers and accountants, fiduciary liability policies, tax opinion liability policies, media professional liability policies, and so on. The range of coverages is pretty broad.

Editor: Would you tell our readers about some of the recent litigation disputes that you have handled for your clients?

Standish: In Gulf Underwriters Insurance Company v. KSI Services, Inc. the Fourth Circuit Court of Appeals affirmed a district court ruling which held that a third party could not recover from the D&O insurance policy our client had issued to an insured title company. An employee at the title company had embezzled money that was maintained in an escrow account on behalf of the third party who filed suit. Subsequently, that third party filed suit against our client claiming that it was entitled to recovery from the D&O policy our client issued. The Fourth Circuit correctly affirmed the district court decision that the "Errors and Omissions" terms of the policy prevented a third party from recovering when the loss resulted from dishonest behavior.

Editor: I gather that much of what you do concerns the fiduciary responsibilities of corporate insiders. What kind of impact has Sarbanes-Oxley - or, rather, the corporate scandals, Sarbanes and the whole regulatory framework that has arisen from it - had on your practice?

Standish: It had an enormous impact over the last few years. As the corporate scandals emerged, we had a substantial number of attorneys engaged in a variety of issues directly connected to what was being portrayed in the press, including Enron and WorldCom. The scandals and the regulatory framework that derived from them have given rise to heightened scrutiny on corporate boards and corporate officers, and that, in turn, has attracted the attention of the plaintiff's bar. All of this has had a very significant effect on our practice, as we work with our clients to develop appropriate strategies to deal with these new challenges.

Editor: At the moment we are seeing considerable criticism being directed against Sarbanes-Oxley for its impact on the competitiveness of American capital markets. Is a similar development underway with respect to corporate governance?

Standish: I have heard some concerns expressed that the requirements imposed by Sarbanes-Oxley are too onerous on corporate management. Companies have had to increase the amount of resources dedicated to risk management and internal controls. There is some thought that Sarbanes-Oxley has imposed costs on corporations well in excess of the measurable benefit to the investing public and to corporate America generally. I think it is possible to make good arguments on both sides.

Editor: In your experience, is corporate America having a problem in recruiting people for board membership?

Standish: The clients we represent who offer professional liability insurance to corporate boards like to think that they can design a product that will encourage capable and qualified individuals to serve on corporate boards. I think they are correct in their belief. However, persons who are approached on serving as directors in such a climate as today's are well advised to carefully review the coverages available to them in this capacity, as the terms and conditions can vary greatly.

Editor: As you know, our publication is directed at general counsel and the members of corporate legal departments. Are there particular insurance issues that we should be calling to their attention at the moment?

Standish: A great deal of attention is being paid to ensure that so-called outside directors, or those who are not affiliated with company management, have appropriate protection and are not risking the loss of personal assets. There is also a focus on a product called A-side coverage, which can add an additional measure of protection in the event of corporate insolvency or bankruptcy. There is also an emphasis in the marketplace on so-called severability issues. Depending on their terms, severability provisions can protect innocent directors and officers from the coverage issues that may derive from the actions of one miscreant with respect to exclusions or other limitations on coverage in the policy.

Editor: What about risk management in general?

Standish: We certainly have seen risk managers focusing on directors and officer's liability insurance and other lines of professional liability insurance, and we have also seen an up-tick in interest from among the members of corporate legal departments. A few years ago, when those of us in the industry would go to conferences, it was rare to find in-house counsel in attendance. Today they are present in growing numbers, and much of their attention is directed at learning about professional liability insurance. My sense is that the brokers who represent the companies and boards in procuring insurance are often working not only with risk management professionals but also with people from the legal department to ensure that the concerns of the company are taken into account in negotiating for the right products.

Editor: What about the future? What are the hot issues that you expect to be handling over the next couple of years?

Standish: We have seen a substantial rise in activity related to options backdating. We have been involved in a large number of lawsuits connected with that development. The other hot areas include lawsuits against those involved in the sub-prime lending industry and in going private transactions. The latter often concerns whether or not the transaction is fair to the shareholders who are being bought out, which often gives rise to claims against the board of the company being acquired as well as the hedge funds attempting to drive the acquisition. We expect these types of cases to continue for the next few years.

Editor: Where would you like to see Wiley Rein's professional liability practice in, say, five years?

Standish: I would be very happy if we continued our strong growth trend and continued to build on the client relationships we enjoy today. I certainly trust that we will be able to continue to have the reputation as one of the preeminent law firms in the field.

Please email the interviewee at dstandish@wileyrein.com with questions about this interview.