Policyholder Perspective : Insurance Lawyer & Attorney : Reed Smith Law Firm : Policyholder Perspective Law Blog : Indemnity, Mergers & Acquisitions

By Paul E. Breene and Mark S. Hersh

When an investigation is commenced by a federal or state government entity, whether by service of a subpoena or by less formal means, a company should have two standard operating procedures: first, hire excellent and experienced counsel to respond to the investigation or subpoena, and second, determine whether insurance coverage may be available to pay for what are frequently significant defense costs that may be incurred in connection with the investigation.

Securing insurance coverage for subpoenas and informal investigations, both civil and criminal, can be an arduous process, but policyholders who plan ahead and know the pitfalls can give themselves a significant advantage in securing timely coverage. Significantly, failing to secure coverage for an investigation can mean that there will be no coverage if the investigation leads to lawsuits or other legal proceedings. The attorneys in Reed Smith's Insurance Recovery Group have extensive experience advising clients on these and related issues.

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Reed Smith partner Tom Marrinson, resident in the firm’s Chicago office, has been advising policyholders about their insurance coverage, and representing them in coverage litigation, for more than 20 years. While Tom’s experience ranges widely, he has literally written the book on insurance coverage for professionals and companies that employ them

Professional Liability Insurance, published by Law Journal Press, is written to appeal to both the neophyte and those with considerable experience in the area of professional liability insurance. The book begins with some of the basics of professional liability insurance (such as, who is a "professional" and what types of services are considered "professional services") and how a professional liability insurance policy is put together, in an attempt to provide a basic background for the more in-depth look that the book takes at some of the other issues confronting those involved in professional liability insurance disputes.

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This post was written by John B. Berringer

It has become routine in the past ten years or so for liability insurance companies to deny insurance coverage for sexual abuse claims, often on the theory that sexual abuse is intentional in nature. Many liability insurance policies commonly adopt the definition of “occurrence” which requires that a claim must arise from an “accident.” Under these policies, whether allegations of sexual abuse are encompassed by the term “accident” will determine whether the abuse claims are covered. 

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This post was written by J. Andrew Moss

The New York Court of Appeals rejected an effort by Continental Casualty Company (CNA) to rescind an excess professional liability (E&O) policy issued to the law firm Pepper Hamilton LLP, in a decision under Pennsylvania law that also affirmed summary judgment in favor of two of the firm’s other excess E&O insurers based on the application of a “prior knowledge” exclusion in their policies. Executive Risk Indemnity Inc. v. Pepper Hamilton LLP, No. 130 (N.Y. Oct. 20, 2009).

The dispute centered on Pepper Hamilton’s work on behalf of the now-defunct Student Finance Corporation, which eventually led to significant litigation against Pepper Hamilton. According to the opinion, in March 2002 Pepper Hamilton and one of its partners learned that SFC and its principal (the now twice convicted Andrew Yao),

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This post was written by John Ellison and Luke Debevec.

On August 13, 2009, the City of Sterling Heights, Michigan received a check from United National Insurance Company for over $15.4 million, satisfying a judgment awarded by the federal district court for the Eastern District of Michigan and upheld on appeal by the Court of Appeals for the Sixth Circuit.  Apart from this payment, United National and Sterling Heights will continue to litigate the amount of additional damages that the Sixth Circuit determined to be due to the City.

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 On June 5, 2009, in response to the appeal filed by Myron Corporation, a New Jersey appellate court held that Atlantic Mutual Insurance Corp. was responsible for Myron’s counsel fees incurred in fending off Atlantic’s Illinois declaratory judgment action pursuant to NJ Rule 4:42-9(a)(6). The coverage dispute centered on defense coverage for numerous cases filed against Myron, alleging that junk faxes sent by Myron violated the Telephone Consumer Protection Act (“TCPA”). Atlantic defended Myron in the cases under a reservation of rights. After the Seventh Circuit ruled that insurance coverage was not available for TCPA claims in an unrelated case [Am. States Ins. Co. v. Capital Assoc. of Jackson County, Inc.], Atlantic decided it was a good time to file a DJ action against Myron in Illinois federal court. 

The problem with this brilliant strategy was that, as the Illinois court wrote, dismissing the case: “a New Jersey court has the greatest interest in resolving an insurance coverage dispute arising from policies which appear to have been issued in New Jersey to a New Jersey corporation with its principal place of business in New Jersey.” Once in the hands of a New Jersey court, Atlantic lost. The court held that Atlantic owed a defense to Myron for the TCPA cases. The parties then settled, except on the issue of whether Myron was entitled to counsel fees for both the New Jersey and Illinois insurance coverage litigations under NJ Rule 4:42-9(a)(6). 

Things didn’t improve for Atlantic on appeal:

We agree with Myron that, unless the insured can recover its counsel fees for out-of-state litigation in this situation, an insurer could wear down the insured financially through forum-shopping. In this case, there is no doubt that Atlantic filed its action in Illinois to take advantage of a favorable Seventh Circuit ruling on coverage. While this may have been good legal strategy from Atlantic's point of view, it imposed costs on Myron to fight its way out of what the Illinois court found was an inappropriate forum, and to get the case back into an appropriate venue.

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This post was written by Douglas R. Widin.

Recently, the Court of Appeals for the Third Circuit decided Nationwide Mutual Insurance v. CPB International, Docket No. 07-4772 (April 14, 2009). CPB supplied chondroitin to Rexall for use in compounding tablets, including chondroitin and glucosamine. CPB supplied two batches of chondroitin that turned out to fall short of contractual specifications and to contain impurities. By the time these defects were discovered, Rexall had already compounded the CPB-supplied material with glucosamine, so that both compounds had become useless.

In the lawsuit that ensued, Rexall brought a claim for breach of contract against CPB seeking return of the purchase price it had paid for the first batch, and also seeking consequential damages for the damage to the glucosamine and economic losses. CPB tendered that claim to its CGL carrier, Nationwide, which defended under a reservation of rights and also brought a declaratory judgment action to avoid any duty to defend or indemnify.

The Third Circuit held in favor of Nationwide and discharged it from any coverage obligations.

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Bloomberg News yesterday carried a report of a court filing alleging that AIG reported a claimant to Homeland Security in order to avoid paying a verdict that now amounts, with interest, to $3 million. 

The worker, Aleksander Janda, was arrested today on charges related to using someone else’s Social Security number, including identity theft, said Helen Peterson, a spokeswoman for Queens District Attorney Richard Brown. In February, Janda won the $2.7 million jury verdict from a property owner for an injury he received after falling 12 feet onto a cement floor while working. In a letter last month, a lawyer for Janda told the judge that AIG contacted Queens prosecutors to get Janda arrested and deported. AIG is the insurer for the property owner.

“It was AIG who contacted the Queens District Attorney’s office and the U.S. Department of Homeland Security in an effort to have the plaintiff arrested on criminal charges and then deported,” the worker’s lawyer, Brett J. Nomberg of Brand Brand Nomberg & Rosenbaum LLP in New York, wrote May 29 to the state court judge in charge of the case, Bernice D. Siegal.

Marie Ali, an AIG spokeswoman, declined to comment.

After the Feb. 17 verdict, the property owner asked the judge to set aside the award and order a new trial, Nomberg said in a phone interview. If Janda is deported, he won’t be able to appear at the new trial, Nomberg said.

Click here for full story.

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