Darren Teshima, Leader of Orrick's Complex Litigation and Dispute Resolution practice, helps clients intelligently manage risk and assert their rights through litigation. To safeguard clients from both anticipated and unforeseen dangers, Darren ensures each client’s litigation strategy and insurance coverage align with its business objectives.
Specializing in the technology and finance sectors, Darren litigates high stakes commercial disputes, focusing on insurance coverage disputes. He has successfully handled litigation related to residential mortgage-backed securities (RMBS), directors & officers (D&O) coverage and cyber insurance for some of the largest data breaches in history. For example, he recently defended Credit Suisse at trial in a case brought by monoline insurer MBIA, one of the few post-financial crisis RMBS cases to go to trial.
Darren also helps clients avoid litigation by crafting innovative strategies that address cutting-edge cyber, data and cryptocurrency concerns; as well as D&O and professional liability. Whether assisting a startup focused on rapid growth, or a global corporation expanding into the digital future, Darren tailors his strategy to each client’s unique business model and objectives.
He has been recognized for his work by Legal 500, which lists Darren as a recommended lawyer in the Insurance: Advice to Policyholders category. Darren has been named a Law360 Rising Star, one of the "Best Lawyers Under 40" by the National Asian Pacific American Bar Association (NAPABA), and is a fellow of the American Bar Foundation.
Darren is also passionate about his pro bono work and community involvement. The Legal Services for Children has given him its Pro Bono Advocate Award twice. His pro bono work includes administrative trials and hearings on behalf of asylum seekers and low-income tenants, and litigation advice to nonprofit organizations. He is the Chair of the board of directors of Asian Americans Advancing Justice | Asian Law Caucus, and serves on the boards of the Center for Gender & Refugee Studies and Legal Services for Children.
Insurers’ recalcitrance to providing coverage for the “Business E-mail Compromise” (BEC) scam is a topic we’ve frequently discussed. On Monday, the Ninth Circuit heard oral argument in a BEC coverage action, Taylor & Lieberman v. Federal Insurance Company.
The fraudster in that case sent spoofed e-mails in 2012 to an accounting firm purporting to be from one of the firm’s clients. At the “client’s” request, the accounting firm executed two wire transfers from the client’s bank account, over which the firm had power of attorney, in amounts just under $100,000 each to banks in Malaysia and Singapore. The firm finally detected the scheme when it called the client for confirmation after receiving a third e-mail requesting another transfer of $128,000 to Malaysia. The accounting firm was able to recover most of the first wire transfer but nothing from the second, resulting in a $100,000 loss to the client’s account, which the firm restored.
“Business E-mail Compromise” (BEC) scams are becoming an increasing concern. The FBI’s most recent report in June 2016 identified a 1,300% increase in reported incidents, reaching 22,000 victims targeted for $3.1 billion. Policyholders victimized by BEC scams should cheer the most recent decision addressing coverage for such scams. In Principle Solutions Group v. Ironshore Indemnity, a federal district court in Georgia ruled on summary judgment that a commercial crime policy covered a BEC scam in which a fraudster deceived a Principle Solutions employee into wiring $1.72 million to an account in China. The court rejected the insurer’s argument that the wire transfer was not directly caused by the BEC scam.
Principle Solutions suffered a hallmark BEC scam. The fraudster sent a spoofed email, purportedly from Principle Solutions’ CEO, to the company’s controller. The spoofed email instructed the controller to work with a specified attorney to wire funds that day for a highly confidential company acquisition. The controller then received an email from the named “attorney” with the wiring instructions. The “attorney” called the controller, representing that the CEO had approved execution of the wire and emphasizing the urgency of the funds transfer.
The controller initiated the necessary steps to execute the transfer that day. She logged into the company’s online account at its financial institution to enable the transfer approval, instructed another employee to create the wire instructions, and approved the wire transfer. The financial institution’s fraud prevention unit flagged the transaction and requested verification of the wire. The controller called the “attorney” to verify how he had received the wire instructions. The “attorney” told her he had received the instructions verbally from the CEO. The controller relayed this information to the financial institution, which then allowed the transaction to proceed.
The company discovered the fraud the next day when the controller told the CEO she had completed the wire transfer. The company immediately reported the fraud but unfortunately could not recover the funds.
Many non-cyber policies include data breach exclusions, but few cases have addressed their scope. In a recent case, a federal district court rejected an insurer’s broad interpretation of the term “data” as it was used in data breach exclusions in a multimedia liability policy. In Ellicott City Cable, the insurer contended that satellite television programming was “data” within the meaning of the exclusions. The court found the term ambiguous, construed the ambiguity against the insurer, and ruled that the underlying lawsuit triggered the insurer’s duty to defend. While the case did not involve a data breach, the decision demonstrates that data breach exclusions should be narrowly construed and also offers helpful guidance about interpreting the term “data” if it is undefined in a policy.
The underlying case involved a distribution arrangement between Ellicott City Cable and DirecTV, whereby Ellicott City Cable distributed satellite television programming to its customers. Apparently Ellicott City Cable was overzealous in serving its customers and allegedly distributed DirecTV’s programming beyond the scope of the contracts. DirecTV sued Ellicott City Cable, alleging that Ellicott City Cable fraudulently obtained and distributed DirecTV’s programming.
In one of the first court decisions to analyze in depth the coverage provided by a cyber policy, a federal judge has found that PF Chang’s policy came up short. Following a 2014 data breach in which hackers accessed and posted online 60,000 credit card numbers belonging to PF Chang’s customers, the company sought coverage under its “CyberSecurity by Chubb” insurance policy. Although PF Chang’s insurer, Federal Insurance Company (“Federal”), agreed to reimburse nearly $1.7 million for customer claims and other breach-related expenses, it refused to reimburse an additional $2 million in fees and assessments levied against P.F. Chang’s by the credit card brands. Last week a federal district judge in Arizona, applying Arizona law, denied PF Chang’s claim for reimbursement and granted summary judgment for Federal. While it held that these fees and assessments fell within the scope of coverage, the court held that the “contractual liability” exclusion barred coverage.
The Eighth Circuit’s decision last Friday in State Bank of Bellingham v. BancInsure, holding that computer systems fraud insurance indeed insures against such fraud, even where employee negligence was a contributing factor, was a positive development for financial institutions as well as any crime insurance policyholder. The Eighth Circuit agreed with the district court that under Minnesota’s concurrent-causation doctrine, the insured could recover under a standard Computer Systems Fraud insuring agreement regardless of whether any excluded peril, i.e., employee negligence, contributed to the loss because the covered peril of computer systems fraud was the “efficient and proximate cause” of the loss.
This week, a Fourth Circuit panel in an unpublished decision validated arguments long made by policyholders: that commercial general liability policies may provide coverage for certain data breach liabilities. In this case, Travelers Indemnity Company v. Portal Healthcare Solutions, the appellate court affirmed the district court’s 2014 ruling that an insurer had the duty to defend a company that provides electronic medical record management services in a class action alleging that the company made patients’ confidential records publicly accessible by posting the records to an unsecured public website.
Your company’s controller receives an email instruction from your CEO to wire funds to complete a time-sensitive and confidential deal–seems like a clear directive to execute, but it’s not. It’s an increasingly common scam known as the “Business E-mail Compromise” (BEC).
Your insurer wrongfully denies coverage—so you file a complaint in court, right? Not so fast! Many new insurance policies now include mandatory arbitration provisions. While at one time arbitration clauses were common only in policies issued by foreign insurers, they are now finding their way into policies issued by domestic insurers and in all types of coverages, including commercial liability insurance policies, D&O, E&O, employment liability, and cyber insurance. While the terms of these clauses vary, to the extent they are enforceable or cannot be negotiated out of the coverage, arbitration provisions close the courthouse doors to insurance disputes and force policyholders and their insurers to resolve disputed issues in private and free from judicial scrutiny. READ MORE
As previously discussed, the question of whether Commercial General Liability (“CGL”) coverage applies to cyber-attacks or data breaches is a hot point of contention between policyholders and insurers. One of our cases to watch in 2015—Zurich American Insurance Company v. Sony Corporation of America—may resolve this question in New York shortly.
On February 25, 2015, a hearing was held in a closely-watched New York appeal involving coverage under CGL policies for privacy claims filed in the wake of a data breach.Zurich American Insurance Company v. Sony Corporation of America is pending in the New York Supreme Court Appellate Division. The Sony parties are represented by Richard DeNatale and Steve Foresta of Orrick’s Insurance group. They are seeking coverage under a clause that appears in all standard CGL policies and covers claims for “publication, in any manner, of material that violates a person’s right of privacy.” The lower court ruled that there was no duty to defend because the alleged publication of information was perpetrated by the hackers rather than by the policyholder. In their appeal, the Sony parties argue that this ruling is contrary to the plain language of the insurance policies. The hearing on February 25 lasted about 30 minutes, with active questioning from the panel of five justices. A decision from the Appellate Division is pending.
Happy New Year! For a sneak peek at the developments the year may bring to the legal landscape for insurance policyholders, here are five cases worth watching in 2015:
- Fluor Corporation v. Superior Court (Hartford Accident and Indemnity Company), No. S205889 (Cal. filed Oct. 10, 2012)
The California Supreme Court likely will issue its long-awaited decision in Fluor and, in doing so, may overturn its controversial 2003 decision concerning the assignment of insurance policies to successor corporations in Henkel Corporation v. Hartford Accident and Indemnity Company, 29 Cal. 4th 934 (2003). If the Court overturns Henkel,California would join the majority of states that permit a successor corporation to recover under the predecessor’s liability insurance policies for pre-assignment liabilities, regardless of a “no-assignment” provision in the policies. The Fluor case has been fully briefed for more than a year, and many California attorneys expected the Court to issue its decision in 2014. In the interim, California Governor Jerry Brown has recently appointed two new justices to the Court, which some commentators believe may push the court in a more liberal direction and could affect the Court’s decision. READ MORE